I am fairly new to investing in real estate. I have one single family home that I rent which has great renters and very stable. I have begun to purchase a 3 unit home that has been converted which will eleminate my savings but the owner has another house with 4 units across the street for sale also. He would drop the price considerably if I purchased the two, however I dont have the cash and they need quite a bit of work before being able to be rented. The owner has offered a lease to buy option with the second property. having to deal with contractors and the suprises of remodeling what advice would a person have for me in regards to this deal?
Just for starters, you need to figure out what are your carrying costs–monthly costs–while the units are there vacant and waiting for rehabilitation.
That seller should be willing to work with you, as you might be his only buyer.
Once I bought 4 fixer units, only 2 were rented, and those to non-paying tenants. I got the seller to wait 6 months before he got the first payment. There was no deferred interest either. You have to figure out what works for you, not for the seller. Write your own deal.
If you give us information on proposed rents, proposed purchase price, etc. you will get helpful analyses of your transaction from the experienced investors.
Maybe you can also structure it with an option. So you don’t have to tackle more than you can deal with at one time.
Purchase price is 50000 and the way the lease would work is that I would pay 3000 down 1000 per month for 12 months. which at the end of 12 months I would have 9000 down payment for financing (owner saves in escrow). In the mean time I would complete repairs out of pocket to get the rental units up and running. I could get 2 units up and running for about 10000 and have 1100 a month coming back in but I would have to include utilities so really about 800 net, leaving me 200 out of pocket. Then it would probably take another 10000 to get the other two units ready which would gross another 750 per month (probably would not be able to complete till purchase is complete). The property next door is for sale and a little smaller but has 4 units and they are asking 119000 but my funds are a little low for all the expense…
It’s critical you maintain cash reserves. While the worst scenario probably won’t occur, you need to be prepared for it just in case. Over extending yourself coming out of the starting blocks is an all too common mistake. Slow down, be conservative, and grow as your finances permit.
So are you saying that even though it looks like a good deal that will produce some good cash flow I should pass because it will stretch my finances to the limit? Part of me wants it but the other says the same thing… I hear in my head risk is no good but I also hear what people have said for years… You have to take risks to be successfull… I am torn… I want to be the successfull risk taker but also afraid of failure…
Sounds like you’re spending too much money buying the property. Why such complicated payment plan? You’re burning your reserve on the purchase, it is $50k, shouldn’t require such complicated process.
Within the first year you’re giving him $22k plus fixing the place. Give him a second note payable when you refi or sell. No cash upfront, needed to do repairs and get it occupied. If not, offer him $3k, plus same deal on $45k.
Why don’t you ask him for the break time to adjust the money.
Get a partner to invest with you.