Creative or absurd?

Question

I have a unique opportunity on an off-market property. Older home in south St Pete that's just a 2/2 1193sq ft with a 2-story building in back that has 1 studio apartment. The owner's husband passed 3yrs ago and her son is in very poor health (living with her). She's finally accepting that she can't maintain the property but doesn't want to list it. I was thinking about owner financing. She's currently thinking she can get $350 based on comps, but in reality, the home needs at least $100k in repairs, but could appraise at over $400 if converted to a 3/2 and the studio was brought up to code. My cash offer currently stands at $165k, but I'm thinking about offering her $200k with 10% down, 90% owner financed @ 3% over 30yr, with a 5yr balloon. A quick reno on the studio and renting it would cover the payment and utilities and a 9-12 month reno on the main property would then have a carrying cost of about $35k depending on the taxes.
Does this sound like a realistic offer? I know 'reasonable' is dependent on the motivation (buyer & seller), but I'd like to know if I'm on track or totally bonkers.

Joe Villeneuve · Answer

Yes, but the success of it depends almost entirely on how you present it.  Your presentation must have a cover page with a table that shows the number comparison between a cash offer and a seller finance offer.  Make sure you show the tax issues, and the ultimate total income she would bake with the added interest she would be getting.

There are three things I would change in your offer though:

1 - Increase your offer to 2102 - Increase the balloon to 10 years (this will add to the profit for her...and you)3 - Make the offer from a stand alone LLC.

After/if she accepts, hold the property for as long as it takes for the CF to recover your DP, then sell the LLC (not the property, the LLC) to another investor for $40k.

Joe Villeneuve · Answer

The list is long:

1 - Not selling RE, selling a business2 - Buyer of LLC inherits my terms, so they get the same cash flow I'm getting3 - See #2 above, and the new buyer doesn't need financing, of any kind.4 - No loan, dramatically reduced closing costs.5 - Terms agreed to based on what works for buyer of LLC and seller of LLC.  There are no lenders involved, so there are no lenders setting any terms.6 -...and more.

Greg Appelt · Answer

Thank you for the response Joe.  I'm pushing hard on the 70% or ARV minus estimated repairs.  I may see if she is willing to go with $210k if an appraisal comes in over $445k.  I believe with having a second rental it could, compared to the SFH that have sold near it in the $350-$375 range.  I definitely like the idea of a 10yr balloon with the additional interest payments to her being a selling point.

Ryan Lesley · Answer

hey @Greg Appelt,

to add to what Jeff said, finding out what her needs are financially is would be your best bet so you can best craft her offer. It may be a certain amount of upfront cash now with a certain amount of monthly payments that she would need that would make her happy. taking those numbers and working backwards is what I would suggest.

Jacob Trogan · Answer

Have a similar situation with a contract for deed that we created, would love to talk a bit more on this LLC strategy

Joe Villeneuve · Answer

Of course this is just a quick outline of it, and the reasons, details of why this works so well for all involved, etc...isn't mentioned here, but I'm sure if you think about this long enough you can fill in most of those blanks.

Joe Villeneuve · Answer

What are the numbers that are awesome?

Alfredo Rodriguez · Answer

@Joe Villeneuve I have been thinking a lot about on day maybe selling my airbnb business. I currently own 7 properties and all of them will be airbnb or STR pretty soon. Right now 4 of them are already bringing income and are title to an LLC. Is there a way to know the value of such business and sell it eventually including the real estate. Numbers has been awesome as far as occupancy rate and income so far ?

Not sure since STR is not always take in consideration with lenders how to approach this. Off course I will still have to finish my remaining 3 units and renting them as well or should I keep them … many thoughts lol

Joe Villeneuve · Answer

10% DP on $210k offer = $21k.  $40k reps about twice the DP.  Based on when the Buyer recovers the 10% DP from the CF (limited info, but this usually happens in about 3-4 years), that's about a $40k profit on the deal since all the cost (DP) was recovered from the cumulated CF.

This also means the end buyer/REI gets the same CF as @Greg Appelt since the buyer/REI is buyer the original deal with the LLC.  I usually sell the LLC for 10-20% of the PV at the time of sale.  If the PV at Sale is $400k, the LLC could sell at $40-80k, which is what 10-20% would be if I sold the property instead of the LLC.  This way, you get the same profit as if you sold the property, but the buyer is buying the original deal the LLC made at the start.  So, whatever CF I established with the original deal, is what the end buyer of the LLC would get...and, I'm not selling RE.

There's also no loan to qualify for or pay for, so closing costs are quick and painle$$.

Creative or absurd?

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