Im back at it again! After multiple attempts I think I found my niche. Here is the deal. Owner wants $22k. property needs 80-100k in repairs ARV 140k. The numbers dont work for a cash deal but here is how I negotiated. 11.5k at close this gives the buyer back what he paid and allows him to pay half of the back taxes. 10.5k in installments of $300 a month for 35 months zero interest and no payment for 45 business days(62 calendar). Property is a 2 flat total of 5 beds 2 baths, but has a unfinshed garden apartment below grade. after rehab rental income would be $2200 if garden unit is converted. total debt service is $900. annual rent of $26,400 -debt service $10,800=$15,600. After subtracting operating expenses then calculating cash investment of end buyer. The cash on Cash return for the first year is 63%! What do you guys think? Is there anything I should watch out for or pay close attention to? This is my first seller financed deal.
What’s your exit strategy?
This is a wholesale deal. In this case the numbers didnt work for traditional wholesale deal the MAO was much greater than the seller could tolerate so instead of walking away from the lead. I tried to get creative. Hopefully this will work for my buy and hold land lord/ rehabber end buyers. Do you see any flaws?
Ok. Are you sure repairs cost this much? What’s wrong with the house, to need this much repair? Are these estimates from your contractors or did this amount come from the seller?
No these are not from the contractor. These are my ballpark estimates. property needs new every thing and has subtantial water damage in the second unit due to damaged roof. its a 2 unit and is a got rehab.
I take it this house free & clear?
Either way, with these numbers this one would be more along the lines of “Mr. Seller I can get you maybe $1,000 bucks for this house if you’re lucky. The house needs so much work I’d be lucky to be able to sell it for what it’ll cost to fix it up, not to mention your back taxes.” (by the way don’t worry about giving HIM the money for the back taxes, they will have to get paid at closing no matter what. Only talk about what he’ll get in his pocket at closing).
And $22k is not going to happen, no matter how you finance it…not even close…it still just doesn’t add up because the rehabber will insist on seeing some equity in the deal, cashflow or no cashflow.
If he insists on anything close to $22k just do the math for him…if he won’t budge just pass on this one for now and revisit it in 30 days.
Truth is, a good experienced rehabber can probably fix it up for less than you think, so there’s probably still a deal here. But the seller getting a chunk totally smothers this deal IMO.