Help w/ Offer

I am looking for advice on how to structure an offer for the following situation. I am considering purchasing these two homes for rentals.

The homes are on the same street and they are very similar homes. They are listed for 55K and 65K and are in a good neighborhood. I would think that they would appraise for at least this much. I will need to check into this.

They are both 2 bedroom 1 bath homes with around 1200 square feet-single story with a nice basement. Both have a single stall attached garage and poured basements (not block). Both have new carpeting, paint, roof, furnace and one has new air conditioning the other home has an older ac unit. Refrig and stoves are included but they are quite old. They are move in ready.

The owner would provide owner financing at 7% interest and wants a down payment of 10K for each home but said would take less than that.

I can get 100% financing from my bank at 8%.

I could get 550 and 600 rent for the homes. One is a little larger.

The owner is an older realtor and has several rentals. She is selling her rental homes as the tenants move out.

I would like to consider making two offers. One an all cash offer and the other one with owner financing. Is there any way I can make this work for both the owner and make this a good investment for myself? I would appreciate any thoughts you might have.


u planning on making multiple offers on both properties? (for a total of 4)?

what is your motivation for making such offers?

for those rent amounts, what do you projections tell you about the cash flow situation?

i mean, if they’re offering 7% seller financing, what would discourage you from that?

you have the cash to pay for one outright and still have funds sufficient op funds for your overal business?

if you’re offering all cash on one (i’m talking cash too, not bank financing) - work it out. i mean, i’d say:

48,500 cash for the one property


55,900 for the other - seller financed at 7%. (1. does seller have capability to legitimately offer seller financing - they don’t have a current mortgage 2. what are the terms 10,20,25,30 yrs?)

on this second house - offer to put down 3% [cuz you’re paying cash for the other]. also, see if you can stretch out the terms, make it long, maybe defer some of the interest for a year or something.

talk to a lawyer too. one that knows how to draw all this up. most likely, i’ve heard that trusts are drawn up which will protect both you and the seller.


These sound like great houses at a relatively low retail price, BUT they won’t produce a positive cash flow at these prices and rents. Cash flow is EVERYTHING with rentals. That is probably why this “investor” is selling these properties - because he’s tired of dealing with the tenants and losing money each month.

No matter how you slice it, these are relatively low income rental properties. The tenants will not be good. Throughout the entire United States, operating expenses (including capital expenses) run 45% to 50% of the gross rents. So, at $550 per month rent, the first house would have $275 monthly operating expenses and $275 left to pay the mortgage. Unfortunately, the mortgage on $55k at 7% is $365, meaning that you’ll have a loss of $90 per month on this house. The other house is worse and would have a loss of about $107 per month. Between the 2 houses, you’d be losing almost $2,400 per year.

The problem is that you’re paying almost twice what these properties would be worth as rentals. If you could buy them for less than $30K each, then you’d be able to make a small positive cash flow.

It is nearly impossible to pay retail for a property and have it produce a positive cash flow. Look for a property at a deep discount and then run the numbers. It really is all about the numbers!

I’d pass!



I would agree with what everyone has just said and I would like to add something to that.

You mentioned that the seller would take less for the down payment, so why not offer less?

If they are willing to take less with the down payment they are probably likely to take less on the total price also.

You should push the envelope and try and get the properties as low as possible if they do interest you. If the seller accepts your first offer than you know that you offered way too much. Especially in this case where you are looking to rent them out you need to get your monthly payments if you are using seller financing, as low as possible.

I hope it works out for you.

Brandon :slight_smile:

Thanks for everyone’s response. I was considering making one cash offer for both properties (80K for example) AND one offer to purchase both properties using seller financing. This would give the seller a couple of options. I’m not familar enough with financing to understand what I would need to purchase these properties for or, how to structure a owner financing deal, and provide for a good solid investment for me. I wasn’t considering offering what the seller was asking. I knew I would need to offer considerably less to make this work.

My tax accountant thought if I could buy both of these houses for 90K that this would be a decent deal. I question that given what I’ve read from these posts. I believe he was looking primarliy at the tax advantages.

Thanks again for your help.


first, you should not have to “question” anything anyone says.

you should know the answers.

plug in the numbers at 90k (45k for each property) into a cash flow analysis sheet.

Remember Excel?

just plug in the numbers and at the end, you’ll have your answers, definitively.

now as far as the operating funds being 45% - 50% of gross rents, this is where YOU come in. how can your company get these numbers down, without sacrificing your property management time. another words, where can YOU save money to cut your costs down to 40% say. that gives you more control and flexibility in your approach.

that 50% average is a quick measure, and accurate too, but if you work smart, you can cut these costs.

just remember that vacancy rate and debt service are not included in these expenses. they’re seperate. but, you have the most control over things like the debt service (put more down, work out a good interest rate with good terms, etc) and you have the ability to control your expenses (have the tenant pay for the landscaping, snow removal and portions of the utilities). you also have control over what type of tenant you will have. however, buying in a lower income area, may present certain difficulties with finding a quality tenant, but that comes back to control. you don’t have to buy these particular units as property manager said. pass if you’re not up to the challenge of dealing with a poor quality tenant.

i thought you mentioned offering a cash deal? now if you don’t have debt service - not using leverage to purchase these homes - that changes alot. also, the seller financing, just crunch the numbers down to where your offer has the property cash flowing, with the most conservative of numbers. if the offer is denied, at least you practiced your creativity in developing a few deals.

it sounds like these units are in a crappy area. being new to investing, you should just pass, but practice making some offers on these bad boys. work up a seller financed deal man. it’s not that hard. remember, everything is negotiable. have fun with it. make’em sub2 partner approval, yada yada yada, so you can still get out of it. make’em no money down offers. offer .40 on the dollar. it won’t get accepted, but at least your DOING. rather than posting on here about how you don’t know how to do it.

good luck and keep in touch.

The houses are nice houses and in a nice neighborhood. They would be appealing houses to rent for both younger and older couples. They don’t need any work.

I should probably know about excel and a cash flow analysis sheet but I don’t.

The tenant would be responsible for all utilities, mowing lawn, snow removal, etc.

The cash deal would be on a loan I can get from a local bank. Although I have great credit, I don’t have much for extra funds on hand.