Is this a deal
5 Replies
Damien Hall
Investor from Washington, DC
posted over 13 years ago
I have an investor selling a house for $210K. The house has a tenant that pays $1,500/mo. The comps in the area range from $275K - $330K. I was going to finanace with hard money lender with 75% LTV and 6 mo terms. The plan is to do minimal repairs as a tenant already lives there and flip the house by the 6 mo deadline.
Does this sound like a good deal? Any thoughts would be helpful!
Account Closed
replied over 13 years agoOnly if you can sell the property more or less as is with a tenant in the property.
Some markets this will be fine and in other markets 6 months could be a bit short.
Do you have a plan B, plan C, etc. in case things do not go exactly as you expect?
How good are the comps? Can you knock down the selling price to get a faster sale and still have a good deal?
John Corey
Michael Rossi
Real Estate Investor from Ohio
replied over 13 years ago
This property is a HORRIBLE RENTAL. Therefore, if you are going to sell it as a rental, you will need to find a newbie who doesn't understand the rental business. Now that the real estate craze is over, there are fewer suckers than there were a year or two ago.
How much longer is the lease for the tenant? Is it possible that you could sell this to a homeowner who would occupy the property? Are the comps for other rentals or for owner-occupied properties? Rentals are not normally of the same quality and condition as owner-occupied properties, so if the comps are for owner-occupied and this is a rental, the value could be less.
Good Luck,
Mike
Damien Hall
Investor from Washington, DC
replied over 13 years ago
Thanks for the info! The comps are for owner occupied properties. The tenants are long term tenants that want to stay once the property is sold.
What do you think about the idea of selling it to the current tenants? They may be willing to buy. I could make minor repairs and that may be good enough for them.
Paul Cordero
from Scottsdale, Arizona
replied over 13 years ago
Your hard money loan is going to cost you approx. $5,000-$10,000 just in fees, then your rate is going to be 10-15% which will give you a negative cash flow with a $1500 rent payment. So this is not a good rental.
If you can do minimal work on the property while the tenants are there you may be able to make a profit, but most investors aren't going to pay $275,000 or retail for the property. It is also going to be hard to sell with the current rent terms. I would say that this is not a good deal.
If you could get the property @ $170,000 then you might have room to make a little money, but not much after closing costs and repairs.
MATT WARDEN
replied over 13 years ago
Originally posted by "halldandr":
What do you think about the idea of selling it to the current tenants? They may be willing to buy. I could make minor repairs and that may be good enough for them.
The obvious question is: if they had the credit and income to purchase a house, and they are long-term tenants (so there is no transience reason for avoiding home purchase) why would they be willing to pay ~2x the mortgage payment while gaining zero equity? As MikeOH says in his book, your tenants are tenants for a reason.