I found a hot deal. What to do? - Posted by Katherine (Hawaii)

Real Estate Investing
#1

Posted by Matt B on June 25, 2001 at 07:40:01:

Yes, I agree, Katherine. IF you could get these properties on YOUR terms, this would be a good deal. The problem is that you have to have a very motivated seller in order to get these terms. From what you just described, it sounds like you are not dealing with a motivated seller.

Of course, I could be wrong since I have not actually spoken to the seller personally. There may be something that you picked up on that you didn’t include in your post. If so, then you may have a deal. However, to me this doesn’t sound any different than the seller who calls me and tells me that they want all cash and full retail value for their property. They aren’t looking for an investor. They’re looking for a sucker. (Which I’m not, by the way.)

Here’s one huge, glaring problem I see even if you get these on your terms. Do you really want to sink money into repairs on properties that you do not own? This is a very bad idea. I personally NEVER do any repairs to houses that I lease option from sellers. I would be sinking MY money into repairs on someone else’s house! Now if you are buying these outright and are planning to repair them and sell them, that’s a different story, but that’s not what you say you are planning to do.

#2

I found a hot deal. What to do? - Posted by Katherine (Hawaii)

Posted by Katherine (Hawaii) on June 24, 2001 at 18:06:35:

I found a fixer-upper, actually 2 houses selling for $250,000. One house is in better condition than the other one. Total is 6bd/4ba and 5 parking. He wants $1,200 month, 10 year lease…rent to own. no rent credit. The older house is vacant and needs quite a bit of repair. If both houses had some repairs, I believe the rent could be $1,000-1,200 month on each house.

If I could get the monthly lease down to $800-900 month, get the lease down to 2 yr. lease w/ 3 options to renew for same term. (that’s 6 yrs) get the house price down to maybe $150,000 (with option to purchase the houses anytime during the term of lease) and have it repaired…it might sell for $175,000 each… I have to find out the cost of the repairs and how I can get the money to purchase the house if I do decide to do that at the end of 2 yrs. Or have it lease purchase to another (2) tenants?

any comments? suggestions?

#3

Re: I found a hot deal. What to do? - Posted by GL

Posted by GL on June 24, 2001 at 20:40:49:

I would say you are thinking along the right lines. Try your offer as you have outlined and see what the vendor says. If you put an offer in writing be sure you have an escape clause such as the deal being conditional on passing a property inspection. IF it seems you have a firm deal check the title, leins etc. and inspect the property carefully, or have it inspected, and get estimates on the repairs.

When you know how much the property is worth in good shape, and how much it will cost to put it in shape, you can assess whether you can afford to pay for the work. But remember that the actual cost is ALWAYS more than the estimate, and could be double.

If you can do all this, and tie up the properties, then do the necessary repairs on ONE house, you can sell that house for enough to pay off the seller and own the second house free and clear.

Or you could go along renting them out and making a steady cash flow each month.

#4

Re: I found a hot deal. What to do? - Posted by Matt B

Posted by Matt B on June 24, 2001 at 18:55:01:

Uh, OK, as I read through your post, I was wondering when I would come to the part about why this was a “hot deal”. Did I miss it? Where is the “hot deal”?

All I see is a seller who certainly does not sound motivated in any way. Just because a house is being offered on a rent-to-own basis does not mean it is a “hot deal”.

Let’s look at this deal. Both houses need repairs. IF they were repaired you “believe” they could rent for ALMOST what the seller wants??? The seller is offering NO rent credit for TEN YEARS??? One house is vacant and needs “quite a bit of repair”?

You don’t know how much the repairs are and they “might” sell for $175,000 each after being repaired??? How do you intend to pay for the repairs? Especially on houses you don’t own??

None of this was meant to be sarcastic or mean. I simply want you to realize what you’re looking at here. Honestly, from what you’ve posted, this does not look like a deal. I personally would walk away from it. There may be something I’m not seeing, and perhaps someone else will be able to see a deal where I don’t, but I wouldn’t bother with this one.

#5

Re: I found a hot deal. What to do? - Posted by Katherine (Hawaii)

Posted by Katherine (Hawaii) on June 24, 2001 at 20:22:14:

Well, it’s a good deal like I said if I could get the lease amount down to $800-900 month for 2yr lease w/ 3 options to renew…fix it up and rent it for $1,000-1,200 each house for a total of $2,000-2,400…monthly profit would be $1,200-1,500 month…and if I could get the price down to $150,000 for both houses and fix up the houses it would sell for $175,000 each for a profit of $225,000 (minus the repair costs, let’s say it’s $30,000) profit would still be $195,000 plus monthly rent profit for 2 years. I could try and ask for owner financing and get a loan for the repairs after I get the title to the properties. Does that sound better?

#6

Re: I found a hot deal. What to do? - Posted by SueC

Posted by SueC on June 25, 2001 at 07:45:45:

I think what Matt was saying, in addition to havign a seller who isn’t motivated, is that there are a lot of “ifs” here - until you know comps, actual repair cost, and have an agreement from the seller to change his terms (in a big way) - all of your post is pretty much fantasy. There isn’t much to offer you in the way of assistance with this deal without anything firm, such as what it’s really gonna cost - it’s hard to believe the seller will take $150K for both when together they only need $30K in repairs and the ARV is $175K each!! Why would the seller come down any more?

Also, doing repair on a L/O is a big risk. if you have to do this deal, get a credit from the seller for any work you do, time and materials.