I got a Free House that pays $1200 in rents, But do I really want it?

First, I would look at the numbers a little closer. What does the seller need to pay monthly to cover the $93,400 debt? What are the house expenses (taxes, insurance, mortgage, utilities)? What could the current tenant pay monthly for lease option? Could 1200 monthly be increased with L/O to current tenants?

Then if the numbers are there, I would do a sandwich lease option one with the seller for 5 years and a separate lease option with the current tenants for 2 years, then you help them qualify to refinance and pay you off. Lease options are great because you eliminate the maintenance/repairs, and management but still get the cash flow AND you get to help someone own their house!

If the number are there this is a WIN_WIN_WIN!

Consider these factors: 1.) House needs 30-40k repairs but they're happy long term tenants in place if they are motivated to own there's a good chance they fix it up during that 2 year lease option purchase or you could work that into the deal, such as a small work scope on the house will be completed within the L/O period. This way if they default you would get the house back in nicer shape then you first acquired it, making it even better for the next tenant buyer LO for another 2 yrs , then if they default you still have 1 year to buy it or sell it to pay off original owners at 5yr point. 2.) Having longer term on the seller LO and a shorter term for the buyer LO allows you time to find a new tenant buyer if the first or second one defaults. 3.) If its a good school district it will be easy to find a qualified tenant buyer. 4.) Its never the intent to have any of the tenant buyers default on their LO and its always right to work with them as much as possible to help them qualify to refinance and purchase the home to pay you off. However, getting them to fix up the house with a carefully chosen work scope while they live in it just makes sense to minimize your long term risk.

Hope that helps.
Thom

This deal is looking worse by the minute. I asked seller for a copy of the rental agreement to prove she was getting $1,200 a month in rents. I was suspicious bcuz my brother rents a much newer & nicer home in a much better area for $1100.
The she seemed reluctant and admitted her last tenants were paying 1200 but these tenants are paying $1,000.
I finally got the rental agreement and it did indeed say $1,000 in rents but the date started in July 2014 and she told me the renters had been there for 3 years.
She also tells me the Mortgage payments are $720, taxes are $1200 a year and insurance is $400 a year.
So that 300 cash flow is out the window, now down to 100, and this house was built in 1952, things are going to need to be repaired and maintained, it needs a roof, still has the swamp cooler and gas floor heater and original old crank to open windows.
Can you imagine the plumbing and electrical and potential dry rot issues? What if I have a vacancy and then have to do repairs and painting and flooring b4 it will rent again? Just shoot me now.
I try to be optimistic but it's tough on this one.
I may just get it and lease purchase it out for a 5K assignment fee and be done with it.
I know I can squeeze a profit out of this if I give it a half ass effort.
Let's make some money.....

Rando

I was really getting discouraged on this house. Nobody wanted it, seller wudnt do a lease option or purchase. But she would sell for the amount she owed if she cud get it out of her name.
I had almost given up but then I decided to renew my ad on Craig's List, after all it's free.
Finally an investor wanted to inspect it and said he wud buy it, I added $2,500 for my assignment fee and sent him the assignment contract to sign.
Then he wanted to take his contractor over there to do an inspection and assessment. I was a little worried that they wud see how much work is needed to rehab this place. Luckily he still wanted it.
We started escrow and it shud close this month.
It turned out to be a great thing. I had spent less that 100 buks on stamps and mailed out to my absentee owners, I also got the burnt house this way. I'm making $6,000 on that deal and $2,500 on this one, that's a heck of a return on such a small investment.
I have done a few mailings that didn't make any money, a quitter wud have given up. A little persistence pays off big.

I could not agree more with your last statement.
persistence is the key.

By the way did you have the house on contract before you sent the assignment contract to your buyer.

Bimal

Did I have the house under contract before I sent it out to my buyer?
Hell yes, of course, first hard lesson I learned. But then I've lost a few deals when someone came behind me and offered more, and I did have then on contract. It seems a legal contract don't matter to some people. Both times it was elderly ladies. I cud have recorded a memorandum at the courthouse and tied up the property. One buyer wanted to sue and offered to pay. His lawyer buddie said we cud probably win after years of litigation and a lot more in cost that he wud make on the deal and he wud get a bad reputation for suing little old ladies.
So now I have better luck when I explain beforehand, this is a legal contract, I'm here to buy your property with the terms stated and you cant back out.
Are you ready to sign?
Rando

Hi Rando,

Thanks for the clarification and prompt response.

Bimal

you are the most interesting person on this site let me tell you buddy. i will call you btw to touch base for a few minutes & yea nice not leaving money on the table, yea like you said lets go make some money!

There was a Subject To & a AITD . Subject-To would have let you lease option for long term cash flow. But what the hell , you did good work on this.

Carson Mel

I haven't been back to the site in several months, I am so glad to see you succeeding in REI!!!! We messaged and emailed a few times a couple years ago, I dont know if you remember. But I am very glad to know you didn't give up and are making RE work for you! Keep up the great work!