Rental Property Investor · Hattiesburg, MS · Member since 2012 · 49 posts · 42 votes
Hello,
My first post here. I have been very pleased with the discussions I have seen on this site. I am a part time investor with 11 SFH and 1 duplex. I made an offer on a set of 4 houses for $154,000. Seller rejected offer and refused to counter, says I was too low. He has them listed for $204,000. Gross rent on the four is $2900/month.
I have private money lender in place who will give me loan for full purchase price at 5% interest only with a 5 year balloon. I think the FMV of the houses is probably $180,000. With the nothing out of pocket on the purchase, giving me an infinate cash on cash return. I estimate net profit here of $1000-1200 a month after interest only mortgage payment.
I am tempted to pay what it takes to get this deal done, up to $180,000. Am I missing something here?
SFR Investor · Orange County, CA · Member since 2009 · 1k+ posts · 1k+ votes
14y
If FMV is $180k, why would the seller let you have them for $154k???
How high should your offer be? Not a penny higher than what they're worth to YOU. Is your plan to hold them? Here in SoCal, $2,900 rent for $200k in property is a killer deal.
SFR Investor · Orange County, CA · Member since 2009 · 1k+ posts · 1k+ votes
14y
If FMV is $180k, why would the seller let you have them for $154k???
How high should your offer be? Not a penny higher than what they're worth to YOU. Is your plan to hold them? Here in SoCal, $2,900 rent for $200k in property is a killer deal.
Investor · Chicago, IL · Member since 2011 · 80 posts · 21 votes
14y
Will you be able to refi within 5 years at terms that still make the deal work for you? If so, then I say jump on it. And if you don't want it, send it my way!
Rental Property Investor · Hattiesburg, MS · Member since 2012 · 49 posts · 42 votes
14y
Mitch,
Fair point regarding FMV. Let me expain futher. Value is hard to pin down and 3 of four houses need new roofs, 2 of four need some foundation work, all four need major cosemtic work.
I put in a low offer because with private lendor I am willing to waive an appriasal and inspection. I think if seller is relying on a purchaser needing a bank loan the condition of the properties could cause issues. I am hoping my ability to close quickly and with no contingencies may cause seller to accept a lower offer.
Investor · Syracuse, NY · Member since 2010 · 165 posts · 75 votes
14y
Sounds like 3 new roofs, 2 foundation jobs and cosmetic work is alot of work to do. That is a substantial amount of repair money needed and I would expect a major discount to even deal with that much repairs. How long have these been on market?
Investor · Milwaukee, WI · Member since 2010 · 42 posts · 25 votes
14y
Hey Ward,
Make an offer that works for you. You mentioned the FMV is $180k but is that in its current condition? The brief description of repairs you listed may be expensive.... Foundations where I am located can be very expensive to fix and it will need to get done to sell it someone who is seeking financing.
Sounds like you may be looking to buy and hold. Cool. Do all the necessary repairs upfront to operate these properties. Numbers look pretty good but deferred maintenance will not treat you well in the end.
Asking price is irrelevant. If you are looking to buy and hold you need to have an idea of what the costs are to get the properties up and running (roof, cosmetics etc....) when making your offer.
Ask yourself what are you going to do if your circumstances change or if at the end of five years the interest payment is higher than you were counting on (it will most likely will be). What is your exit strategy? What are other landlords/buyers paying for similar type properties?
Most importantly what ROI are you looking for?
I know that is kinda broad but its difficult to tell what your offer should be.
Does it fit your strategy, goals, threshold... etc..? If it does go for it.
Does your offer fit with your current RE holdings?
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
14y
I second Mike J's post. That private money lender has to be a relative. My aunt does some for me and I thought she was overly generous (7% and 3 pts). But your lender is absolutely amazing.
I'd still pass on that deal though. Why pay FMV if it needs a bunch of repairs too. You shouldn't be paying anywhere near FMV in this market - particularly if you can pay cash.
My guess is your private lender will do 4 individual houses as well and I'm sure they would be even happier to be the note holder at 70% LTV versus 100% LTV - even moreso given that the 100% LTV deal would require some pricey repairs (roofs and foundation).
Rental Property Investor · Hattiesburg, MS · Member since 2012 · 49 posts · 42 votes
14y
I appreciate the comments. Let me add some more details. I think when renovated, the houses are worth about $60,000 each in this market. I think I am going to be able to get then under contract for between $40K - 45k each. I am estimating about 7500 in repairs per house, which keeps me below after repaired market value. All four have long term tenants who have indicated they want to stay. My plan is to let them stay and renovate each one when we have a change over in tenant.
This is my first time using a private lender and I agree the terms are great. Let me explain how I fell into this. I currenlty have 12 houses. I have one on 30 year Freddie Mac loan, I have five with a bnak in house portfolio loan, 15 year am, 5 year balloon at 5%, and 2 more on a 15 year adjustable, which is currently at 5.5%. I have two more on a HELOC that I plan to get either bank financing or private financing for to free up my HELOC. My private lender is a friend/mentor who owns several hundred paid for units. I ran into him after he had just renewed a few large CDS and was complaing about the 1% rate of return he was gettting a long term CD. I decided at that point to approach him with with a win-win idea. Loan me the money for 5 years and I will pay you 5 times what your are getting from the bank. He reviewed my business plan for these agreed to do it.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
14y
Again, If they'd be worth 60k apiece and you'd be all in at 52k (45 plus 7 for repairs), that still doesn't seem like much of a discount. I would think you could get "all in" to a house at least at 75% or better - especially given the fact that you're paying cash.
Count your lucky starts you found a private investor like that. And I'd be doing everything I could to find some deals with money that cheap and easy.
Good luck - although it doesn't seem like you'll need much after finding him. :-)