In my constant search for property I have come across some would be investors that did’nt know what they were doing and now have property that isn’t cash flowing for different reasons. They both need help. I will not buy these propertys becuase they can not or will not come down. But they all are good potential rental property. This is the deal I have tenantly proposed to them and both are highly interested.
The first property has 3 units on one parcel. The owner bought it hoping to clean it up renovate and rent, he got a job transfer and does not have time to get it done. It has been sitting vacant over a year, on the market, but he payed to much and will not come down. 2 of he three places simply need the usuall turn over stuff, painting and cleaning. The third needs more. Potential rent $1500
The second deal is an out of state investor that didn’t know this market, paid way to much for her 4 houses and then got some Nightmare property managers. She can not sell would lose $87K. I was called and initially asked if I could help with management. Potential rent $2400.
So heres my out of the box idea. I have offered to give them a 5 year lease with right to sublet and I will cover routine maintenance. They will pay material costs, with supporting reciepts. I will pay the first guy $600 a month with the right to make a profit of the balance of rents. Rents will start as soon as the first unit is rented and continue 5 yrs.
The offer is the same for the second owner but will pay her rent at $1200. They will not lose money on vacancy thats my cost. If they sell or break the lease, then they will be responsible for our labor costs.
What do you think? My potential cash flow $1800.
If you can make it cash flow, go for it. But don’t overpay for the property. Buy below market AND get the cash flow, or walk. If they don’t want to come down on price then find another deal.
If you have to get to the point where you are getting overly creative and they are asking too much then move on, this market has plenty of deals…find the right one.
Kim,
There’s an old saying “the devil is in the details”. That is clearly the case here. Throughout the United States, operating expenses run 45% to 50% of the gross rents. You didn’t provide the mortgage payment info for the owner, but at least one person is going to lose money on this deal. You can’t take a bad deal that won’t cash flow and split up the expenses and have it come out cash flow positive. So, the big question is who is going to pay all the operating expenses and captial expenses. You’ve already said that you’re paying vacancy expense and maintenance expense. How about damage done by the tenants? Utilities when the units are vacant? Capital expenses? Advertising? Office supplies? Etc, etc, etc…
Moreover, if you simply do a lease, then what happens at the end of the 5 years. Do you do all the work and then at the end of 5 years, the owner takes the property back and starts making money? Will this be a lease-option and if so at what sales price? There are a LOT of questions to be answered.
Good Luck,
Mike
Mike, The property owners on both deals are already losing lots of money. They are not in the position to default, both have adiquite day jobs and are covering their debt service. The are sitting on vacant rentable property. The first property I mentioned is on the same street that my partner/husbnd and I own twelve rented houses on. I can say I know my rents for this area!
I, my husband, my maintenance man and my contractor have inspected this property more than once. He has had it listed for over a year, but will not come down.
This seems like a good way to control the property. He would be happy at this point to have some income as apposed to none. He hoped to eventually move into the big house. I would be willing to buy his property as would alot of other local investors I know who have been interested for a cash flow price. It’s his retirment dream so he won’t come down enough for an investor to buy.
The second owner is a different story. She now knows she bought way over investor value. Owns a lucretive Corp in CA. She simply wants some cash flow while she pays down the debt service long enough to sell for pay off price. She paid $187,000 four the 4 houses and the most you or I would pay is $90,000 which I already offered, still on the table. She has had two of the best…LOL PM companys in the area handling her property and my take on them is OMG. In the last year she has recieved 6 months rent on one house. I did a through walk thru yesterday on all four. It appears that they PM has not even bothered to go by the propertys in the 6 months that they have had them. When we walked in to the nicest one, (which could be ready in 2 weeks tops) I heard water running full force in the kitchen. It was coming from behind the dishwasher the cabinet and floor were wet. In my mind this is pure negligence.
Yes I am considering cost. The owner will be responsible for capital expences, tax, insurance, and material costs. I will cover Ads since I usually have one running for one of my places anyways. I will cover the credit check, screening etc. Labor will be specifically limited to routine make ready, turn costs, light plumbing and electrical,and initial yard clean up. The Owner will have to pay for outside venders if it is a major expense. Covering a vacancy is one of the percs to the owner and will be a negitive out of my pocket, so you can be sure I will carefully choose the residents!!!
My lease idea at least covers her morgage. It’s alot more than she’s been getting so far.
I have an appointment with #1 Tuesday. I’m sure I will get more information then.
I guess what I am thinking is that I want to start property managing as a side line to investing. I am very good at it. In my state you have to have a real estate licence to manage conventually. Iwill be heading that direction but in the mean time this could work.
I was a resident manager for years. Oh the stories I could share! Are those kitchen cabinets or chicken coops. How about the inside garden on the second story floor which collapsed into the downstairs unit. These really happened in a 180 unit complex in Ca. P.S. I was not managing it at that time.
Thanks for taking your time to respond. I would love to here more feed back before I sign on the line.