Potential Condo deal

2 Replies

So I am in Montana, which is already "real estate challenged".

Here's the deal I'm looking at now, and I can't help but think I'm

missing something. 

I'm looking at 4 3/2 condos at 1552sft apiece. the owners are looking for $500000 for all 4 or $129000 apiece.

I think they are smoking crack, but that's another matter.

When my wife and I ran the numbers we came up with $40000 in rehab. when it was all said and done. I figured $66000 per door.

They have been trying to sell theses off and on for 3 years. Nothing in my area sits on th MLS for longer then 60 days unless it has real issues, and even then its rarely over 90 days before it sells.

The other thing is its in an HOA. I know the general consensus is that HOAs are from the devil, lol, but this one only has 2 members. one for the first 4 condos and 1 for the other 4.

The HOA currently has $2000 in it for upkeep and improvements (which are very much needed) and its only collecting $75 a month for dues.

Looking at the HOA, it looks to be bleeding.

Anyway, I have the idea to offer a master lease at $3000 a month for 3 years (it currently collects $3720). Do the upgrades and purchase the property for $264000 at the end of the 3 year period when I can get it appraised with the improvements.

Please give feedback. I can take the rough feedback as well.

Thanks in advance.

Three years in the real estate business might as well be an eternity. Who knows what will happen in three years? The property values could tank and now what? Sure the properties could also appreciate but I just see three years as a long ways out to be predicting values. I don't see any master leases in my area so I'm always skeptical about them. Why would this owner hold onto the property and master lease it to you. They now have $36K/year in income with only mortgage interest and depreciation to offset it. You on the other hand don't have the benefit of mortgage interest and depreciation. Make them an offer based on market value of recent comps. Show them your rehab numbers. If it's a good deal, go for it. If it's not, walk away. It seems like you are trying to justify doing a not-so-good deal by master leasing and deferring the purchase. Offer them $400K today. Do you have cash to put down or are you trying to avoid the down payment?

Based on our due diligence the owners took out a loan for $433000 back in 2007. they have not made any improvements or upgrades to the property since they purchased it.

They are also paying property management to watch the places.

Far as we can tell it doesn't appear that they are making much money if any.

Yes I am trying to avoid the down. We are really trying to use creative financing.

We were also told that whatever we wanted them to fix they would fix "Blank Check" was used in the conversation between us and the realtor, but we felt we had more leverage taking the problems on ourselves.

Thanks for the feedback!

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