How to find buyers!

Question

Hi Guys. 
How are you doing? I have a question. I went to a lot of rental houses where the sellers want to sell it at discount. But I dont know if it is a good deal.
For example: The house for sale for 145K firm, tenant in the house, high likelihood that the tenant will buy the house at $175 (they have lease option contract with sellers). Rent payment is $1500 a month. Is that a good deal. I mean we can make money cashflow, and have 30K in equity immediately.

Bill Gulley · Answer

Well, first, forget what that tenant is paying or what they have an option for. Look to comparable properties and value the home along with the condition, basing your price on that contract and rents is a great way to get scammed!

If it turns out to be worth more than 145k, you might have something. The actual value needs to be 175k for that option to work for the buyer to finance it, I'd bet not since most L/Os are over priced. Next is the credit given to that buyer and any amounts they paid.

If all of that washes out to be an aboveboard transaction and the tenant wants to buy, why didn't the seller approach his tenant and knock 10K off the price to buy it now? Another aspect that may indicate some scamming going on, why do they need you?

I do wonder how the seller knows you could buy the place when there is an option on it? Most investors believe a property is locked up, so that indicates to me a higher level of sophistaction of the seller to even go there, offering it for sale with an option in place. (unless someone down there is reading my comments here on BP, LOL). So, that's another "beware" sign.

I've been to Jonesboro and examined banks there, met lots of different people with varing levels of socio-economic savy about them, but never met anyone willing to give 30 thousand buck away. Unless the seller is in dire straights, I'd say his "firm" price is closer to the real value with a gross cap rate at 12% on rents. So, no, it doesn't appear to be a deal to me and more like a skinning.

I'd agree with Brian, student housing should be pretty good and at lower rent levels. Good Luck... :)

Brian Gibbons · Answer

Hi @Thanh Nguyen,

You are in Jonesboro http://en.wikipedia.org/wiki/Jonesboro,_Arkansas

A college town, The median income for a household in the city was $32,196, and the median income for a family was $42,082. Males had a median income of $21,633 versus $31,633 for females.

So $1500 x 12 = $18,000.

What about college housing?  Go to college housing and ask about off campus housing, look at grad students, small apartment housing, possible poor management, go to Chamber and get to know the movers and shakers, look for private money and JV partners.

Bill Gulley, what do you think of this or other options?