Creative Financing to purchase house I am renting
Hello all!
I currently reside in SE Portland in a 1500 SQ 5 bedroom, 2 bath house (tiny house for six people, a married couple lives here as well). There are a lot of people jammed into this house and that basically keeps my rent very low. I believe, however, my landlords have no idea how much this house could be renting for. Inner SE neighborhood, access to the new Orange line and Springwater corridor, it's a fantastic spot.
The landlords are VERY hands off and at times we worry that they might sell it. I'd love to get it from them before hand because it could be turning more than $3,000 a month easy. I would house hack as well.
The downside is its valued around 500K right now so I am not sure I want to try and give them that much for it. I am new to REI so I would want to get something like 1% return? What are some ways I could acquire this property? Do you think they would take $300K even if its valued that high? It's hard to gauge what they are thinking or what they know.
A few things to consider:
1. The 1% rule is basically impossible to achieve in Portland
2. If the house is actually valued at $500k why would the owners want to sell it for $300k?
3. You seem to think that the owners may not know the value of the house. Are you hoping to take advantage of that? Are the owners older folks? Imagine if your parents owned a property that was worth $500k and someone convinced them to sell it for $300k, how would that make you feel?
As I said, just some things to consider.
I am glad someone in this city seems interested in ethical investment, but I can think of a few reasons why they might accept a offer that low:
1. House needs serious updating that they aren't prepared, or able to pay for (maybe another bathroom, some floor plan changes to optimize space).
2. The owners aren't interested in managing a rental anymore
3. The owners are being offered cash, and they are at the age when they would rather have the money than the asset
@Account Closed Why don't you ask if they are interested in selling, then work from there? Find out what they would consider a fair offer (encourage them to do their research), and see if you can come to an agreement. Even if they don't want to sell now, if you deal with them fairly and honestly, I am sure you will be one of the first people they come to if they ever change their mind.
@Jessica S. They are not older (as in elderly) and I would not want, or ever want to, take advantage of them at all! People did that to my Grandmother and that revolts me. I left out the important details about how much work the house needs: new windows, roof, no AC, not even a fume hood in the kitchen, sometimes mold issues in the basement, broken windows, landscaping. we basically self manage which is at times frustrating. (For example, the dishwasher broke and the landlord literally told us 'you guys buy and replace it and I'll reimburse you' so I got a cheap one on craigslist for 25$...) and that's why @Onna-lisa Kyom is correct that maybe they would sell it for less because it needs so much work. I also don't think they really like managing the house at all. Unfortunately, I can't offer cash at this point which is why I was looking for some ideas about creative financing.
I was planning on asking them if they ever decide to sell it to ask me first. I'm pretty sure one of them was an investor in a past life so they probably do know more than me. Like I said, just trying to find some way to finance it that would impress them.
@Account Closed It sounds like they're not interested in really managing the property, so maybe it would be a good time to get them to talk about selling. They might scoff and say why sell when we can pull in money without lifting a finger, they might say good idea and sell it to someone else who'll evict you, or they might be willing to sell it to you and owner finance. They still get an income and you get to start fixing up the house and collecting rent.
I would suggest doing a lot of research. Figure out what the ARV on the house really is and work from there. Get estimates on how much it will cost to bring it up to the ARV and write up a good offer. Then present it to them. If you just ask they might say "sure, make an offer", but if you don't have solid reasoning for your offer they may decline and not want to talk about it any more. This sounds like an opportunity, you just have to work it. Good luck
EDIT: In addition to all of that, make sure it's still a good deal for you in the end. It has to cash flow after all expenses or you're just buying someone else's money pit
Thanks for the clarification, that all makes sense.
I agree with @Steve Moody's advice. If landlording has become a chore for them they might be willing to do a deal with you that is favorable for all parties.
@Steve Moody You've got some encouraging advice, thank you! I will do my research and get some estimates together as well as put together a well thought out offer. They might decline it, but that's the worst that could happen. It will be a good learning experience for me so I'm all about it. @Jessica S. Sometimes I feel like this house is a chore for them even thought we self manage so much! If they're motivated to sell then I might be at the right place at the right time :)
Thanks everyone!
Yu could put together an offer for a price you think is fair and offer this: own payment 10%, owner financing for the rest at a XX% interest rate. This way the owner holds the loan and you make payments to them,They are the bank. (unless you can get a regular loan, and then just do that.
From then on, you pay insurance, mortgage, repairs, maintenance taxes, and everything else that relates tot he house. They just collect the mortgage each month. Not more leases, not more calls about repairs, etc.
They will need an incentive to hold the mortgage, if they won the property free and clear: for example you pay a littl ebit higher of an interest rate, etc.
How long have have they owned it? If close to 27.5 years then they will reach the end of its depreciable life and that would be a great time for them to sell.
You could put together an offer on contract where they technically own the house until depreciation ends and then it converts to seller finance and they hold the note. You could refi/HELOC after that and cash them out if they want. That's one way.
You could also do a lease option to buy at some point. (This can be risky; use a lawyer.)
And everything is negotiable: price, interest rate, who maintains what, time periods, everything. Find out what's important to them and negotiate with that knowledge.
Whatever you do "creatively," I'd recommend your lawyer write or at least look over your contract. And get an inspection, and make sure you have any and all contingencies included to cover yourself.
I'm not a lawyer and these are just general ideas, not advice.
Price should not be the issue TERMS are everything thing in creative financing ...
First... find out if there's existing bank financing....If there is, you'll have to do a "Subject To" a Wrap AITD what ever you want to call it.
See some of my posts on creative financing..When you get some of the issues answered write me if you want, and and help you out..
Bill