I have a seller that's willing to strike a deal with us; however, I am trying to structure it so that it will be a win-win, any and all advice would be appreciated.
The property is in great condition, worth around 140k, and currently is leased at $750 a month. The resident is a friend of the owner, and the owner has leased to them around $400 under market value for rent ($1150-1200). The owner has turned down my offer of 91k, and is only willing to accept 100k for the property, which I think in it's current condition, 100k is doable. There are hedge funds buying in this area that will buy properties close to retail, and other investors that will buy based off of the 1% rule, since it is in a great area with good desired schools. So I am confident that we would be able to wholesale it, even if only for a nominal fee; the only issue is that the lease maturity date is for July of next year.
This is what is holding me back from buying it as a rental, because my PML payment would be 600/month+ on a 100k note, adding in insurance and taxes, it would be cash neutral at best, more likely to have negative cash flow.
My options that I have seen so far are as follows:
1. Lock it up at 100k, and market it, try to sell it without needing to do multiple inspections as the owner has mentioned that they do not want to do that to their friend. I am shy on this one, because of the owner being pretty savvy and not sure how he would feel about me wholesaling it/meeting over there multiple times.
2. Buy it as a rental, be cash neutral or negative for the next 9 months, opening myself up to have to put money into it for maintenance and cap ex items that could come about, to then re-rent it in August of next year and finally have a performing asset. What I am also contending with here is the refinance would take longer, because I am assuming my banker would want to see it leased for closer to market, not sure though if that plays a factor?
3. Try to structure some sort of purchase agreement that states that we will buy the property next July (I would really like to lock this up now if at all possible), but who knows what the market may be like 8 months from now, and what would be a rebuttal back if the owner states that they would just rather wait closer until the time and get something in writing then?
4. Would seller financing work here?
I know that is quite a bit, but if anyone has gotten through this and has some advice please share.
So one thing keeps coming to mind I've read is as you analyze the property and found numbers that work, don't bend yourself backwards and tweak the numbers to try and get a deal done!
There will be other deals if the numbers work at 91k that is what they work at, if they work at 100k too then there is potential! You could always inquire about seller financing knowing they would probably want a balloon payment in 3-5 years.
My best answer back is would buying the property with likelihood of being cash neutral /negative be a good idea when you could find a different property with that money to be flowing positive?
Keep us posted on how it goes!