Deal structure insight

Hello all

Well after many ways of marketing I’ve gotten leads coming in my hat goes off to Javipa for giving me the bump i need and i now have a Seller willing to deal.

Here is the details

Seller has property inherited from sick dying father
Needs money for medical bills
Out of town owner
Property is currently rented for $800 mo with long term tenants
Not the best but not the worst area of town comparable rents are $950 mo
Property ARV$ 87k
Seller wants $45k
Seller claims interior is renovated exterior needs new siding gutters possible roof
Property according to seller is free & clear
Seller does not want renters put out if home is purchased
Comps are almost non existent in the area ARV obtained via
I KNOW I KNOW not the best place to get comps however that’s all I can do for now

So long term tenants in place paying religiously ( sellers words )
Property still needs work estimated 15 k
Have appointment in 2 days to meet seller at property

My concern is that homes aren’t selling in the area much no activity in last 6 months
it is also maybe about 100 yards from train tracks
I’m curious how would I structure this deal
possible cashflow deal to buyers with existing tenants

All insight welcomed

Thanks

You can give him what he wants, and still present a very good long term investment opportunity to your buyers. Check this out:

ARV $87,000
Max % of ARV 85%
Repairs $15,000
Closing Costs (%) 3%
Holding Costs $572
Wholesale Profit $10,000
Max Offer $47,182
Rental Rate of Return:
End-Buyer Cost Basis $73,950
Max Rent $950
Projected Monthly Expenses $152
Cap Rate (Rate of Return) 12.95%

Now, if you think you can get it cheaper, go ahead and negotiate. But, even if he stands firm, you can give him the $47k and still have a good chance at flipping it, given the little I know about this deal.

You present it like this to buyers:

  1. You’re going to be getting a 13% return on your investment annually.
  2. You’ll own the house free and clear in 6.5 years, making it at that point an ATM machine.
  3. It’s a turn key investment, with a renter in place.
  4. And, with the renter in place, you don’t have to make any repairs or upgrades now.

Check out the numbers with no repairs:

ARV $87,000
Max % of ARV 68%
Repairs
Closing Costs (%) 3%
Holding Costs $574
Wholesale Profit $10,000
Max Offer $47,385
Rental Rate of Return:
End-Buyer Cost Basis $59,160
Max Rent $950
Projected Monthly Expenses $152
Cap Rate (Rate of Return) 16.19%

How you present it is the key. You’re not selling houses. You’re selling investments. You’re selling the dream.

Meastro

Thank you for tour input I am extremely greatfull

I would like yo know how you arrived at those numbers if you can explain the math formulas in detail for me I would be thrilled to have a tighter gasp on how to present these type of investment deals to my buyers thank you

Those numbers come from a handy dandy little program created specifically for me and my coaching program, by an investor named Daniil Kleyman. I only plug in ARV, % of ARV, repairs, profit and max rent. And it does the rest.

For info on CAP rate and cash-on-cash rate of return, all you need to do is google them. You’ll find the formulas and definitions all over the web. And will probably explain it a whole lot better than I…

Deciding what kind of deal it is - rental vs rehab - is key to understanding how to price it. It also tells you what kind of buyer you are looking for. Landlords will generally pay more, if you can show long-term gains. Rehabbers pay less, and need tons of instant equity.

Without knowing this, you may think that you need to get this house at $.40 on the dollar, which will price you right out of the deal, most likely.

Congratulations on your first solid lead! Just curios, what type of marketing was most fruitful for you and which was least?