Indianapolis, IN · Member since 2013 · 354 posts · 90 votes
REF 13030-P1
The seller wants to unload (34) houses and (5) parcels of land.
The seller owns the properties free and clear.
I don't have the money to buy all these and then fix them all up... But I do have a private lender who can fund the rehabs.
MY PLAN:
1) Wholesale (14) Houses
2) Use Seller Financing for (12) so I can fix and flip them
3) Use Seller Financing for (8) Rentals then Refi out or use the money from the flips to pay the seller off
4) I'll buy the (5) parcels outright and build houses (if allowed) after the flips (I'm partnering 50/50 with a builder)
MY QUESTIONS:
A) What terms should I offer / how do I structure a win win for both the seller and myself?
B) What are some things I should mention/offer to entice the seller to structure the deal this way? (ie Reduce capital gains since he is receiving money for wholesale houses, increase the amount I can purchase house for, etc)
I am being hard on you because I want you to succeed. I must warn you on that line of thinking. Here's my take:
1. You must know enough about the law and what you want to do in order to be able to speak intelligently to your attorney...
You must know enough about the accounting and what you want to do in order to be able to speak intelligently to your CPA...
You must know enough about building and what you want to do in order to be able to speak intelligently to your contractor...
You must know enough about REI and what you want to do in order to be able to speak intelligently to other investors; specifically with regards to an intricate deal such as what you are proposing...
Mind you - you don't have to know everything your advisors know - you shouldn't; that's why they are there. But, you must know enough! My comment above reflected my concern that you do not know enough yet. If I am wrong, it wouldn't be the first time or the last Taylor. But, do you know enough - RE can bite... Good luck man :)
There is a lot of different variables not revealed here and without those there's not advice that can be given.
1) I'll have an offer price once I get back my rehab estimates which may be in the next couple of days or by Monday. For now lets say I'm buying the houses Turnkey for $846,150.
2) Monthly gross rental income if all the units are rented is $15,147
I am being hard on you because I want you to succeed. I must warn you on that line of thinking. Here's my take:
1. You must know enough about the law and what you want to do in order to be able to speak intelligently to your attorney...
You must know enough about the accounting and what you want to do in order to be able to speak intelligently to your CPA...
You must know enough about building and what you want to do in order to be able to speak intelligently to your contractor...
You must know enough about REI and what you want to do in order to be able to speak intelligently to other investors; specifically with regards to an intricate deal such as what you are proposing...
Mind you - you don't have to know everything your advisors know - you shouldn't; that's why they are there. But, you must know enough! My comment above reflected my concern that you do not know enough yet. If I am wrong, it wouldn't be the first time or the last Taylor. But, do you know enough - RE can bite... Good luck man :)
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Taylor, what Ben is saying, but in my words, is that this is no small take down deal to just say suggest some seller financed scheme and even with advice and hand-holding, this would be a little too much.
There will be additional legal, accounting, tax issues, there are new laws, so it needs to be a commercial deal, you need a business structure. There are different ways to structure it, you could set them over in a business and then buy the business. Spinning some off and keeping some needs some analysis. You need to work out partial releases from a blanket obligation, be that a note or in a business agreement. Closing costs with title searches and coverage will probably be more than 10k. An attorney, could be another 10k. Can't say what the seller would want as a down.
Save yourself a lot of time and see what the seller thinks, if he sees the plan he may work with you, he didn't start last year in RE. Good luck :)
Investor / Chief Acquisitions Officer · Billings, MT · Member since 2011 · 91 posts · 24 votes
12y
Taylor I think this deal is going to be a tough one for you. I am not sure what your management plan is for Indianapolis. Most larger management companies there charge first months rent plus a % every month. That has pushed our average expenses on properties in the area to about 55% of gross. Taking the expected gross income of $15,147....
$15,147 x.45 = 6,816 net per month
81,793 net annually
At your current purchase price you are going to be at about a 9% to a 10% cap rate. If your plan is to flip them to another investor there is little to no margin for you to make here. Especially when Indiana has so many opportunities.
If your plan is to flip them to owner occupants you may really want to consider looking hard at the 70% rule.....
More due diligence is needed. If I were you I would find out as much as possible about his motivations for selling. Then figure out your exit strategies for each of the properties....keep in mind DOM in Indy is still very high. Then you may be ready to start talking about some seller financing. Don't rush the deal.
Indianapolis, IN · Member since 2013 · 354 posts · 90 votes
12y
@Ben Leybovich Thank you for elaborating. The first comment was a little harsh ha but I understand what you are saying. Fortunately I have people in a few of those areas that know I don't know the vernacular, but are willing to help educate me.
@Trent Currie I will be managing the properties myself for the experience.
To All,
Seller Financing is no longer an option. The seller wants CASH ha Imagine that.
I have around $200k in private money which can take care of all the repairs, but now I have to figure out a way to get another ~$500k. I've got a couple of meetings this week to raise that portion.
I'll have numbers on rehab by Tuesday. I'll share the breakdown once I get them.