A rental SFR Turned out to be a performing Note

[Emma Chen]

Hello all,

As I posted earlier, i am touring rental properties in Las Vegas this weekend. Here is one interesting deal I'd like to share with everyone, hoping you could provide me some feedback and insights.

One SFR with 5 br/2ba, current 4-year lease is $1150/month. It's selling for $86k all in cash. It has great Cap rate and good unleveraged IRR if we buy and hold the property. After touring the outside of the house and the neighborhood, I emailed the seller the offer of asking price. I met with seller and he brought the selling agreement and current lease agreement. I found that what seller signed with current tenant is a lease to own agreement and seller is playing as lender to the tenant. The tenant already paid $30k down payment and is paying interest( interest rate 10.33%) and fees as "rent". The principle of $85k is due at the end of year 4. Current tenant could pay off the principle anytime soon and get the house. All the financial analysis doesnt apply to the current situation any more. So I am buying a performing note instead of a property, except I still have to pay for landlord stuff.

I am thinking of two options I might go with:

First, go back to seller and give a new offer, a discounted current price, saying 80% of the $85k.

Second, tell seller that i would take my offer back because the deal is not what I was informed of.

You insights will be highly appreciated.

Thank you!

Emma Chen

[Bill Gulley]

I missed the 115, I saw a beginning of 80, so no, it may be up in the 60s, don't forget your costs buying and selling and of foreclosure.

Do your own due diligence as to market value, many of these are sold over priced so you can't really judge the value based on what is owed on an installment deal or its sale price.

A contract for deed puts you in a position to deliver title, you buy the obligation along with the property, buying subject to the CFD. If they don't buy and walk away, you are the owner. If they fail to pay you can foreclose. I suggest you not use the quit claim deed in "escrow" since they have significant equity.

If you just bought the CFD as an obligation/note you'd not have collateral! You need to be in title. What you buy is the property with the agreement to continue the agreed sale, so look at that as a note purchase from an income standpoint, this will be the more conservative approach than looking at a FMV of the property less the equity and payments to be received, but consider both sides to look at the lower side of an offer. :)