Chris,
The vet just called…the horse is DEAD, stop beating it!
Wow… Half? That’s crazy. Can’t I include a clause for the tenant/buyer that they are responsible for all repairs, since they want to buy the house?
If I can’t include that clause, then what do I do? If someone has a mortgage payment of 1100, no one in this world would let me option to purchase and agree to pay them half of their mortgage. Why would they? So what do I do?
Mike…Mike…a little reality check here for our young investor?
Chris, I think you are way too motivated to buy. My thought is that you probably are not looking at enough ‘deals’. There are plenty of deals out there, I cannot see how this is one of them.
Chris,
Throughout the United States, operating expenses run 45% to 50% of the gross rents. That is not “crazy”, that is reality. Most states have tenant-landlord laws that require the owner to maintain the property to a certain standard. Even if you violate that law and require the tenant maintain the property, what often happens is that the tenant simply doesn’t do the maintenance or worse yet, he does it himself and does a terrible job.
The truth is that the majority of these lease option buyers never buy the property. They are renters, pure and simple. They are renting your house because they don’t have the money or credit to simply buy one. People don’t often change their lifestyle. If there credit is bad today, it will probably be bad next year.
Paying $170K for a property that is worth $185-200K is a TERRIBLE DEAL. You said your “Profit” would be $15K-20K, but the truth is there is no profit. Profit only occurs after you sell the property. The real estate market is in bad shape and has a lot of downside risk. If the market declines even a little, you will be upside-down - meaning you owe more than the property is worth. This has already happened to MILLIONS of people.
Cash flow? You say your cash flow is $200-$300 each month, but that is simply wrong! If you could get $1,500 per month in rent and the mortgage payment is $1,100, you would be LOSING $350 per month. OUCH!
You clearly don’t understand the rental property business. I strongly urge you to get up to speed before you buy ANYTHING! The vast majority of newbies fail in a short period of time and YOU are on the fast track to joining them.
Good Luck,
Mike
Disclaimer I have never rented a property to someone. With that said I asked the very question about figuring in expenses at my rei club tonight in Clearwater, I go to 2 a week down here in Tampa and Clearwater. Anyway I was told that 50% expenses is what you have to figure in no matter what.
Why? Because something always goes wrong. Its just life. I have a cell phone business, I ordered some phones last week, they were supposed to be here yesterday. UPS says that the sender canceled the delivery. The sender said he did no such thing. Something I didn’t expect to go wrong, went wrong. Thats how life works.
Listen to the people who have experience. This is a bad deal. This only works in a perfect scenario. Which I guarantee you will be anything but.
Okay, then can you give me some examples of a good deal?
Can you give me like 3 scenarios to learn from? Thanks in advance.
I’ll give you one. This was the last of the rentals that I bought in May.
3 bedroom, 1 bath house, with 1 car garage
Market Value: $50,000
Purchase Price: $25,000
Gross Rent: $600 per month
Operating Expenses: $300 per month
NOI: $300 per month
Mortgage: $166 per month
Cash flow: $134 per month
This is a good deal!
Mike
Chris - are you familiar with the “Greater Fool Theory?” If you aren’t then you need to be, because this seller is hoping you are the “greater fool.”
I’m glad you’re excited and have motivation, but listen to Mike and Petemfa! Run, punt, bail, punch-out of this “deal” before you get in and have your butt handed to you!! Be patient - a real deal will come along…
Good luck,
David
Run Forrest, run!