Having doubts about my 1st deal

Hello everyone. I’m a newbie to this board and subject-to investing. I found a motivated seller who wants to deed the property to me and rent it back from me with an option to buy for 24 months. However, there are few things that came up and I’m thinking about walking away:

1.) The mortgage is an ARM that changes every 6 months. There’s no way for me to know ahead of time how much rent to charge, unless I change the lease every 6 months (right?)

2.) The current payment is about $1,000/mo. The seller makes about $950 every 2 weeks (I checked the paystubs). It doesn’t seem like the seller can afford the current monthly payment (I’ll be adding a little for my monthly profit), much less be able to pay more if the payment has to go up. I really don’t want to go through evicting someone (not that I have any hangups about it, just don’t feel like going through the trouble).

I’d like to be conservative and walk away, since I’ve only invested $1 anyway. It just seems like a shame because there’s about $40K in equity, and needs about $5k in work (I’m a real estate agent and I’ve done the comps).

Any ideas or suggestions would be greatly appreciated. Thanks!

This is a great deal…for the seller. He transfers all of the risk (6-month ARM) to you, locks in a 24 month fixed payment and retains an option to purchase the property in the future should it appreciate in value. You on the other hand lock in a monthly negative cash flow, imo. Have you considered expenses beyond the mortgage payment; insurance, RE taxes, repairs etc.?

The seller cannot afford the cost of ownership or rent, you say so yourself, so why do you think he can afford the rent plus your monthly profit? You should structure this as a property flip if you are convinced there is sufficient profit potential.

I’ve never understood the idea of taking over a property from an owner and letting them rent back. If they can’t pay the mortgage now, how are they going to pay even more so you profit.

I think the only opportunity is to have the seller move out. Even then, I’d be concerned about the ARM. It doesn’t seem like enough equity to me.

Yeah, just isn’t a good fit for me. But hey, at least it’s a learning experience. I’ve gotten a few more leads on a toll-free voicemail I setup, so I’m optimistic. I know this is a numbers game, so I’ll just plug away until I get one. :biggrin

Your question:
1.) The mortgage is an ARM that changes every 6 months. There’s no way for me to know ahead of time how much rent to charge, unless I change the lease every 6 months (right?)

you are looking at this wrong. your payment does not determine the rent, the market does.

If you don’t mind my asking, how are you advertising your voicemail number to get the leads? Thanks!

FWIW, I think walking from this deal is the best thing you could do. I know getting that first deal makes you anxious and excited but you want all your deals to be good ones. This one has potential to bite you.

I’ve been getting a lot of responses by posting free classifieds online at sites such as craigslist, backpage, kijiji, etc. I’ve noticed that the ad needs to be unique, because there are just way too many “I buy houses” ads out there.

Raquel, one of the best pieces of advice I ever got was … unless there’s a boatload of equity --no, make that a shipload of equity, and even then be extremely skeptical – don’t even think about buying from then leasing back to a distressed homeowner. Good luck.


LOL, what’s funny is that a book I read has a list of “pitfalls” with subject to, and guess what the first two pitfalls are? 1) letting the sellers stay in the property and 2) renting back to the sellers. I’ve found a few others that want to move out quick, so I’m gonna get crackin’ on those. Wish me luck! :deal