I have a seller with many properties. The seller wants out of the low-income rental business because the business is disturbing his lifestyle.
The seller is willing to provide financing, yet, wants assurance if vacancies occur seller still receives monthly payments because seller doesn't want back in the business. I am not flushed with cash!
Are there any mortgage insurance policies available? I need so expert advice/ideas before I approach the seller again. Gotta make the deal stick!
Thank you for your help in this matter. Happy New Year!
welcome to the site.
In the event of vacancies are you not able to cover the P&I to the seller?
Account Closed when you're in the rental business, your business CANNOT depend on having every unit filled every month. You MUST have enough cash to handle vacancies, lost rent and other expenses and still be able to pay all your bills, including the mortgage. A lender would want to see six months PITI payments in your bank account as cash reserves. I think six months is safer. Houses have a way of waking up in the middle of the night and saying "hmmm, I think I need a new $500 fridge". Or a $2000 furnace. Or a $5000 roof or sewer line. You have to have cash reserves to ride this out.
And the deal has to be good enough to produce income ever with these expenses. Cash flow IS NOT what's left from the rent after you make the mortgage payment. You have a LOT of other expenses. Vacancy is just one of those.
Thank you Jon and James for your insights. I appreciate it.
I was thinking of structuring a ground lease, where I'm the middle man between retail tenant and the seller. Pocketing the difference for cash reserves for that refrig, toilet repair, or roof.
How good is your luck? You can't pay for a roof with 6 months of differences in rents.
Sounds like the owner has a few cards he's not showing, he could change his lifestyle with a property manager. I'd bet there is deferred maintenance with his low income rentals, he probably wants to bail from the upcoming responsibilities.
Do you have the ability to borrow to cover emergencies? What would a new loan for 5K do to the cash flow?
Why not wholesale the deal? Or, bring in a money partner that can split the deal to cover the unforeseen?
To hold a property you must have some cash and the ability to obtain cash if needed. The less cash you have the more luck you need. :)
I would NEVER want to be the middle man! I don't see how that is profitable or where your upside would be. Honestly you would be better off trying to wholesale it to another landlord. There are alot of issues with these types of tenants. IT sounds the seller, wants his cake and to eat it too. As a seller he is allowed to wish for the world, but those terms sound unrealistic.
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