owner will carry on five homes...

Buying & Selling Real Estate
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owner will carry on five homes...

Arcinio Arauz
Wholesaler · Atwater, CA · Member since 2013 · 161 posts · 27 votes

I went for a revisit and coffee session today .After some time, her homes came up for conversation.
Here's the break down....

Five homes free and clear,
owner 82 years old/ daughter 55 years old
Income cashflow:$3025 per month
Expenses (taxes/insur): $890 per month
Current market value: $350K
Repairs: none, all homes have long term tenants and need nothing at this point

So she asked what I thought about the homes and what I planned to do if I bought them. I honestly told her I would like to keep them long term as income and for my kids in the future. I then told her what the market values were and she grimaced, stating that she would rather die versus selling them for current market price ($350K). So then I remembered reading that Jack Miller says its ok to pay more as long as the terms work out. So I presented to her that I can buy them for her asking price of 600K only if she carries paper. She asked how much I wanted to put down and I told her I had my money tied up. So said " no problem can you make balloon payments on the down".
She's willing to carry the whole package deal with nothing down. She'll get $2,070 a month for 30 years with 1.75%.
She mentioned that the interest is low and she normally would ask for 7% and that in 30 years she or her daughter won't be alive. She has no other heirs nor wants to give to any charities. She mentions a 15 year note. So I figure I would present to her again the fact that she'll collect 2k a month and every five years I can give her a 25K balloon payment for the 100k she wanted down. She liked that idea but then asked about the closing cost and 3.5% state taxes she'll pay on the sale of each home. I told her I'll go to title and get an exact amount to close and inquire on how to divert those taxes. I think if I cover the closing and work some way for her not to pay the taxes...she'll move on the deal. She is not interested in a lease option as she stated that if she sells, she wants title to transfer, get away from paying taxes and insurance and carry the paper.
We so are close to making this deal... I just need some help on the lose ends. We'll meet again soon.

What if she mentions that 7% interest rate again?

What if she mentions the " we won't be around in 30 years again"?

Is there any way to get away from her paying those taxes to the state?

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John HornerPro Member
Flipper/Rehabber · Columbus, OH · Member since 2013 · 1k+ posts · 655 votes
13y

There's an old saying, "If you wouldn't let your grandmother sign that deal, it's probably not ethical".

Ok, I totally made that up, but it's true.

Sounds like you're banking on the 82 yo passing to come out on top. What if the 55 yo takes over and wants everything to go to charity. You're out $100k and STILL HAVE NO EQUITY.

Bad deal. Bad business.

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  • Rick H.
    Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    13y

    Sometimes sellers aren't really sellers. They are people looking for a social outlet among others interested in real estate (or listening to their problems, etc.).

    As I've never been known for my patience (ask my GF, my former wife, et al) I can't give you the "have patience" pep talk with a straight face, however, I can suggest that, if you think it might be worthwhile, you could use 'soggy paper' and/or additional personal property as an equity stretcher.

    Soggy paper, as its name suggests, would provide the seller a note or series of notes that would be difficult to liquidate in the private money arena should they wish to sell the note(s) prior to reaching term.

    This is where I AM patient: seller-turned-note holder (or heirs) must now negotiate with me and deal with a formidable discount to sell the note. Lesson: the profit is on the back end.

    0Reply
  • Jackie Lange
    Investor · Central America, Panama · Member since 2010 · 423 posts · 293 votes
    13y

    Arcinio

    At this point, you have polluted what could have been an opportunity.

    AFter talking about a $600k sales price, she won't settle for anything less

    After talking about a $100k down payment, she won't settle for anything less

    But these numbers are WAY tooooo high.

    If you can't sell this deal to another investor, then it is a very poorly structured offer. No one who knows that they are doing would do this deal.

    And she does have an heir, a 55 year old daughter who would love to get those payments from you and would be glad to foreclose if you don't make the payments.

    At this point, after so many conversations with the old lady, your only way to save face is to say that you just can't BUY the houses right now but you would be glad to lease them with an option to buy later. Keep in mind that an option for $600k is totally worthless and you will never be able to exercise at that price. So you could forget the option all together.

    A master lease really limits your exit strategies, But it is the only thing you can do to try to squeeze a little, VERY LITTLE, profit from these deals. The cash flow is terrible.

    Remember, there will be vacancies, there will be repairs, there will be taxes and insurance, the water heater will leak, there might be termites, there could be foundation problems, the list goes on and on and on.

    If you OWN the house, you get to pay for all that stuff

    If you lease the house, you do not have to pay for any of it.

    Since you are new, it would be much safer for you to just lease the houses. It is much easier to get out of a lease than it is to get out of a deed of trust or seller financed mortgage.

    God gave you two ears and one mouth. This is so you would listen twice as much as you talk.

    Instead of making offers with crazy high numbers, it is much better to spend a lot of time listening to the seller's motivation for selling (if there is one). Only then can you come up with a reasonable solution that works for both of you.

    This lady has a lot of property. She didn't accumulate it by paying more than twice what properties are worth and offering extremely high down payments.

    Just because she is 82 and just because the houses are free and clear, it does not mean it is a motivated seller situation.

    Unfortunately, now, even if you talk to her when she is 83 or 84, she will want the same prices you have talked about already.

    The only thing you could possibly do is master lease or manage these properties. DO NOT offer any money down.

    0Reply
  • Aaron Mazzrillo
    Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
    13y
    Originally posted by Arcinio Arauz:

    Yes she wants way too much for her homes, yes the balloon payments are crazy and her rental income versus expenses is out of wack also. I wanted to play dumb but I'm really not. I was born at night but not last night.

    You sure did tell us, but have you told for?

    I like what Rick said about soggy paper. There are some great clauses you can stick in there to make that paper worthless to anyone but her. However, unless she were in the hospital with tubes hanging out of her, I wouldn't pay double just to do a no money down seller financed deal. And there ain't no such thing as a house that doesn't need any work, especially one with a tenant in it. I built a 3,000 sq/ft house from the ground up and I put so much money into that stupid thing every year just to keep it standing.

    You're a fan of Jacks so maybe you're also a fan of Peter F. Do you know about his story with the woman in Boston and the life estate he gave her? You ought to hear it before you think you're going to get some big discount in a few years due to a death.

    0Reply
  • Mike HurneyPro Member
    Real Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 542 votes
    13y

    Aaron Mazzrillo
    "Originally posted by Arcinio Arauz:

    Yes she wants way too much for her homes, yes the balloon payments are crazy and her rental income versus expenses is out of wack also. I wanted to play dumb but I'm really not. I was born at night but not last night."
    You sure did tell us, but have you told for?

    Sometimes I'm guilty of putting this kind of heat out. Mainly because it happened to me and I don't want to see someone else make that mistake.

    0Reply
  • Mike HurneyPro Member
    Real Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 542 votes
    13y

    K. Marie Poe
    "I'd bet money that the seller won't sell before she dies. I've talked to people like your seller hundreds of time. Long time landlords don't sell because they are tired. They sell when they have to or when they have a plan for the money. However, they do love talking about the idea of selling, especially if it will keep you on the phone or get you to visit with them. "
    Happened to me many times...
    Now, when I can smell a "curb-kicker" (in about 5 minutes) I refer them to a Wholesaler I know that offers about 19 cents on the dollar. If they call me back, I look real good;-)

    Rick Harmon
    "Sometimes sellers aren't really sellers. They are people looking for a social outlet among others interested in real estate (or listening to their problems, etc.). "
    You got it!

    1Reply
  • James H.
    Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
    13y

    This is not a good deal. Maybe a 0 percent loan amortized over 60 years with no balloon would make up for paying 70% over market. But YOU might not live another 60 years! haha!

    AS far a heirs, there are always heirs hanging out in the woodworks just waiting for their wealthy relatives to kick the bucket.

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  • James H.
    Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
    13y

    Here is a strategy:

    Get her to agree to a 75 year term. This way you die before the loan is paid. Think of all the money you will save!

    0Reply
  • Paul Sorgi
    Real Estate Investor · Abington, MA · Member since 2011 · 356 posts · 114 votes
    13y
    This is the reason I post here...to get feedback. Your feedback has always been constant with what I was already thinking but just wanted to see if there any other possible solutions.
    Yes she wants way too much for her homes, yes the balloon payments are crazy and her rental income versus expenses is out of wack also. So far nobody has come up with alternatives though. I wanted to play dumb but I'm really not. I was born at night but not last night. I through this out to see if anyone can come up with a better plan. One positive aspect is that the owner is willing to listen and open to options that work for both of us. Just need help figuring it out. Thanks for reading.

    Arcinio Arauz you presented your numbers and people gave many solutions to your presentation and "No Deal" was the winner.

    What do you think your next step is?

    I would just go work on finding a deal worth doing.

    0Reply
  • Arcinio Arauz
    OP
    Wholesaler · Atwater, CA · Member since 2013 · 161 posts · 27 votes
    13y
    Originally posted by Paul Sorgi:

    After some consideration and another revisit I came up with something that worked. What about buying two of her homes for now? I picked out her two best homes and agreed to a 150K price tag. 6% on a 30 year note, nothing down whatsoever, no balloons, I cover all of closing and help her plow a field she owns. My payments are $899.33, expenses are about $400 per month (taxes, insur &other).
    Rents are $1850, and after I pay her and pay expenses, I'm left with $550.

    Solution: I offered to buy two homes versus all five telling her I could not afford the five on terms at that price. I just kept and being a friend to her and she eventually agreed to the terms and price. A major difference in the 600K price tag for all five.
    I think she felt sorry for me , I don't know. Bingo anyways.
    The point I want to stress if that many of you were advising me to run and get out of dodge "no deal" I don't believe in running from deals unless there is absolutely no other option. If I would have ran away then what? Nothing. Persistence and rethinking pays off. I often tell myself.....think, think, think, think hard. Like the old saying goes, "where's there'a will, there is way"! Not to mention that on some deals I over thought and tried to make something out of nothing. Thus, we must be cognizant to evaluate which deals to rethink and which to walk form. I've walked on some but I'm glad I didn't walk on this one.

    0Reply
  • Brian P.
    Wholesaler · Salt Lake City, UT · Member since 2009 · 1k+ posts · 401 votes
    13y

    I agree with the others that it is time to back off, she is a lot sharper at this point then you are. I have been there and done that. Once I gave a life estate to a woman that was on her deathbed in the hospital and the doctors prognosis was 6 or 7 months. well she was 68 and I got to send her a happy birthday card on her 90Th birthday and was looking toward sending her many more when she got hit by a kid speeding through the neighborhood. Never did that again but thank god it was located in an area that just kept climbing in value and I still saw a profit. And remember she can be dead in 10 years but things happen and you may already be in the ground occupying your afterlife estate.

    One of your things you should do when your playing the terms game is learn about 15 years no interest financing. I can pay more then market by giving them 10% down and 1/2% per month for 90 months and then when they say where is the interest I tell them I not asking for a loan I am paying you for your equity monthly and in return you are getting more then your house is worth. It is a tool I use when the situation seems to call for it, and I'm ready to walk.

    0Reply
  • Aaron Mazzrillo
    Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
    13y
    Originally posted by Mike Hurney:

    Sometimes I'm guilty of putting this kind of heat out. Mainly because it happened to me and I don't want to see someone else make that mistake.

    Sometimes the truth hurts, but better to have the feelings stung a little bit than to make a huge disastrous financial mistake.

    0Reply
  • Troy Fisher
    Specialist · Kirkland, WA · Member since 2013 · 1k+ posts · 817 votes
    13y
    Originally posted by Arcinio Arauz:
    Originally posted by Paul Sorgi:

    After some consideration and another revisit I came up with something that worked. What about buying two of her homes for now? I picked out her two best homes and agreed to a 150K price tag. 6% on a 30 year note, nothing down whatsoever, no balloons, I cover all of closing and help her plow a field she owns. My payments are $899.33, expenses are about $400 per month (taxes, insur &other).
    Rents are $1850, and after I pay her and pay expenses, I'm left with $550.

    1850 / 2 = $925/mo (re: 50% rule!)
    $925 - $900 - $400 = -$375/mo.

    Sure I over simplified because ins/taxes are included in the $925 of the 50% rule. But even then $25/mo seems like a scary proposition if someone vacates the house for a month.


    Solution: I offered to buy two homes versus all five telling her I could not afford the five on terms at that price. I just kept and being a friend to her and she eventually agreed to the terms and price. A major difference in the 600K price tag for all five.

    Its not you are paying more! 5 @ 600 is $120/house. That's an extra 60k you are paying!


    I think she felt sorry for me , I don't know. Bingo anyways.

    I feel sorry for you too. This woman is taking you to the bank, and making you feel like she's looking out for your best interest. Maybe ill hire her to buy my next house! Hahaha!


    The point I want to stress if that many of you were advising me to run and get out of dodge "no deal" I don't believe in running from deals unless there is absolutely no other option. If I would have ran away then what? Nothing. Persistence and rethinking pays off. I often tell myself.....think, think, think, think hard. Like the old saying goes, "where's there'a will, there is way"! Not to mention that on some deals I over thought and tried to make something out of nothing. Thus, we must be cognizant to evaluate which deals to rethink and which to walk form. I've walked on some but I'm glad I didn't walk on this one.

    I wonder, now you have to plow her field? Are you just trying to get the "enough replies" award because this scenario, and your responses to the help offered sure are, umm, questionable?

    Of course calling us blind for not trying to find an upside on this deal is two sided because you seem blinded to the fact the you are getting OWC no $$ down deal but not seeing the back end. A roof repair will set you back $10k and wipe out profit on this deal for years.

    0Reply
  • Arcinio Arauz
    OP
    Wholesaler · Atwater, CA · Member since 2013 · 161 posts · 27 votes
    13y

    Thanks to all for your admonition. I am not offended in any way. I take it as friends just trying to look out for a friend. Be honest though.. Is not my last negotiation a better one with her? She'll sell two for 150K, 0 down 6% on a 30 year note. After all expenses, I'm left with about $500 in cash per month.

    Troy Fisher:
    I must have forgot to mention that the homes need NO repairs. She just completed a new roof, carpet, stucco, paint, floors and kitchens in the two I may buy from her. Also, both have long term tenants (7 and 13 years) that eventually would like to buy the homes. Thanks again.

    0Reply
  • Troy Fisher
    Specialist · Kirkland, WA · Member since 2013 · 1k+ posts · 817 votes
    13y

    Furnaces replaced? Plumbing inspected and certified? Carpets/flooring recently replaced? Again, I think the point that most of us are trying to illustrate is that the expenses haven't all been accounted for.

    And then is she selling each for $75k, or each for $150k? at $75k it might be the deal, but at $150 the numbers are falling apart. I always need a devils advocate to help me evaluate a deal.

    0Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    13y

    Are the houses $150K each or $75K each? I thought the seller said she would die before selling for less than $120K each. Is she dead?

    In the original post the seller had 5 houses that were grossing about $3K. Now she has two houses that are grossing $925 each? That means the other houses are renting for less than $400 each. What's up with the numbers? Have you seen evidence that she has a lease with the current tenants of the two houses you are buying and/or for how long she has been collecting $925? Or is that your hopeful number?

    1Reply
  • Arcinio Arauz
    OP
    Wholesaler · Atwater, CA · Member since 2013 · 161 posts · 27 votes
    13y

    I offered my help with things she needed done around her ranch.
    She and her daughter call me when they need something beyond their capabilities. They always offer to pay me but I decline. It's small stuff. I wholesaled one of their burnt homes for 18k. As a result we became friends. So I guess she just changed her mind on selling me two of her home for only 75k versus 120K. I also remember her telling me she would not carry. Then she says she'll carry only for me. Go figure. Either way, If I do a deal with them, I think it would be in my best interest to get her daughter to sign off on everything as well with their attorney. As I have heard stories of people doing deals with the elderly only to be accused of taking advantage of them. Also, she just increased rents on the two homes. They were renting for $850. She upped the rents due the remodels. As far as her other homes...they all don't produce much of cash flow. One house she rents for $400 per month when she should be collecting at least $700. i asked her why she rented it so low...she said because the tenant was 100 years old! To be honest I most likely won't move forward on this deal. There are too many "unseen" things. HVAC, pluming, tenant leases, and so. Also.... I may end up moving out of the area and may not have anyone to help manage them.

    0Reply
  • David Doyle
    Investor · Monrovia, CA · Member since 2012 · 219 posts · 79 votes
    13y

    Dear Arcinio

    You've just heard from the best of the best.,,

    Youve even heard fron the not so teenage Ninja Turtle investors,,,,

    The teachers teachers,,,,the [yeah I hate to use the word,,,] Gurus Gurus,,,,

    This deal stinks on ice,,,,

    I repeat for emphasize ,,,,

    This deal stinks on ice,,,,

    Make the offer you want without down payment balloons,,

    Make an offer that makes sense to you and see how high she jumps,,,

    Its a good try,,,make you offer and if she doesnt like it move on,,,also;

    Track this deal and see how much she ultimatly sells for,,,

    There are many fish in the sea and you just didnt fall off the cabbage truck,,,

    let some other poor pendejo buy this crappy deal,,,,

    Um Abrazo

    Dave Doyle

    Monrovia Calif

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