Motivated seller wants to sell his investment property, now what?

[Naga A.]

An acquitance of mine wants to sell his investment property to me because he is going through a divorce and wants to get rid of it quickly.

Using the 2 % rule, I am thinking of offerring him $50,000 minus any repair costs, which he probably will accept. According to the data of similar houses that recently sold in that area with Zillow and Home.com, the comp is around $75,000. It is a tenant occupied. The current rent is $1000 (according to rentometor, it is reasonable).

Now, I never bought a property from an individual and do not know the area well (Riverview, FL).

What the due diligence should I go through? Any advice as to buying a house from an individual would be appreciated.

Thanks,

Naga

[J Scott]

First, since you plan to buy-and-hold, you need to be absolutely certain of the market rents in the area. Rentometer isn't going to be a reliable estimator -- you need to either talk to a local property manager who would be familiar with rents or do an analysis yourself.

Next, make sure that you have a good grasp of the rehab costs. Take into account any deferred maintenance and near-term capital costs, along with the basic repair items.

You will want to verify the credentials of the renter that is currently in the unit, especially if his lease has a good bit of time left. Has he been paying on time? Does he have a decent credit history? Has he had any issues or caused any issues? Basically, you'll probably want to screen him just like you would a new tenant.

While the 2% rule should keep you out of trouble, having a better grasp of your numbers is important. What are your actual estimated expenses and costs based on actual taxes, insurance, local vacancy rates, PM fees, etc? Also, make sure you know your financing terms and numbers as that will have a large impact on your actual ability to turn a profit.

As for the contract details, I would suggest using a state sales contract, a reputable closing company (who can guide you through the process), and make sure you get owner's title insurance.