What do you think of this deal?

Question

Hey Team, here's the scoop....

So I have been trying to fulfill my goal of 2 properties this year (I know, small time for some of you)....I have so far made 0 deals and 0 offers up until yesterday.

1.)First 'deal' is listed at $49k. 3/1/1. I offered $45k owner financing with 10 year fully amortized loan at 7%. Would rent for $800. I know I know, the numbers look 'blah', but the thought of it being paid off in 10 years made me smile. He countered @ $47k with 9% interest and is willing to extend the term. I'm not feeling this at all.

2.)Here's the one I'm liking.2/1/1 with florida room. Seller owes $72k. House is 'unlisted' at $42k. He is going to bring the $30k to the table. I contacted him from an ad looking for a renter. Just got off the phone with him (he is in NY) and basically he is trying to unload so that he can get the loan off his credit report (he is trying to get loans for grad school). He also has said he will pay the closing costs.

An (FHA) appraisal was completed in January of this year and it appraised at $78k. The buyer fell through due to screwing up her credit from the time between the app and the closing (to be honest I see that in my field all the time). Property rents for $700.

new roof (this year), new flooring, new water heater, new appliances. he is just wanting to get rid of it! his mortgage is not assumable. he said he wants to make it as easy as possible for both me and him.

per the 50% rule, I'm looking like this:
rent: 700
noi: $350
expenses:$350
payment (45k @ 7% for 30 years): $279.43
cashflow: $70.57

what do you all think? as always, i expect blunt and brutal honesty!

hope some of you are still up! thanks in advance!

Jim Wineinger · Answer

Downside: He was looking for a renter when you found it. Therefore you will not be receiving the 700 per month right away and probably do need to do some repair/replacement of things before you get a renter, which is why it is not rented now.

Also since he is in NY, he may have a management company that you will have to deal with until that contract is up, if he has one. Look into this closely as it could take up all your cash flow in the beginning.

Jim Wineinger · Answer

Upside is that he owes 72k and is willing to pay it down to 42k by bringing 30k to the table.

So why does your finance figure you have listed say 45k. Is there 3k in repairs needed? Is this the closing costs that he is paying for?

Remember to find out the estimated amount of repairs that may be needed and reduce your purchase price offer by that much.

Unlisted price of 42k minus repairs amount should be your offer. If that is the 3k difference, then your finance amount is 39K and not the 45K you listed.

The 39K at 7% for 30 years would be 259.46 which is 90.54 cash flow

42K @7% for 30 is 279.42 for 70.58

your figure of 45k 
45K @7% for 30 is 299.38 for only 50.62

I would try to get him down to 37.5K purchase price with him also paying all closing costs.

37.5K @7% for 30 is 249.48 leaving you 100.52 flow

Josh Green · Answer

update:

first deal is now dead. the agent called me and said that there was another 'better' offer on the table, but he wanted to work with me. (HA! Yes, seriously).

He ofcourse told me how great of a deal this is and if i pass i'm basically an idiot and shouldn't be investing. he even went on to say that 'the renter is paying off your mortgage, aslong as you cover your piti you are set!' to which i responded: 'there is absolutely no allotment for maintenance, vacancy, etc. the numbers are way too tight'
HIM: 'you are being way to conservative. you have to have money in the there to cover this out of your pocket. this is your business. it takes money to make money. you aren't going to find a better deal than this. whoever told you that you can find this properties is an idiot'.

hahahahahahahahahaha, and this guy is supposedly an 'investor' that has 'picked up 9 properties this year'.

Jim Wineinger · Answer

I do not believe that the contract (if any) can go with the property since it is with the previous owner, but I am by no means an expert on contract law.

I would question the lack of repairs needed since he is in NY and the property is in your area. How does he know that no repairs are needed?  Even if I had to pay for someone to throughly check it for me, I would have it checked on that walk through. Let us know how it went.

If you can get not concessions on price, a second counter might just work if he really wants to unload the property. Buy at his price, but get him to sign a note to you for the amount of concessions that seem approiate to you. This would be, of course an unsecured loan on your part to him, but would help with the cash flow for the first XXX months that his note is for.

Josh Green · Answer

mikeoh? jon? mr investor? james?

Josh Green · Answer

anyone suggest a counter to the first?

jaws suggests a counter on the 2nd.

anyone else?

Mark Yuschak · Answer

I'd counter the first one.  You got nothing to loose.

I'd counter with his 47K, but 6% interest amortized over 30 years.  Balloon in X number of years.  Whatever you're comfortable with, really.  It doesn't matter when the balloon is.

In your counter calculate out exactly how much interest income he'll be earning.  Of course, that will depend on how far out your balloon is.  If sees how much interest income he'll be earning on paper he'll be more likely to accept your offer.

All else being equal, I'd always consider a three bedroom over a two.  Better resale, easier to find tenants, more stable tenants, etc., etc.

Josh Green · Answer

thanks all,

jaws, yea, that was a mistake on my side. purchase prices 42k. supposedly no repairs necessary. i am walking through tomorrow. I'll certainly take a look at his contract with the management company. If there is one, does the contract stay with the house or with the owner? I don't want/need a management company as this is local and my dad is a contractor and does all the work.

anyone else?

What do you think of this deal?

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