So, I have two friends that are looking to sell their home. Now, let me preface this by saying I am not looking to buy their home unless I meet their goals and my goals at the same time. Ultimately, its important for the personal relationship. Some may say you shouldn't mix friends/family with business, but this post isn't about that debate. Lets just have an exercise.
My problem statement: I cannot find a good way to make these two deals work for both MY goals and my friends goals at the same time, but perhaps I am not creative enough in the financing department.
MY GOAL: To obtain another buy and hold property. Preferably with 10% or higher and 200 CoC or higher.
MY FUNDS: 30k cash, 7500 added per month (not sure if this matters). And I have the ability to likely obtain a HELOC. Just adding these in case it comes up as something useful in this exercise.
NO BUDGER: Friend 1's goal is to make 50k on his property after he sells it so he can move to Colorado with that money. He may consider 40k but he's shooting high and won't budge. Which is fair, as in this market its very hot and I could see it being possible.
Their Mortgage: 97k
House Value: 140k Average
Rent: 1200 Average
I'm not sure there is any way I can make this work. On face value, it doesn't even meet the one percent test. And, if I purchased it at the comparable price I'd be negative cash flow for sure. I've been racking my brain on how I could give him 40-50k cash, still take his mortgage off his hands, or at least the worry of paying the mortgage each month. And then rent it. I think this one is a lost cause.
JUST WANTS OUT: Friend 2,my other friend has this rental which they charge only HALF the current rent. Yeah, I know. Anyway, he is looking to get rid of it, he just wants the debt gone. That's it. He doesn't want to pay it anymore or deal with it. However, he bought it as a flip which isn't always a bad thing, but usually isn't the best for ROI when you can do at least a light flip yourself... I digress. His ultimate goal is to just not have to deal with the property anymore.
House Value: 130k Average
Rent: 1100 Average
Again, fails the one percent rule if I were to just offer 130-140k, bad deal. I've been trying to figure out how I can get my friend out of his mortgage/payment/management of the property and use it as a buy and hold. And so far I'm just out of ideas.
I think I may find that there is no way to make these properties work. The taxes don't help, but I wanted to make sure and exhaust my resources at hand. I'm still a novice I'd say, I've only been doing this for a year and only own one property that I rent. I've read a lot and listened a lot, but haven't thought of a way to finance this and make it profitable.
Thoughts? I think they both just might be a wash, unless Friend 2 wants to take a loss. Which I wouldn't want him to.
Agreed on all points, and yeah he's never going to hit those numbers after fees. Well, it was worth a shot. I guess I wasn't crazy after all. What a shame.
@James M. so I apologize for the delay in my reply. I just came across this thread. I don't see a way to make it work with Friend 1. He wants more cash than is there. Good luck to him. Now friend 2 I would try and strike a deal with him. Assuming it would take zero cash to make it rent ready, take over his loan and make the payments for him. I would take a property that would cover costs with not out of pocket money in an appreciating market all day. I know appreciation is a given but you probably have at least 2 years of appreciation remaining. It should allow you to exit with at least your hide. It becomes a win if you hold it forever. Zero dollars in at least in 30 years you have the property value. Any money out of my pocket then Friend 2 would also be a no go.
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