Hey, thanks just for checking this out! I’m trying to make my first deal happen in the next few days. By Monday, I will be in touch with my seller again.
I’ve met a seller with a rental property in Baltimore with 4 units. The seller is moving into retirement mode and wants to be hands off. She has a mortgage on it for $275,000. Right now she has a lease signed for the bottom unit for a year at 750 + utilities. And the top one for 800 incl utilities. The other two units are currently vacant.
We have decided a lease option agreement would be best. Luckily, she has experience investing in real estate (yippee!). Lease amount for the building is 2200/mo (PITI + her cut), she would assign her current leases to me. I would have the option to purchase for 285k in 4 years, I pay closing fees. I will pay repairs under $500.
-back carport needs roof repairs
-some deck railing needs to be improved
-stove for one unit
-minor cosmetic repairs
-skylight has a minor leak
estimated total repairs: $2000
Estimated monthly cashflow:
total revenue: 3150
net utilities (400? still waiting on numbers)
total expenses: 2600
Net Cashflow: 550
My thoughts: this is a secure investment. The neighborhood is directly adjacent to UMaB. This is a 2007 price for this home (bad year here) but I think having the lease option will make this a safe investment considering it will mature before a year is up. If the housing market bounces back up, this will be one of the first properties worth more. Otherwise, this could be a cash cow with housing in a crucial location.
I was hoping for some advice on the following points. And a SUPER THANKS for staying tuned this long!!!
- Am I correct in applying a lease option in this situation?
- Would I have her assign me her old leases? any advice on this sort of contract in general??
- Does anyone know if Sec. 8 laws in Baltimore are going to make this difficult?
- Is my cashflow margin 550/3150 = .17 sufficient?
- Any thoughts on what method I should use to borrow money at a good rate for those repairs I listed? Keeping my cash out is important!
- How do I approach the issue of acquiring equity? The mortgage was purchased in 2007. Obviously the full 2200 monthly payment shouldn’t go towards the purchase price or she is going to get screwed when I purchase and the check doesn’t include what she paid in interest, taxes, and insurance. Kapish?
- Any other advice or RED FLAGS that you saw in this deal?
Massive appreciations to ya folks, for any and all input!