Great opportunity, w/some hang ups. Insight please
I approached an investor friend of mine who had expressed some interest in having me assume a loan of his on a nice four family. He got cold feet, expressing what would have been seller's remorse. He then called me to tell me about an assumption deal he came across. He told me he will take the deal if I don't, but told me he would like to see me get it.
As we approached the building, a sharp looking victorian caught my eye. Low and behold, it is the building in question. The owner is a hair away from a foreclosure action, it just so happened this investor talked to the right person at the bank. Every loan this bank makes is assumable, and I have my house and four family with them.
Specifics of the deal are: Assuming a loan of $177,500 on a building that is worth $250,000. In order to assume it, the arrears of approximately $5500 need to be brought current. There is also a $10,000 second on title held by friends of my investor friend, who would talk to the them and arrange terms for me. Why is my investor friend giving me dibs on this deal? Because he will hold my hand through the whole process, front me the $5500 and get the place managed properly. For this he wants an additional $10,000. So in all I'll be in it for $203,000.
The place is poorly managed right now, and needs a ton of clean up in the yard. Two of the tenants are decent, and said they used to keep up with cleaning the yard, but stopped when no one else cared. One unit is vacant, two of them will be because the tenants who live there do not pay their rent and are total slobs. The building needs nothing major, but does require some sprucing up.
I figure with the building fully occupied, and after paying the monthly payment, there should be some cash flow of $800 to $1000. That does not include the $5500 to bring the note current, and the other $10,000 that has to be paid some time down the line, within the next year I would assume.
My hang ups are coming up with that down payment of $5500, the second of $10,000, and the $10,000 mentoring fee. Again, I have help getting the $5500 paid and working out terms for the second, but the fact still remains those need to be paid. And with the building not fully rented out, keeping up with the mortgage is a little worrisome. The investor told me if he bought it, I could assume the mortgage from him, but my price would be $20,000 higher, but that would include his mentoring fee, but it would also be tacked on to the $5500 and I assume the $10,000 second.
I really like this building, and the deal represents a great way to get into this property, but something seems to be holding me back from saying, let's do it. Any comments would be appreciated.