# IS THIS DEALL WORTH IT?????

I found a 4 plex selling for 350,000 but the market value of the place is only 200,000. The 4 plex is rented out at 750 a month which is 3000 a month all units full.

The sellers dont want to sell that much below 350,000 cuz they have already lost in this deal

So I offered to lease option to buy the deal for 60 months with a locked in price of 210,000. i offered to manage the apartments and give them 2400 a month giving me a 600 cash flow for emergencys and vacancys. 2400 at 60 months gives them a extra 144,000 which the renters will take care of. 210,000 purchase price and 144,000 at 60 months is 354,000. I will then ask for 40,000 to go towards a down payment towards me which in total gives them 314,000 which beats the 200,000 that the property is valued at now. Plus the right offs they get every year
I guess the bank will then say purchase price for me is now 210,000 - the 40,000 which is 170,000.

Is this a good deal?
I am not sure because they are getting way over the price of market value, but I am having renters pay

Why would you want to do it when they are asking double what it is worth? This is not a deal. If it is worth \$200k, you need to do your math from \$200k down, and not up.

If you don’t do this deal, the owners will get \$180K over the next five years at 100% occupancy just my maintaining their property as a rental.

I don’t think the sellers will see this offer as advantageous to them.

They will see that you want to buy for \$140K less than they are asking, that you are willing to pay \$5K less annual rent than they are currently getting, and that you want a \$40K seller concession at settlement which cuts your purchase price to less than half their asking price.

If I were the seller, I would have a hard time seeing how this deal works for me.

If you look at the numbers more closely, your net operating income will be approximately \$1500 per month. The debt service on \$200K will be around \$1300 per month. Your cash flow works out to just \$50 per door.

Does not sound like a great deal for you either. I think something in the \$140K ballpark should be your maximum offer and is likely to give you the \$600 monthly cash flow you are looking for.

You say you have already made the offer. Let’s hope the sellers do not accept.

The owners dont want to be bothered with the rental anymore and the tennants are paying the mortgage for me

what is debt service?

Debt Service is the monthly amount you send to the lender to pay the principal and interest that is due on the loan.

I am looking at this as if you were the owner.

Yes, the tenants’ rents cover this payment for you. You need about half the rent to pay the taxes, insurance, maintenance, repairs, legal fees, leasing fees, advertising costs, common area cleaning, utilities, trash removal, and to cover your vacancy periods.

This leaves just half the rental income to make the loan payments each month. After the dust settles each month, you have just \$50 per unit positive cash flow, that is until you have to make a major system replacement. If an HVAC system needs replacement at \$4500, it will take two years of cash flow for you to break even.

That is why I say this is not a great deal for you and that you should hope that the seller rejects your offer. I would not want to own this property on these terms.

If the deal is not that good for you as an owner, it is not a good lease option deal either. Under your proposed lease option agreement, you have just \$600 per month to take care of all the “overhead” that you should expect to cost you around \$1500 per month, or were you planning to have the seller pay for all that too until you exercise your option? If the seller wants to get out of the landlord business, I don’t see how your offer does this for him.

Let’s say the seller agrees to your terms. The seller pays the mortgage, and all costs of ownership and rental mainteance/upkeep. You only do the rental management. You guarantee the seller \$2400 per month and you get to keep whatever is left over after you do the monthly rent collection and pay the costs of securing a tenant.

Now, let’s just anticipate that sometime during the year, each tenant in each unit will move out. You have to get a new tenant, and will probably have at least one month of vacancy in each unit per year. Since the rent is \$750 per month, and you guarantee the seller \$600 of that, your annual rent collection is reduced to \$33000 (\$3K per month for 11 months), while you pay the seller/landlord \$28800 (\$2400 per month for 12 months). Your annual net is \$4200 before you pay advertising costs, and leasing fees.

If your projected income is \$600 per month, then \$4200 pays you for seven months. You are working the rest of the year for free.

Tenants don’t always pay their rent. Sometimes they have to be evicted. Before you get to the point of eviction, how many months has the tenant failed to pay rent? How long is the eviction process in your county? How much does it cost to go to court and to serve process? What if the tenant appeals? Just one lengthy eviction, and you are working for free the entire year.

Are you sure that this is the deal you want to do?

If they reduce the price to 230,000 then it would be better for me, but I doubt they will, but I will ask

If you agree with us that the numbers don’t work for you at \$210K, they won’t work for you at \$230K. This won’t be a reasonable deal until the price drops to \$140K.

i never said it wouldnt work at 230 k

What i said was— me buying it a 350 k whens it really only worth 210k wont work —i never said anything about it not working at 230k — the issue was of buying it 100k overpriced — the 230k is a number i made up hoping they would drop price down closer to market price — yeah right — they r upside down

I was trying to pay 350k with a property worth 210k by thinking I am not paying – the renters are and since they originally bought it a 500k what the hell ill let the renters pay and wait to the market goes back up and make a profit

it will go back up again folks

In your first scenario, you were planning to buy at \$210K. We tried to show you that this is not a great deal for you at that price, so it won’t be any better at a higher price.

Unless you can get the price down to around \$140K, I think you should look for another property.

No- not a good deal. They obviously aren’t motivated. If something breaks, or a tenant moves, you are SOL.

Unless they do killer terms, like 0% interest for a number of years, don’t pay more than FMV.

When there is a current swim upstream

curiositygirl,

they way I look at is this, DON’T LISTEN TO EVERYONE ELSE!!!

your getting into a L/O with an owner so your not on the hook for the mortgage right?

you’ll be cashflowing on their property, with the ‘OPTION’ to buy it.

That means you have the RIGHT not the OBLIGATION to buy it at the predetermined price.

Here’s what I would do…it’s obviously by far the worst thing to do considering what everyone else is saying.

Do the DEAL, cash flow on the property. Then when your OPTION excercise date is up, reconsider your deal and decide then if your up to purchasing it. Who knows maybe you won’t qualify to purchase it.

Is there any upside to the income?

Can you realistically raise rents?

Do you have experience managing properties? I always assume that I will do worse than the existing owners when buying a property unless I see something really obvious.