Aloha from Honolulu, Hi!
I have a deal in South Fl that's been in the pipeline for a while and the owner is about ready to sell. Its in a great area, very much up and coming; 4 newly renovated properties on the street. Its walking distance to an A rated elementary school. Overall its a good property and I'd like to keep it as a rental. Im trying to figure out the smartest way to structure the deal so any and all feedback is greatly appreciated! Ok lets get into it
The owner is 75 years old and has owned the property for about 20 years. He wants to sell it so he can move to Mexico and live out the rest of his life. I was originally going to put it under contract and wholesale it to another investor so the arrangement we had in place was that I was going to buy it cash from him. After it sitting in the pipe and spending the last 6 months learning more about the ins and outs of RE I decided this was a great property and I wanted it for my portfolio (Which would be my first).
The property is worth $300k-$325k
I can buy it for $200k all day long
Rehab is $60k
Now that we have some numbers to go off of my initial thought was to get a hard money loan and BRRR the property.. looking out for the home owner I was thinking he'd be hit with a hefty capital gains tax and he's using the money to live off of so id want to help him get as much money in his pocket as possible. Maybe I shouldn't care but he's a cool og and I've built a relationship with him over the last 8 months. So my thoughts shifted to do a seller finance deal, but the owner is older and could pass any day and I don't know what would happen if he did?? I don't want to use my money to put a down payment nor do I want to spend $60k out of pocket to rehab it After spending hours on BP reading thru posts and plenty of podcast later I had a bright idea (Or so I thought?). Lets mix the ideas together? Please correct me if Im wrong:
Get a Hard Money Loan or Private Money for $160k
Give the seller $90k to pay off his mortgage (seller finance the left over $110k with a ballon)
Spend $60k in rehab and have $10k as reserves for safety net
Then Refinance the property at $300K (Low end) Get $240k out, have additional $50k or so and rent out the property
What are your thoughts?!
Love the creativity! Just remember to calculate in closing costs (2k), hard money points and interest (2 points and 10% over 6 months is 11k), holding costs (prop tax, insurance, utils, HOA), and also the refinance lending costs (gonna be around 5k most likely). At the end, how long do you think before the balloon kicks in? If its a year, then you would be short if you owe the seller 110, but only had 50k cash left over (minus any of the expenses above). Also, will the property cashflow after?
Seems like a lot of potential, just need to make sure you run your numbers well. Either way, good luck!!
Yup you got it! Thank you. I see you're in Honolulu id be interested in connecting!