Can I make this work?

Not sure if I should be posting this. It has elements of various topics and I didn’t want to cross-post, so I’ll post it here.

My first deal may have just fallen in my lap. My primary interest is to buy, rent and hold. Here are the details:

1969 3 bedroom 2 bath house in So Cal. Owner currently owes ~$90,000. ARV ~$425,000. Owner wants $275,000: $90,000 to pay off the mortgage $110,000 to pay off a motorhome and $25,000 to give to each of his three children. Current rents for the area are $2,200 - $2,400. I get the impression that he may be willing to take a second, however he doesn’t want to be bothered with having to write out a check to each of his three children every month.

From talking with the seller, he currently lives in Penn, is 71 and owns 3 houses: One he lives in; the other is currently in escrow with no renters; and this rental. He says he is “property rich and money poor” and is motivated to sell by the spring.

Rental history: Current renters are the owner’s daughter and family with no written lease. They moved-in in mid October and were suppose to start paying rent (in the amount of the mortgage) on November 1st but still haven’t paid as of today. They plan on moving out in June. The previous renters were the owner’s step-daughter and family who were consistent with the rent. They rented it for 9 years. I got the impression that the rent was once again just enough to cover the mortgage. Previous to this, the renters were the same daughter and family who just moved in. The lived there rent free for two years before the owner kicked them out. Because of this, I can assume there will be a lot of deferred maintenance and there may be some trouble getting rid of the daughter.

I will be taking a brief look at the house this weekend. If I make an offer, I was going to use standard due dilegence, inspection, contingent on the property being delivered without renters, closing by the end of June. I would be willing to take on the headache of “with renters before June” as a part of negotiations. Other terms:

New Loan: $100,000, 30 year, 7% interest, payment approx $665.30
2nd (Carried by the Seller): $100,000, principal reduction, payment approx $277.78
3rd (Carried by the Seller’s Children): $75,000, principal reduction, payment approx $208.33

Total monthly payment: $1,151.41

Another thought:
Owner Carry First (subject to?) 200,000, 30 year, 3.9% fixed, $943.34
2nd (Carried by the Seller’s Children): $75,000, principal reduction, payment approx $208.33

Total monthly payment: $1,151.67

The owner carried subject to would allow me some finagle room with the $$$ amount and interest rate depending on repairs. I understand the basics of “subject to” although I would have do do more research. Can I offer an owner carried subject to? I anticipate the owner having some concerns with regard to me not making the payment and the effect on his credit rating. If I go this route and he brings this up, I figure I can alleviate some of this by telling him that I would be making the payments directly to him, and him to his mortgage company. Is this the right technique? Is there another way to make the owner more comfortable with “subject to”? This is an area I need to do more research on.

Looks like I will have to get creative for this to work. Options may be an option (another area I’ll need to get familiar with). Bird-dogging, flipping, and wholesaling may not be palatable (but do-able as a last resort).

Any thoughts?

No need to be too creative on this, assuming your numbers are accurate. Also, you don’t give out any repair estimates, so that must also be figured in the equation.

Property manager is going to say that this is a BAD deal on a rental, because your payments will be in the $2K range (more or less), so it does not cashflow. This is fact and you need to be aware of it.

However, that said, a $150K equity position is not bad, again assuming that you’re market doesn’t completely tank. Knowing your market is important. Which way are values going now, how much are they moving. Knowing this can increase your negotiating power.

What is the major movitation of the seller? Make a straight cash offer, for example of $225K or present some form of owner financing. I see some possiblities here, but need more info.


Don’t buy this to rent. As Roger said there is negative cash flow and therefore no profit (unless you are speculating that there is buried treasure hidden on the land). BUY IT TO FLIP/WHOLESALE

You should be able to wholesale this to an investor for a hefty profit without putting any of your money down. Get the house under contact and then sell the contract to an investor for 300k for a quick 25k with no money down and no risk.

If you want more money just buy it (assuming you have good credit) and sell it at a slight discount to a homeowner. If the actual ARV is 425 and there are no repairs then why not just list it with a realtor right after you buy it?

Get these numbers and it’s easy to tell if it’s a good deal

Avg. days on market for houses in the area
closing costs
property taxes
real estate agent fee’s
mortgage payments
uility bills

If it was me, I’d do one of two approaches -

  1. Actually, I would love to do this as a super-long closing - as you said, get whatever you can as far as financing - close in June as soon as renters are out. You tie up the property for a terribly long time and have ample opportunity to decide whether to wholesale (my first choice on this), rehab and rent or rehab and retail - depending on the market come June-August.

  2. Close now, but insist on a signed rental agreement with the tenant - which has some stiff accelerator clauses - ie it starts at only enough to cover the mortgages (paid into escrow to disburse to seller and kids) but if any payment is late then it accelerates to market rent ($2200 you say). They probably will screw up so you’ll be able to evict them early, then wholesale/rehab/etc from there.

In either way - I’d consider wholesaling it out at $295k, or if all it needs is some paint and cleaning - do it and retail it way below market - like $345k.

My guess, though, is as old as it is it will need a full rehab and updating.

Good luck.

Thanks everyone. I’m going to look at the property this weekend. I’ll let you know how it goes.