So I have a property that is free and clear and the seller is open to owner financing. The place is a 2 unit and one of the units is rented and the other just became vacant. The entire building can be rented out as is but it is definitely below my standards for what I like to rent out (it’s currently in slum lord status). I can get at least another $100 out of both units, with a possible $150 max, but it would take some work. To do a total rehab on the place I would throw in close to 30k, which would include roof, both kitchens, both baths, brick work outside, a lot of yard work, furnaces, all new windows, cosmetics, etc.
I can probably get away with putting in 10k to get it fixed up where I could get more rent, but I would be looking at a new roof and new windows sooner than later.
I want to know how I can work this deal with owner financing. If I get the owner to give me 100% financing, or even 95% with a small down payment, what are my options for getting the financing to rehab this puppy? I want to avoid coming out of my pockets 10k to rehab it if I can and I want owner financing on this deal. Since it’s a 2 unit I want to keep it, instead of wholesale it, plus I have another property less than a block away I rent out so I like the block. Any tips on how to make this work and how to get it fixed up with little out of pocket money?
I was going to throw her a low ball cash offer and the owner financing deal. If she accepts the cash offer then I will probably wholesale it, but I want this one. Any tips are appreciated.
I think this is going to be very difficult. Much of it really depends on what your strategy is, are you going to fix it to flip or are you going to fix it and hold?
Most banks are going to want to be in the first position not second. That might be a tough sell to the owner. I had a deal that the owner financed 100% for 5 years at no interest. I bought one other property from this guy a few years earlier and gave him a cash so we were on good terms. This was only a $30,000 property. During the past four years I was able to go in as I could afford it and do a total remodel. It included new windows, furnace, kitchen, bathroom, siding and roof. Since I did most of the work I only have about $60K into it and it’s worth about $120,000. We are in the process of refinancing it right now. Our strategy has been to fix and hold.
I would start by getting it under contract and doing a little bit at a time. After a few years go in for a refinance since property prices are beginning to climb in most parts of the country.
Ask your seller to subordinate the agreed purchase price to a new Hard Money loan you will use temporarily to rehab and remodel the property and then tell her that in 6 months (Seasoning) you will refinance the property to pay off the small 1st you get for rehab with the agreed purchase price 2nd.
You could give your seller $10k, $20k, etc. down out of the new loan along with carry your rehab, overhead and debt service. Just make sure you know and understand the percentage of FMV with closing costs to refinance so you do not exceed that LTV.
It takes longer for your seller to get paid but if the property is bad right now and other wise is not selling then this could be the answer. Although you will refinance in 6 months make sure your seller will carry the balance for 1 year just to give you some wiggle room.
Before considering a full rehab, I would recommend really counting the costs. How long will it take to recoup your investment by only counting the increase in rent? If you sink in $10k but only reap a max of $150 a month, it is going to take you almost 6 years to see a profit from your investment. That is just about the length of the holding period for an investment. You may not like being a slumlord, but it may be more profitable.
The only problem with credit cards is the ultra-high interest rate. You could be looking at almost a 20% APR which will eat away even more of the return on the investment.
It is sad but true that properties in poor condition tend to be more profitable than those that are remodeled. The reason is that in most cases, the increased rent does not cover the cost of the renovation. Of course, do not get me wrong, I am not an advocate of slumlords, but… often the bottom line tells the story.
I wouldn’t recommend CCs, if 20% is your only option. There are several that offer half that or less. And it is possible to take advantage of 0% bt deals for a year or more, or 5% fixed for the life of the balance.