First potential deal. What would you do? - Posted by Joshua

Real Estate Investing
1

Posted by Michael A. Bardelli on January 08, 2003 at 02:22:54:

Joshua,
You mentioned that the asking price of the house was 154K. What are the comps for the area? I would be willing to bet that FMV for the property is pretty close to this. Paying full market value for a property is not the best way to go. Definately negotiate. Why is the seller motivated? Does he/she have to sell now? If so, then listen to their problems and craft a solution that works for the both of you. The financing terms seem attractive. What is the neighborhood like near the university. What are market rents for the area should you lease/option it out. Generally unless you have ALOT of money in cash reserve(25K sounds about right) you should not hold real estate. If you have a good tenant, rental property is not that challenging. These tenants are out there but good screening is required. What is your plan if you have a bad tenant? How much option consideration would you charge? Do your due dilligence before committing to the deal. In short, sounds like you may be on to something, but do your research before signing on the dotted line.

Hope this helps.

Michael A. Bardelli

2

First potential deal. What would you do? - Posted by Joshua

Posted by Joshua on January 08, 2003 at 24:44:31:

I beleive I have come across my first motivated seller. The seller lives in another state and it’s a several day drive from where I am. The house was a manufactured type home and was finished about five months ago, the house never sold to anyone after it was finished and it has never had any occupancy. The house is literally in walking distance to the local University here. It’s only 1 block away.

The seller is quite flexible on the terms. The seller is willing to finance the house to me for two years at 0% interest and those payments go in full towards the purchase of the house. Then in two years the seller wants to be cashed out of the house. Also I should add that the seller seemed willing to accept whatever amount I felt was necessary. But he did want a down payment on the house of roughly 10k. I haven’t talked too much about the details with the seller yet cus I’m going to look at the property tomorrow and then call back.

Here’s a little bit of details I have gathered so far.
3 bedroom 2.5 bath but the basement is 425 sq. ft. of unfinished space in which there goes two more rooms.
Asking price of 154k with 10k down. But I haven’t tried to negotiate any price yet so perhaps these can come down.

Now considering the situation I could leave the basement as is and try to Lease Option the deal and allow it to cash flow to me a high amount every month for a year and then let the tenant-buyers buy the house. But if they don’t buy the house then just lease option it again. And then if they don’t buy the house then get a mortgage myself and either do it again or turn it into a rental considering it is so close to campus.

But considering it’s so close to the campus maybe it would be better to turn it into a rental house from the start? So finish up the basement and then rent it? The average cost for someone to rent here is about 225 per month. That’s without utilities. Where I live is 675 per month and it is 2br 2bth. Other complexes rent at 270 per room with utilities that are 4br 2bth. So would you rent it as on a room basis or on a house basis. Ex. Rent it as a lump sum of lets say 900 or rent it by room for 225 per room?

Or also turn it into a rooming house?

Also the seller told me that there is enough space on the land to build another house. Perhaps turn it into a rental house and then also build a duplex after a couple of years?

I’m just looking for other peoples opinions on what they would do if they came across this situation.

I should also say that I haven’t bought nor managed real estate before, so this could possibly be my first deal. And I’m just saying I don’t know what it takes in capital or time to manage a rental. Does anyone else know approximately how much cash in reserve you would generally need for a rental unit?

Thanks for the help,
Joshua