$70K buy and hold...need help

24 Replies

Any advice on acquiring a potential buy and hold in TN, listed at $70K, rehabbed and currently rented at $775/Mo. What are some potential creative ways to get the property without conventional loan? 

@Jason D.

Ok. I am brand new to this brother. So forgive the idiotic questions but after a ‘near asking’ price what would be a way I could sweeten the deal and get financing from owner?

I appreciate the input!

@Justin Tippens I've never done owner financing, so I'm just regurgitating what I have learned about it.

The near asking price would be the advantage to the seller. Seller financing is really a feeling out process. Most sellers won't go for it or just have no idea about it. It would be in your best interest to learn as much as you can, so you can teach the seller the advantages of seller financing.

Originally posted by @Justin Tippens :

@Jason D.

Ok. I am brand new to this brother. So forgive the idiotic questions but after a ‘near asking’ price what would be a way I could sweeten the deal and get financing from owner?

I appreciate the input!

Come in with a decent down payment. Many owners flat out can't afford to owner finance. If you're lucky enough to find one who will, they need reassurance that you're good for the money and that you have some skin in the game. Offer a good sized down payment, offer asking (assuming the market justifies the asking price) and let them know how long you need to get your own financing established. Usually 2-5 years is typical. 

 

Originally posted by @Justin Tippens :

@Ashly B.

Awesome! Thanks.

In your opinion/experience, what would a ‘good’ down payment be on this price assuming it is a justified asking...

$10k would make me really confident you know what you're doing and can close the deal. I would probably consider $5-7k depending on my need/want to sell and the length of the agreement - ie less would be ok for 12-24 months. 

 

If you can find out their motivation for selling then that will help you solve their problem. That is where I would start if I were you .

@Justin Tippens it’s all math.....

775*12=9300

9300/70000= 13.2 % ROI

Say you put down 5K 14.3% ROI

If you go conventional loan and you get a 6% interest rate It will leave you 8.3% . In your pocket. As long as you keep a positive ROI you are golden. You can pay it off in no time.

@Guifre Mora you calculate ROI with net cash flow, not gross cash flow. At $775 rent and $70K this house isn't going to net much of anything and the return will be in the low single digits. Wouldn't touch this house personally.

Your parents have 70k in retirement account can loan you? Give them a better interest then whatever it is now.

@Justin Tippens 1st off I would not buy it, 70k with only $775, its only about 6.- 7 % net cap. 2ND I am not sure I understand, what do you mean 

"What are some potential creative ways to get the property without conventional loan? " CASH, OR HML, then refi

Good luck 

@Guifre Mora   your numbers are way off. those are GROSS numbers .  Who cares about gross, cant pay your bills with  gross #s . Net is more like $4500, which  about 6- 7% assuming taxes are 2kish, not a good deal for an Out of state investor. 

Good luck 

@Justin Tippens the problem isn't so much the gross return as a lot of "I can do better than you" posters are claiming . Even the net considering a 40% expense ratio, as is conservatively normal for a SFR, is profitable. The problem is that most investors aren't going to sell a marginally profitable investment despite the fact that returns aren't "optimized". It's still profitable against the cost of borrowed money assuming it's a non-depreciating asset. So my biggest concern would be the quality of the current tenant and the tenant pool of that market in general. I'm guessing the average monthly return of that market, at that price, with the normal tenant pool isn't $775 with area specific attendant issues that would significantly lower the net.

@Justin Delahoyde you could get wild, move to TN and move in. With a conventional loan you're only putting 5% down. WIth FHA you can have a lower credit score and only put 3% down. Seems like this is totally out of the question, but something you might consider for your home market if financing is an issue!

@Justin Tippens

If you go for owner financing make sure you illustrate why it will benefit the owner. Make sure they understand no more dealing with the renter. No more repairs. No more hassle. Really harp on that. Also, find out why they are selling. They might just want to move and don’t have a good property manager so in their mind they can’t maintain the property, so they just might owner finance knowing all they do is collect a check. One more thing with owner financing is refinancing in about a year or two. It shouldn’t be too hard but call some backs and ask. By two years you’ll be considered a stable landlord and you have your rental rates steady. With your job and rental income saved, you’ll be able to do a decent down payment then refinance the house in a loan. Make it sound appealing, you’re selling your trustworthiness to the owners.

My last 2 owner finance deals were 6% interest only, with 20% down.  Gives the seller some income, and helped me with lower payments.  I paid full price in an appreciating beach-side market.