Need Help On This One
I am submitting offers on 2 different properties. The first is a duplex. They are asking 66900 and they say it is below appr. I did a walk through and met with both tenants. The tenants have lived there for over 10 years each and were trying to buy the property through a lease option, but the owner died and her 2 daughters would not honor the contract. Both units are only renting for $325 a piece and the tenants are paying all utilities. There are some cosmetic repairs that need to be done, (paint, stucco repair, window replacement) but overall the property is kept up nicely by the tenants. I was thinking of offering 55000 and asking for the owner to give a repair allowance as well.
The second property is a 3 unit that has two 2 bed for $500 and one 1 bed for $425. 2 units are rented with year leases that expire in about 11 months and the tenants in the other unit were evicted the day I did a walk through. The property is in good condition. The tenants pay all utilities except water and want to stay. The owner is asking 72000. She has 3 properties total that she is trying to get rid of right now. I was thinking of offering 60000 on that one with another repair allowance (replace main doors on units, shampoo evicted unit carpet, minor cosmetics).
I would appreciate any feedback on these. I do not want to forget to put any contingincies in the contracts (inspection, pest inspection, financing). When asking for copies of signed leases I heard you should also ask for a copy of the schedule E that the owner has to file for taxes. Is that needed?
Also, when I go for financing I am looking for as close to 100% as I can get. My credit score is around 650 but only have a little over a year of documented income. Any ideas?
Thank you much!
Beth
Beth
You don't really give us enough info to be able to judge the quality of each deal. so I'll just throw out a few ideas to you.
First of all, forget what the landlord says about the property being below appraisal. Do your own appraisal.
Next, make sure you get copies of all the L/O documents and have them reviewed by your lawyer. If they were preared correctly, they are possibly binding and cannot simply be ignored.
Replacing windows is not a very complex process. But it can get very expensive.
To the extent possible, make sure there isn't any animosity between the seller and the L/O tenants. That animosity could carry over to you. If you find that they're bitter, you might want to insist that they be removed before your purchase.
Make sure you like the tenants in the second property. If it takes you another couple of months to close, you'll still have to deal with them for 9 more months. that can be a very long time to put up with someone who you can't stand and who can potentially cause tremendous damage to your investment.
Good luck.
Relative to deal number one: I would walk, tell the seller that people who do not honor their agreements are not people I choose to do business with and advise the tenants to sue for performance on their L/O agreement. The death of the mother is tragic but such agreements run with the land and should be enforceable. Should you ignore this advice there is some chance that the tenants will get good legal advice and sue for performance. Since you are clearly aware of the situation that suit could attach to you and your title.
Relative to deall number two: You do not give enough information to decide. What is the Net annual operating income before debt with the now vacant unit rented? How long do you think it might take to rent?
What is the lease option monthly payment? You might want to look at that and see if you want to be the one to honor it. At the cookie cutter 325 and 325, I do not think 55k is a good enough deal, if you factor in vacancies, repairs, advertising, etc, you would be making less than $75 a unit which is half of what I would shoot for.
Deal number two, the two rented places would support the PITI (if they pay utils) so I think that is a good one (from the info presented.
When getting in the low income housing landlord business, I highly reccomend Shemin's secrets of a millionaire landlord.
GL
I agree wholeheartedly with commercialking. The first deal is much too small to be messing around with probable lawsuits. It is just a matter of time before the tenants figure out that they should sue. Personally I would find it difficult to not give them the advice to at least try to get the L/O upheld.