Conservative ARV: $29,488
Repair Cost For Rent Ready: $6,000
Negotiated to $12.5k "lowest they will accept"
Would consider terms at $5k down (asked for 0 down but stated $5k was minimum they would accept.) and $250 a month until balance was paid.
Assuming tax/insurance around $100 a month the month expense would be $350 for a spread of $150 a month.
A local investor pointed out that I should ask for 60 days no payment to get the house rent ready and a tenant inside. He also stated the spread was probably too low given it is a lower socioeconomic area.
I don't have $5k to put down on this deal to make the terms work, but trying to get something out of it via assigning it would be hard based on the numbers.
I would just like to know your input, recommendation, is it just plain not a deal worth pursuing, or can I tailor terms a little better. I generally stick to strictly wholesaling, but the more I learn about terms/owner financing (especial 0 down 0 interest) I realize I've been missing out on a lot of deals.
I appreciate all of your responses ahead of time.
$5k is nothing. If you do not have it pass even if it is good deal.
Some risk will come up that costs that or more. You need more than $5k contingency for risk on a property.
My opinion is that only those who grew up in that neighborhood should invest in a D neighborhood as beginners, and even then it is not a great idea. You can get great spurts of cash flow, when it's there. Then there will be times when you find yourself pouring bucket loads of money in instead of out. Find a way to move to a working class, solid C neighborhood
Well, I primarily focus on wholesaling. I personally wouldn't be looking to take this on as an investment, but to see if more experienced investors would consider it a deal. If so then it might be worth trying to assign it or give it to another investor for a small fee or just as a sign of appreciation for those that assist me from time to time.
Assuming your figures are right, it would be a slightly bad deal. $500/month rent with no mortgage would mean about $150/mo for adequate insurance plus taxes.That leaves $350/mo to cover PM, which will be hard to find a good one in that kind of neighborhood, then there's vacancy cost, tenant damage, capex like roof and heater, plumbing repairs.
It's good that you are looking for other ways to make a deal work, but I would pass on this one. As many here will tell you, cheap does not mean good.
@Walt Payne I appreciate your feedback. I've wholesaled deals like this that I could negotiate and make a spread as there is a high demand for these properties in my area. I knew this deal was thin, but love to get others feedback and find new alternatives to somewhat conservative approaches.
I will post another one in a new thread on the other end of the spectrum. I have a stack of leads in front of me and I generally can define deal or no deal... but since I have been learning more about owner financing, lease options, and other term type deals outside of my normal wholesaling deals it is becomming harder to say deal or no deal to some of them.
@Eric Metz The problem is that one of the usual metrics to do a quick screen, the 50% rule, doesn't work on low rent properties. 50% of a low rent amount won't allow you to cover the big ticket items. But even using that rule, you have $250 left, which covers the mortgage only. So under ideal circumstances the property is non cash flowing until the loan is paid off. More likely circumstances suggest it would be a case of you providing subsidies to low income tenants. There is a good reason the seller is offering such a low price, and my guess is he is cutting his losses.
Yeah, these numbers make sense to me.
Seller's motivation was a divorce and the attorney handling it wanted to get money out of the property quickly to most likely get her clients out the door. I appreciate your breakdown. It is good to be able to visualize the position of the buyer. Cheers.
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