Quick look at a potential deal

7 Replies

Hi BP, 

I'm not sure if this is the correct spot for this inquiry, so if not feel free to move. Short story is by way of marketing, I've come up with a hot lead on a deal in my market. I'd love advice, as this is my first potential Lease Option/Subject To deal of which I've been a part. 

This is an absentee owner that has been renting the house for a couple of years now and is tired of chasing the tenants for rent. So, one stipulation is that I would need to kick out the current tenants (there is no active lease). 

3/2. Needs a face-lift (flooring, paint, etc.) but not necessary for livability. Needs new siding (also not necessary for livability). 

Appraisal: $130,000

Tax Value: $124,000

Mortgage Owed: $109,000

No back payments, back taxes or leins on the property. 

Monthly Payment: $845

Market Rent: ~$1,200 in good condition

The seller wants to walk away with $7,500 as a down-payment. That's a bit high for me, but that's the beginning of the negotiation. 

What would you all suggest? What other information do I/you need to suggest? I

Doesn't look like a great deal.  It might be appealing to someone with bad credit as an alternative to renting if owner is willing to finance subject to the existing mortgage

Not overly thrilled with the numbers, either. Your mortgage payment is $845/mo out of a gross revenue of $1200/mo.

Put differently, your mortgage eats up 70% of your revenue right off the bat. That doesn't leave much for all the other expenses. Too tight for my tastes.

I recommend reading up on the 50% Rule as a guideline for something like this.

Thanks to you both. I'm familiar with the 50% rule, but I thought this one warranted a closer look. 

So you wouldn't recommend a "Subject To" or Lease Option in this scenario? I've never done either. I only have experience with rehabs and "normal" buy and hold transactions. 

I'd love to help her out, but need to be realistic of whether or not it works into my business. 

I guess my question would be: Is there anything that anyone could work with this and what would that offer be?

@Joshua Curtis

One, paying retail price is dumb

Two show The seller the costs to sell which is about 10% of value or 13,000

I don't buy anything unless it's $20,000 profit plus costs to sell subtracted from comps

I might do a lease option assignment if the seller would pony up the repair costs

I might do a subject to if the seller would pony up the repair costs

Location has a lot to do with whether or not I would do a lease option assignment or subject to

If you are licensed try to list at 97% of comps

Thanks so much for the suggestions, Brian! This one turned out to be too skinny, but there were no hard feelings. Thanks again!

Yeah, the quick look seems like there's not enough equity there for the seller to meet where you need to be on price. 

That said, you have an important advantage here: no/little competition on the listing, because you found them, and a motivated seller who's an absentee landlord. Maybe stay in contact with them over the next few months and remind them that they'll never get retail price on the house if the tenants keep tearing it up while not paying rent on time. They may come down to the point where the deal starts to look better.

Sorry for reviving this one, but per JT's response, they reached back out the other day. 

Offering to accept a Subject To with $2,000 down. 

That said, we are getting closer, but, honestly, the condition of the house still needs $10,000 in repairs. I offered nothing down, seller pays repairs, seller gets rid of current tenants, and I'll do a Subject To. 

They are a lot closer to accepting and my gut says we can come to a deal this go around. 

Thoughts? Feedback?

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