Had a friend call today and said her son got into an owner finance situation with a 2/2 condo here in town. Long story short he needs to get out from underneath it. He can't afford the taxes that are coming up this month and is willing to deed the property over to me.
She told me she has a tenant in the property now, which is paying the note for her as well as the monthly HOA fees, nothing more.
I can't decide what the best play is on this one. The numbers really are not working for me. I've never even looked at a condo before.
I asked her for details on the note, and she told me it was a 15 yr note for $30,000 with a rate of 11% (I believe).
His monthly note is $309 and the monthly HOA is $140. Annual taxes are $680.
The comparable condos are selling around $38,000. This one would need a light rehab - carpet and sheetrock repair, and some paint.
I've ran the numbers and it isn't looking like there is any money to be made on this deal what so ever, from a landlord point of view.
The $140 monthly HOA fee seems very high to me. Why would someone pay $140 per month in HOA on a $38k condo. That makes no sense to me.
Pretty much he wants to deed the property to me, and I pay the taxes and assume his note. He would like to get some money out of the deal if possible.
Rental comps are $650-750 a month. Why his mother has it rented for $440 per month is beyond me. She is losing money and has called me for help.
Could someone please chime in
It could be worked with but the numbers don't seem to work out with the input information you mentioned.
Term/Amortization: 15 years
P&I Payment = $340.98
I/O Payment = $275.00
I assume it is suppose to be P&I.
HOA at $140 per month is not crazy high depending on your geography. It would have merit to look at the HOA budget and see how financially sound they are. Special assessments have been issued in many complexes where HOA dues have dropped and they need to repair something etc. If it is just the normal rate, again not all shocking.
With HOA your cost is %480.98 with your tax allocated on a monthly basis your cost is $537.65 ($56.67 in tax @ $680.00 per year)
So based on your rental market rates of $650 plus you have some money you can make but right now you seem to be in the red. If you pull off the higher market rent, I would say you are doing pretty well based on the numbers. ROR runs from 4.5% to 8.5% based on $30k all in.
I would get a copy of the rental agreement and see when it expires and if there is any language preventing new ownership from increasing rents. Provided that is workable you are sitting fine after fixing that situation but maybe see if you can chat with tenant or have your buddy do it since you all know each other. If you can keep the same tenant, not sure I would worry about repairs all that much since you have a tenant in the property and you could defer the repairs and use the rent money overtime to finance those repairs.
I would check with the private lender and see if they will charge a fee to allow you to assume the note. Based on that being a nominal amount of money (typical fee is around 1.0% of the balance) you have some equity, again according to your post of about $8,000. I might offer $1,500 to $3,000 with a heavier focus on the lower number (but I might also try ZERO). You didn't mention what you buddy purchased it for, so I assume he is in at the note value. I wouldn't max my offer out at $38k and might be happy around $33,000 all in. Remeber closing costs still apply to get your title insurance and record a modification to the mortgage and update the note, etc.
What ever he is in at, I would not just give him a huge upside by giving him more than $3k which would be just shy of 10% gain. It seems the situation is stacked in your favor so I would also keep that in mind. In a after thought, perhaps you can do some deferred sharing arrangement to cut your upfront costs down.
All in all, I think you have a deal, you just need to clean it up and ensure you get yourself into a good position for it to move forward.
How many units are in the property? Do they have a Condo Assn? Do they have a leasing cap percedntage which limits the renters? Our condo assn has a leasing cap of 10% and after any new owner who decides to rent must go through the Management Company/Assn for approval. If they are at their cap then you wil have a hard time renting and will need to get an Exception. Many condo owners are being forced to sell because of the "leasing cap" in the Decs. We had one owner give 1% of ownership to renter in a QCD in order not to sell at this time.
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