Could i use your fresh eyes?

Question

I am currently dealing with two deals that, at least at first glance seem to be worlds apart in difference to me. i could use any advice you all have to offer.

One is a 3/2 sfr in CT. This property seems to appreciating, Its in a desirable suburban area just outside of Manchester located near decent schools and it appears to be a good neighborhood. The clincher for me is that the sellers are VERY motivated to sell and be rid of this headache before they relocate to FL, so much so that they are selling for what they owe AND considering Lease Purchasing to me for up to 1 year. In addition, as they won't be moving right away, the owner suggested to me that I purchase the property and have them rent from me until their new house is built and they can move into it. This one seems straightforward to me as a good deal to wholesale, as it'd be attractive to an end buyer looking to acquire a property without tying up a lot of capital.

The second is two adjoined triplexes, all 2/1 in CO. Now the market here is far more stagnant. However, there don't appear to be any social/economic factors associated with this; this neighborhood also seems to be a nice place to live also. The building is 3/4 occupied not counting the owner and his mother, both of whom I've been informed will be looking to move soon and both bring in 3k per month altogether. The issue here is that with the market being slower, and the owner already charging more than the average rent for the area in a depreciating market, i'm not looking to commit to the full desired offer of the owner which is about 60k over what is owed on the property. In my mind there is not enough equity being offered for it to be a safe investment, and if something were to go wrong, the whole deal would fall apart on me. I'd like to offer this owner a lease purchase deal also, reasoning that I'd be far more willing to pay closer to the desired price if I get favorable terms that would allow me and ultimately the end buyer to hedge them self against further depreciation and essentially hold the property until the market turns around.

This is what I've come up with, if anyone else has an idea i'd love to hear from you

Jeff

Jeffery Holmes-Rice · Answer

I actually didn't correctly run comps accurately , my confusion cleared a bit though after i did. For the multiplex (the other seller isn't motivated enough) the comps for 6br 3 ba units sold in the last 6 months are 188k, and i'm being offered 2 for 236k cash or 245k lease option w 50k down. The monthly expenses are about 1800 for everything less electricity and gas which the tenants pay. the units are fully rented and bring in $1200 a month in cash flow, which make the ROI 30.5 on a cash deal or 28.8 on a lease purchase after one year. I think this is a steal, even though the market is cool in this part of CO, i want to proceed, but if i should negotiate more, now is the time. if anyone could help with suggestions or opinions id appreciate it

Wayne Brooks · Answer

Also, if deal #1 has $50k equity, it's not a short sale.  And Steve is right about sellers may not qualify for a short sale.  It would certainly be more suited to an owner/occupant as the price to rental numbers make no sense for a rental.

Steve Babiak · Answer

"Short sell" and "don't want it tied up for an extended amount of time" don't go hand in hand - they are usually completely opposite. Short sales can take quite some time to complete, if and when they do close.  You should be aware of that, and potentially you could use that to convince that seller to go lower on their asking price.  Besides, you say that they are having a house built, so it sounds like they have some assets - which then implies that a short sale isn't a lock (lender might want them to bring some of those other assets to the closing table before the lender approves selling at a discount).

Jon Holdman · Answer

The first one is worth $225K and would rent for $1400.  What can you actually buy it for?

The second is six units that rent for $500 each, $3000 total.  its worth $230K.  What can you buy it for?

At these numbers, neither of these are worth buying if your goal is cash flow.  Appreciation is nothing but a guess, I ignore it.

You're making things very complex yet missing the real key - what would you pay for these?

Jeffery Holmes-Rice · Answer

Thanks for the quick response.

My estimations put the first property at about 225k. As i said, the people there are selling to build another house, so no concrete rental value to go off of, but average rent in that area is about 1400-1700/month. The owner owes 174k and pays about 1700 a month for PITI and utilities (including electricity, the association fee and heat fuel) and is selling it for that much OR with 4k down they will provide financing for up to a year after which  they expect to be cashed out. as far as the subject to they are not looking to do anything like that. i was informed that if the property isn't sold by march they will short sell it, so my guess is that while they aren't necessarily  hurting for the money, they don't want it tied up for an extended amount of time. for me this situation screams for a sandwich lease, as i will be flipping it to an end buyer within the next week, but if anyone has a better idea, i'm open to suggestions.

The second property is trickier. The market is colder, there have only been three sales of comparable properties in the last year so its a bit harder to confidently estimate the value of the property. in addition, the market is actually depreciating, but if i had to guess, i'd value it at about 230-250k. the owner wants 236k for both triplexes which are fully occupied with tenants that have leases up to about a year in length, but with the rental rates already above average, ($500/per month per unit) , its unlikely that i'll be able to comfortably build any cash flow in by quickly raising rent or improving the property without first driving a hard bargain OR going for a lease purchase, and offering closer to whats expected while receiving the sellers financing. In this case also, I feel that pushing for terms is the better option and will receive the most welcome reception, but as mentioned before, i'd listen if another better plan were presented

Thanks again

Jeff

Steve L. · Answer

You don't give near enough information or really ask a very specific question.

Deal #1 -

What do you think it is worth?
What is it rented for?
What does the owner owe?
What is his monthly payment?
Would he consider subject2?

Deal #2 -

Provide more details.