May Have My First Deal and Need Advice

[Joe P.]

Looking for my first deal and got a call from an old retired guy. He lives in a 1296 sqft Manufactured Home built in 2002. The neighborhood is new. I want to take this sub 2. Here are the numbers.

Got comps from the tax assessors site. I have 3 manufactured homes that sold in Sept, Jun, and July last year that sold for $136K, $135K and $129K. Two of these are on the same street a stone’s throw away.

ARV: $133,000
Loan Balance: $103k
Payment: $597/mo
Interest rate: 4.5% to 4.75% Fixed 30 yr
Taxes and insurance are paid separate, $800/year for taxes.

Our area is in a hot rental market now and this could easily rent for $1000/mo

So I'm thinking sell rent to own $200/mo cash flow with 30k backend.

I’m going to see him tomorrow at 3pm. What do you all think? Is this a good deal, especially for my first one?

Thanks

[Jon Holdman]

The "50% rule" which states that for a rental, vacancy, expenses, and capital will amount to about 50% of the rent. Not in any particular year and certainly not in any particular month. But over the long term.

$1000/2 = $500 = your NOI
$500 - $600 payment = monthly loss of $100

Taxes and insurance are just two of the expenses. Maintenance, property management (which you can earn for yourself), HOA fees, make ready costs between tenants, vacancy, tenant damage over security deposit, legal fees, CPA fees, a long eviction or a crazy tenant who wrecks the place are all possibilities.

Lease options (rent to own, etc) are really just glorified rentals. No have no guarantee the buyer will perform. Further, if you're doing this subject to, there's a risk of the bank calling the loan. Low risk now, I'd say, but if interest rates rise, it becomes more likely.

With a rent to own, you also have the risk prices continue to fall (likely, IMHO.) Even if you agree to a price now, there's no guarantee that price will be acceptable in a few years. Even if the tenant agrees to a higher price, their bank won't lend based on that price.

Why not buy it subject to and the resell it as quick as you can?