Posted by Eric FL on April 03, 2003 at 09:45:55:
They work well. You just have to find the right deal and make sure the numbers work all the way around. I have done them on up to 500k properties. If you don’t plan them out well, one bad deal can eat away profits on 20 other deals.
Three things I look for in a deal like this are:
Monthly Cashflow (remember you still want to deal with motivated sellers.) I usually offer to take over subject to by covering all of their monthly payments and expenses. If they don’t want to give the deed, then we can turn the deal into a lease option. We then make sure market rent is at least 600 monthly cashflow and property is below market value.
Market rents - You need to make sure that in your strong market their are buyers to support your larger deals. In parts of FL, we have plenty as their are a large amount of foreign buyers with a lot of cash to put down. I would always have this in the deal: no payments for 3 months or until I find a suitable tenant/buyer and the contract is cancellable by either party after 3 months if you can’t find a tenant/buyer.
- Get a decent down payment and SAVE IT in case the property goes vacant and you have to cover payments.
One last thing, I would highly recommend getting the deed in escrow if you are doing a L/O on a deal this size (or any for that matter). In a hot market, the value of a 500k property will likely be worth quite a bit more in a few years and the original seller will sometimes cause problems.
Do the deal the right way upfront (get a good attorney) and you will be glad you did down the road.
Sorry for rambling.