Been researching for months, looked at ton of homes, think I have nailed the process (i.e motivated seller, Forclosure, mls).so…I think I discovered a house…
Found a house that is listed for 88k, found on the auditor site that a small local bank owns the note. I called the loan manager and he talked my ear off about how he has these homes (5 of them) and would really like to sell these/this house.
They paid 65k for the house or assumed back the loan. (??)
My question is this
a) Do I start the offer at 65k? Or lower ? The other houses in the area comp for around 96-103k and my house fall right in that area.
b) Do I sweeten the deal and say I will get preapproved with their bank for a home loan? Does that work? My thought process is they would recoup the loss of the lowball offer as a small bank and jump at the idea of getting the loan…or is this naive?
I plan on keeping the two family unit for long term over a 15 year mort.
Throughout the United States, operating expenses run 45% to 50% of the gross monthly rents. Therefore, to determine your monthly cash flow, subtract the mortgage payment (P & I) from 1/2 of the rent.
14k income on a 65k deal sounds incredible… if the place is a nice place. Not nice places tend to run very high expenses with repairs, vacancies and eviction costs. Not to mention your time.
I think it is a good approach to tell the banker that you would use their financing as part of the deal. If they took the property back w/65k owed, they may sell for at or slightly under 65k depending on the bank and the market. I might ask for it at 65k with their financing and no origination fee.
I think you can go for lower than 65k. Especially if the bank took back the loan. I would start off with 55k. Tell them that you think 55 is a reasonable price if I get a loan from your bank.
I believe it’s both actually. If I get a really deep discount on a rental property and make good cash flow in the process then it makes the deal that much sweeter. What’s wrong with getting more money? This is a business afterall
a) Do I start the offer at 65k? Or lower ? The other houses in the area comp for around 96-103k and my house fall right in that area.
Start lower. Offer $55K or less and let the bank counteroffer. With give and take, you will arrive at the minimum acceptable offer that the bank will accept whether that is $65K or even a little less.
b) Do I sweeten the deal and say I will get preapproved with their bank for a home loan? Does that work? My thought process is they would recoup the loss of the lowball offer as a small bank and jump at the idea of getting the loan…or is this naive?
May be a bit naive. Many small banks don’t keep their loans. They are often sold to Fannie Mae or Freddie Mac. The bank makes their money on the loan fees they charge to originate the loan and the fee they charge the note holder for servicing the loan. Instead of trying to get the property below the bank’s cost, you may have better luck negotiating the rate and term on a mortgage loan from that bank.
Operating rental properties is ALL ABOUT THE NUMBERS.
Here is how I see this deal.
Gross Rents: $14,700 per year or $1,225 per month
Operating Expenses: $612
NOI: $613
Mortgage: ($65K, 30 yr, 7.5% NOO) $455
Cash flow: $158 per month
This is not bad, but I like to have cash flow of $100 per month per unit, so I wouldn’t pay that much for this property. A purchase price of about $59,000 would do the job.