Possible First Deal, Need Advice: Raleigh, NC

10 Replies

All,

I think I may have found my 1st deal, by reaching out to my circle of influence. A family friend became an accidental landlord when he was transferred for a new job. The property is a 3/2 town home that is currently rented for $895. My friend is looking to do anything to just get out of the property and will take what he owes to move on.

He currently owes 86K on the property and the comps pulled by a real estate agent are between 105-120K. Thus far have been able to determine that the property does not cash flow when financing at a purchase price of 85K

I need suggestions, preferably with little money down to help my friend get out of this property as well as profit for myself.

Any help is appreciated...and I would also like to network with any local investors as this would be an out of state deal for me.

Take over payments sub to and sell as lease option or put an option on the home to cover the mortgage and assign your option....

Buy it sub2 and list it for 102K to sell fast, pay 7% in comm for 30 day offer, 6% after that.

Town homes are hard "buy and holds" esp w HOA fees for cash flow.

Need all costs going out vs market rents to analyze the deal.

Here is a form to use http://form.jotformpro.com/form/42226690391960

@Brian Gibbons I have listed the incomes vs expenses below

Income Monthly Annual
Gross Income 895.00 10,740.00
Expenses Monthly Annual
Taxes $112.92 $1,355.00
Insurance $29.17 $350.00
HOA $125.00 $1,500.00
Management Fee $71.60 $859.20
Vacany & Collections $71.60 $859.20
Monthly Repair Allocation $44.75 $537.00
Total Operating Expense $455.03 $5,460.40
Net Operating Income 439.97 5,279.60

I spoke with the current property manager and he stated that this rent is very close to the market value and they may look at raising the rent $25 when the lease renews in June.

When I look at this Pro Forma it shows me that this would not be a great property for me to buy and hold based on the amount I would need to finance, so I would ultimately need to sell this property to a retail buyer. In your opinion, is your assessment the same?

If I acquire the property via Sub 2 were you then suggesting that I then list the property with a realtor and pay the commission? 

@Audrey Truesdale could you expound on using a lease option to structure the deal after acquiring via sub 2? Where would you market a lease option at? MLS? Craigslist? Etc?

  1. Sorry the formatting was pretty poor for the numbers in the post above
  1. Rent: $895
  2. Expenses
  3. Taxes:$112
  4. Insurance: $30
  5. HOA: $125
  6. Vacany: $72
  7. Monthly Repair Allocation: $90
  8. Property Manager: $90
  9. Total Expenses: $519

Yes, this looks extremely tight. I think for a townhome, maybe you get away with a little bit lower repair/maintenance (depending on what the HOA takes care of), but you don;t have a CapEx budget (for, say HVAC, water heater, appliances - assuming HOA doesn't pay for any of those), so it may be a wash.

Sub2 would help, especially if the current owner has locked in a really good rate. That said, you'll want to have plan for the (unlikely) event that the bank decides to call the loan. You could both be hosed if that happens.

Where in Raleigh is this property located?  Some parts of town have impressive appreciation potential so that could help if you feel lucky and want to speculate.

Are you sure the HOA fees are that high? I'm used to the HOA fees more like $125 per year, not per month, for a home in that price range in Raleigh. My highest there is $40 per month, and it is a community with several pools, a golf course, gym, etc. Anyway, just think I'd double check on that HOA fee before making a decision as that's a major HOA expense for my experience in the Raleigh area.

Why doesn't she sell for the $105-$120?  I would question the comps, there is not a fixed formula for comps that is why the assessed value, and zestaments can be close in some areas and way off in others (bought a 4plex in the 46807 for $8k sold it for $12k...  zestament was at $105).  Im willing to bet if she put it on the market for what she owes and was not able to find a buyer the realtor who pulled your comps does not know what they are doing.

@Lynn M. , seeing that it's a townhouse, I bet $125/month is correct. I have a townhouse nearby (in Durham, NC) with HOA dues of $150/month.

From what I've seen, townhouse association dues tend to be higher than single family homes because the townhouse dues cover exterior of the building, roof, landscaping, pest inspection, etc. 

My townhouse is one that I kept and rented out after moving, but typical HOA dues are the main reason I'm avoiding townhouses for my future rentals purchases.

For an update, I spoke with the property manager and 2 random real estate agents in the area. First thing is that my friend misspoke and the HOA fee is actually $75 monthly. This covers the exterior of the building, roof, and of course the amenities. Also 2 real estate agents sent me the comps and sold comps range from 103-110K.

My friend's motivation at this point is just sell and be done with the property. He has listed once for over market value and it didn't sell so I think it has soured him to the listing process.

My thoughts are to acquire via Subject 2, without any payment to my friend. Upon initial conversations with him he seems receptive to this, of course I haven't spoken to his wife. I will then wait until March when the current tenant has 60 days remaining on their lease to begin marketing the property as lease option for 100K.

Thoughts on this plan?

reduced HOA certainly helps. Still doesn't look like there is any meat on the bone to me, but hey, that's what REI is all about: find solutions others don't see!

If you do go ahead with Sub2 then check out the many recent threads on what the potential pitfalls are with new regulations, using loan servicers, etc. (for example @Bill Gulley  

 posts) an how to structure without getting yourself into hot water

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