Hey Guys… Can I get your opinions on this deal?
The seller bought a piece of property in a pretty good rural location about 20 yrs ago. He first built a saw mill, then started milling his own lumber and has built a 4-unit building, a huge 6-unit building and a small house on almost 2 acres over the past 20 years. 11 rental units and his place on site make a total of 12. Its really a pretty attractive, although rustic site, now 1/2 mile from new school and shopping center.
He is interested in selling and wants to remain on site to manage the property. This is important because the place is about 35 minutes from us and it has 2 outdoor wood furnaces that supply hot water heat to some and domestic hot water to all of the units. He has a small mortgage of $1600/mo (I haven’t got the interest rate yet) and will finance the balance of the sales price.
We would like to propose taking the place subject to his existing first and giving him a 2nd for the balance.
2006 Schedule E figures:
Income: $87,333
Expenses:
Elec: $13,159
Tax: $8,853
Ins. $1,126
Main/repair/cap improvements: $8,000
The property is on well / septic, so no expense there. Currently, there is a master meter for elec., but most of the units have their own sub-meters & panels and could be converted.
In addition, there is a 50KW diesel generator wired underground to power all the units and he has an 850KW ( !!! ) diesel generator on-site that is connected to the power grid and has the capability of powering around 50 houses in the area. There is sufficient diesel fuel storage to run the big generator for about 4 months. The owner is really a tinkerer and his only job is hanging on the property and doing projects. He’s really a cool guy. He also built a 5-br/3 br duplex on the property next door and rents them out. He’s 62, but you’d never know it.
I figured that we could allow him to stay in the 12th unit rent free in exchange for continuing to manage the complex and we would still clear $7-8K/yr.
There are a few things that are concerns to us, but what do you guys think of the deal? Is it too messy because of the odd-ball heat and the extra equipment on site? And what would be the best way to structure it based on his financing it and managing it? If we got it probbably the best exit strategy would be to try to re-sell in about 3 yrs or so, while he is still capable of running it?
Also, there is a whole lot of money tied up in the saw mill and the power generation equipment that we are not really interested in. What’s the best way to break this extranious stuff out of a purchase deal?
Deal or No Deal?
Thanks!