Idea's Anyone?
Hey gang, I'm hoping you guys will hit me with ideas on how to proceed on this potential deal.
Guy does not want to be landlord anymore and wants to get rid of his only rental as he's yearing for retirement. Tenant just moved out. He calls me from an ad because he does not want to deal with realtors. OK, I'm good with this so far..
Pristine 3-2.5 built in 1996 in very desireable area to live. FMV ~200k. He owes 115k. 6.6% loan with PITI ~ 1000. He had been renting it for 1250 but had not raised rent in four years.
I had initial meeting with him today. He seems agreeable to defering his equity for a couple years. I told him I would make him three offers.
1) low ball cash offer.
2) Sub to offer
3) L/O offer.
Now the cash will be so low he will not bite. I have a good understanding of sub to's thanks to $cash$ and his course. Though I have not yet done one.
Lease Option is new to me and I have been furiously reading the L/O forum which I don't usually do.
I have just wholsale'd my only two deals and have been looking for a keeper but have very little $'s in the bank for a cushion.
First, any Ideas on how to stucture my offers? Should I give him current FMV if he will hold off at least two years for his equity? Should I try to strectch him longer than two years? Maybe at increased purchase price?
Should I take a chance and keep it (whether subto or L/O) and use the down as my rainy day fund for the property?
Or too risky, just get him to contract and assign as my wholesaler-play-it-safe intstincts say?
Am I making this too complicated??
geez, is that enough questions???
Just having newbie angst about a deal that is not clearcut to me, on how I should proceed. Any help would be tremendously appreciated. Sorry to be so long..
John
:-? :-? :-?
After verifying your numbers and due diligence, I would take the Sub2 avenue. See how much he will settle for right now and ask him to take a balloon payment in 4 or 5 years. You lease option the property for about 2 yrs with a nice down payment up front from your t/b and raise the rent according to the market in the area creating a nice monthly cash flow. Your t/b refinances then cashes you out at the 2 yr appreciated price. :-D
Thanks ragmon. I am leaning the subto route. I will meet with him and give him my pitch on monday.
All hinges on his willingness to defer any compensation for his ~85k equity until future sale. Hence I am thinking about giving him a FMV purchase price for that consideration. Then sell to prospective buer at 110-115% at that time.
Any of you veterans see any problems with that scenario??
man i love this %%$#,
John
rainforrester,
Normally the older folks don't need the money in the majority of cases.
So you say Mr. Seller if you were to recieve all your equity money and put it in the bank you would only be making X% interest which works out to $X per year. Calculate what the bank would pay him which is a very small amount yearly.
Mr. Seller with my plan I will give you a 5 year balloon note at 6% interest where you will make X$ per month.
You still work the "PAD" on him as a reality check, and put your 5 year balloon note along with your other figures.
Remember he has the pain (Landlord) and you have the cure for his pain, so make the offer based on how you know how to do it, not on a "gee whiz" offer just to get the deal.
This plan is a great way to handle the high equity deals.
John $Cash$ Locke
John L, BRILLIANT! Just brilliant. Exactly the idea I was looking for. Thanks! You know, just between you and me, you should write a book or something..
cheers,
john 8-)
Rather than a lease/option I'd go with a straight contract for deed. Contract has the advantage that your payments in the meantime go in part to principal reduction and when you get ready to buy him out you're qualified as refi rather than purchase.