Smyrna, DE · Member since 2015 · 11 posts · 1 vote
I am seeking my first buy and hold. I came across an investor who owns 60 duplexes in MD and is willing to owner finance for a year. seller is looking to free up some time and selling a few. Numbers are as follows: one side of duplex (2/1) rented for $825. Other side same size needs approximately 30k in rehab and will rent for $825+. Arv is estimated between 125-135k from identical properties. Seller is willing to owner finance and may possibly finance rehab and asked me to submit an offer but will only finance for a year. He is asking 80k and price is not negotiable. I need some help on how I could structure this, as this is my first buy and hold. Any suggestions are appreciated.
Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
7y
If your numbers are correct, this sounds like an awesome deal - in fact, it sounds too good to be true, specially when you mentioned he will even finance the rehab.
If you can structure it below, it will be awesome but not sure if the seller will accept it. The whole idea is to get in "light" - with as little cash out as possible.
Maybe negotiate to refi in 2 years or 1 year with a one time extension of 12 months with a 1-year advance on mortgage payment ($5,120).
With that mortgage payment, and if you can indeed rent both units at $825/mo or $1650/mo total, you will cashflow from the deal even with the 50% rule.
I would suggest though that you put the deed in escrow to be sure the owner does not walk out on you and get your downpayment and a renovated property at your expense. Also do a title check to be sure he really owns the property. When a deal that sounds too good to be true shows up - specially if this is your first deal, you should be very, very careful.
Smyrna, DE · Member since 2015 · 11 posts · 1 vote
7y
Thanks @Michael Ealy. This is a class D property I’m pretty sure from my research. Any suggestions to structure with no money down? He is adamant in the 1 year financing. Can you eleborate on the 1 year advance on mortgage payment? Do you mean he finances for a year and then I pay $5120 to extend for another year? Yes I am trying to be very careful.
Thanks @Michael Ealy. This is a class D property I’m pretty sure from my research. Any suggestions to structure with no money down? He is adamant in the 1 year financing. Can you eleborate on the 1 year advance on mortgage payment? Do you mean he finances for a year and then I pay $5120 to extend for another year? Yes I am trying to be very careful.
Vicki,
The one I suggested above is even better than "no money down" because you're going to get money at closing. And yes, you understood me correctly. Agree to 1 year but if you can't refi, have the right to extend for 1 more year. If he does not agree, then offer to prepay the mortgage payment for one more year to extend it.
Now, you might need to put in a provision in the refinance clause that IF the property is inherently will not qualify for bank financing (due to title issues, structural issues or any issue for that matter), that you have the right to keep paying the owner finance.
Smyrna, DE · Member since 2015 · 11 posts · 1 vote
7y
Thanks @Michael Ealy. I missed the part that the 14k was coming to me at closing! Great suggestion @Justin Kane! I will let you know what happens. Talked to a local investor today and he suggests staying closer to home so I can monitor rehab. The property is 45 min away. It is not everyday that you find owner financing though so I’m not ruling out.
Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
7y
@Vicki DeWan If the seller is firm on the one year, make sure you have a solid exit strategy in place. You of course would need to close on selling it or refinancing in the year, which means either process would have to be started a few months in advance of that date. Otherwise the seller could foreclose and take back a nicely renovated house that you put all the work into.
Smyrna, DE · Member since 2015 · 11 posts · 1 vote
7y
As an update I decided to pass. As a first time buy and hold investor I don’t feel this was a good option. A coworker lives in the area and said it is drug infested and cops there all the time. More than I want to deal with! Looking at a duplex 4 miles away for $115 and total rents $1500 and one unit is $200 under retail. This sounds more doable for me to manage!