Is This a Good Deal? 3 Duplex Package

Would appreciate it if experienced investors could let me know if you think this deal could work?

Hi Id give it some very serious thought with what you said, you have sen it and know better than we do, Jim

Looks good to me providing there is not a lot of deferred maintenance, the property has a strong history of being fully occupied and of course the numbers provided turn out to be accurate after your due diligence is complete.

Maybe some down and owner finance would be awesome.

Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLC

This seem like this would be a money maker. The properties have been well maintained and 4 of the 6 tenants are on HUD. The seller is talking about a 150K purchase price with 5.5% interest for 20 years. He hasn't specified how much down he wants. I will follow up with him tomorrow.

check your other post-I replied there too...

this could be a great deal for you with no money out of your pocket... You ask seller to carry note, you find buyers for two of the duplexes, sell each for 75K, keep third one for free...

wishing you success,

Man..I would buy & hold for the killer cash flow!!!Wish i could find something like that!!!Sounds like a great deal!

But, like Mike said, how much deferred maintenance is there?
*What kinds of upgrades will need to be done in the next year? 2 years? 5 years?
*Do the tenants pay their share of the rent on time?
*Are the utility costs averaged over summer and winter months?
*Make sure to get rent rolls and proof of rents
*Get the schedule Es on the properties to see all the expenses (beware though, a lot of investors don't write down all their repairs in taxes because they don't need the write off or they don't want to show all their liabilities)
*Ask for all repair receipts and records.
*Are any units vacant? How long does it take to fill vacancies?
*It sounds like he manages them himself; will you need a property manager?
*Is one of the units a live in manager that gets a break in rent but helps keep an eye on the place?
*How old is the place?
***When was the last time the HVAC was replaced?
***How old is the piping and the roofs?
*Is it in a flood zone?
*Does he pay for a gardener?
*Is it a decent area so you won't have graffiti removal costs or vandalism repairs?
*Will the taxes change after you purchase them and go up?
*Are there any building code violations?
*Is there mella roos or any other costs you aren't aware of?
*Are there any foundation issues?
*Are there basements and do they have vapor barriers?
*Are there any health issues?

I had a 4 plex, duplex and a SFR under contract together, but during due diligence, there was so much this guy was doing that it would have been a slumlord situation. It was out of state for me and even though the prices were great, the liability was too much to risk. So, there's a lot to consider, but they very well could be great deals! Do your due diligence and come back with final numbers.

Looks like you have a decent deal in the works. This is a deal Jeremy and I would pursue. You appear to have sufficeint cash flow available before debt service. You might want to consider the seller taking back a second and then talking to his bank about funding the balance. You would have to crunch the numbers every which way to see what scenario works out best for all. On our multi's we need a min of 250-300 per unit net cash of all bills are paid. Keep us in the loop. I am waiting to see how you structure this deal. Good luck and go for it, we would...Jan

Brian,

Okay, with the information you have added to the thread about the terms the seller is offering, this would appear on the face to be a sweet deal. 5.5% interest, 20 years, and a purchase price of $150k gives you a P & I payment of $1031.83 which gives you just under $1300 CF a month.

Even if you had to pay say $5k down, your ROI on that $5k would be an astounding 310%. (actually just a little more as the $5k down would reduce the amount financed by $5k and that changes the numbers in your favor as far as monthly CashFlow and ROI).

As others have said, do your due diligence, make sure the title is not encumbered (i.e. have a title search done NOW and the day of closing) and determine if any deferred maintenance or other issues exist. HUD (or Section tenants are not a negative thing as the government pays promptly on the 1st of every month....right into your bank account!! Your other tenants may not be as found of Section 8, but that is not for me to say one way or another.

The government is particular about Section 8 housing, just understand that. The want the property to be primo.....and maintained that way. So plan on them being your partner to ensure you don't let the maintenance slip including regular exterminator visits to keep the vermin and whatnot out!!

Good luck. To your continued success!

--Walter

"If it is to be, it is up to me". -Anon

to see if they can help me with the down payment for this deal. The properties have all been well maintained.

How do you suggest I check the seller's numbers? I've asked to see his records and he says his brother, who is a local CPA does the books. He owns these properties with his brother the CPA.

What records should I be asking to see?

Thanks!

Brian,

I'm a little confused. Why are you waiting to hear from the bank on an Owner Financed deal?? If the current owner wants you to have some skin in the game, try to use OPM (Other People's Money) and so forth. Do you have any credit cards which you do not have a balance on at the moment?? If so, get a cash advance of $5k, which you would then use as your down payment in the deal. Try to negotiate a little as possible as a cash down payment from you.

Now you say, wait, I don't want to use my credit card. Why not? Your monthly cash flow of nearly $1300 could go to pay the credit card back and you would have it entirely paid off (the credit card that is) in 4 months. Use leverage and OPM!!

Now regarding the books. Ask the owner to see the Rent Rolls. You want (and need) to verify exactly what he is collecting each month for each property. You also need to see the leases so that you know exactly how long each tenant has remaining on their lease; how long they have lived there, and how many times they have renewed their lease and have there been any rent increases over the last year or so. Are rents stable in your area or are they rising or falling??

Also make sure that the tenants security deposits are paid to you at closing. If the current tenants ever move out, you will have to reimburse their deposits less any allowable deductions.

If I remember correctly, you will also want to close towards the very beginning of the month (days 1 - 3), to ensure that the current month's rents are also credited to you at closing. That is, since you will own the property for the majority of the month, you should get that month's rent receipts and not the current owner/brothers.

I hope my answer has helped just a bit. Keep after it; it is going to happen.

--Walter

"If it is to be, then it is up to me". -Anon

what you need.

Get the schedule Es from taxes, rent rolls and profit and loss statements.

Check with the building department to make sure there are no violations

Check with title to make sure there are no liens.

Check with utilities to make sure there are no liens (these are NOT shown on the title report always. I was buying a property in CO and these liens were NOT on the title!)

I agree with Tammy. Get the schedule E from their tax returns. Anyone can make up a P&L to show that the prop generates good cash flow...Jan

Thanks for the responses everyone. I believe the seller wants to see how much the bank will help finance and then he will finance what is left.

I talked to the banker and he said the bank could finance 65% of the appraised value. He said the appraisal costs would be $300 per property or $900. Now I'm not sure what to do. The banker said the buyer is generally responsible for the appraisal. However, I could negotiate this with the seller. If I move forward with this deal, I have to convince my wife that it is a good deal. She's not totally on board with this.

I have to figure out what my next move is. Any suggestions?

Brian

due diligence before paying for any appraisals. That means get the documents listed above and go check out everything.

check with the title to make sure there are no liens?

Call the Title Company or go through an attorney of your choice, Jim

Brian,

What Tammy and I have already posted above: rent rolls, owner's Schedule E of his taxes, Title Search, etc. With the possible exception of a Title Search, everything else is 'free' vs. having to pay a fee for appraisals.

I also would have preferred Owner Financing for the entire deal less your down payment as that would mean only one (1) note and one (1) monthly payment. If you get a 65% 1st mortgage with the bank (this is going to tie up your credit) and then a 35% 2nd mortgage to the owner/seller, you will have two (2) monthly payments and your CF will change accordingly.

Ask the owner/seller what he is planning on doing with the money from the sale of the properties. Is he going to be buying another property in a southern warmer climate? Does he have bills that he needs to pay off? I only ask, as a large cash payment to an older person is not necessarily a good thing, especially if there are health concerns. Medicare and Medicaid would take every penny he has towards major medical bills vs. if he and his brother are just getting monthly payments, then Medicare and Medicaid won't attach those items before paying for any major medical treatments.

Just a thought...don't let these small hurdles stop you keep moving forward.

--Walter

"If it is to be, it is up to me". -Anon

I really appreciate you all taking the time to give me some direction! I keep learning more about this deal all the time. It has been a good learning experience if nothing else.

The sellers sold this house on contract to an investor in 2003. I didn't ask how the deal was structured, i.e. if they financed a second or the entire purchase. However, they got the properties back in May 2012. The sellers said they discard their taxes after 5 years so they really don't have any records other than a separate check book they keep for the properties. He said he'd be happy to show me that.

For some reason I really trust this guy. I just met him a couple of weeks ago but from what I know, and talking to the banker he has been working with for several years, he really seems like a stand up guy.

He told me that if I would prefer, he'd let me manage the properties while he's in Florida, pay me $160/month just to collect the rent that isn't paid by HUD. (That's what he paid the person to do this for him in the past.) He told me that's all I'd really have to do because he wants the tenants to call him when ever there is something wrong with the properties. He wants to know what's going on with them. He said I could use the money he'd be paying me to manage the properties to help with the down payment and that it would give me an idea of what's involved with the properties so I could make a better decision regarding if I wanted to own them.

Almost everyone I've run this deal by has said that, if the number are right, this is a good deal. I'm not sure I want to wait to own these properties.

Our next step is to have a realtor run comps. That will give us a better idea on what an appraisal might come in at. I've contacted my realtor and will ask her to do this for us.

I have 3 other potential deals. I just offered a seller 23K for her house (she accepted) and I'm not sure how I'm going to get financing for it. How/where do you suggest I post the potential deals? Should I start another thread?

Thanks for all of your help!

Brian

I might be old school here but I would follow through with this first deal and either get it done or move on. Not sure what your cash situation is but if you have the means to do a down payment than lock up the deal and start on #2. You made an offer on the 2nd house not knowing what you will do with it or how you will structure it. Not being hard on you, just trying to nudge you in the right direction. The more you ponder the deal, the more complicated it will get. Take the leap, but be sure where you want to land....Jan

Good advice. I intend to buy the duplex package. I don't think there is any rush though. The seller hired my son-in-law to do some maintenance/painting on the duplexes. The seller is also going to be shingling a back room on one of the duplexes. He really has the mentality that if something need to be fixed, he gets it fixed.

We are moving forward with the deal. We're trying to get comps then will look at getting them appraised.

Good Move. Keep me in the loop and much success to you...Jan

Hello Brian
Sounds Like a good deal to me, if there is some owner financing this could be even better. You had a chance to look over the properties and if they are in decent condition, this could be a good deal. In 1996, I turned down a deal much like this because the properties were considered slum properties at the time. The landlord (seller) was in his seventies and the city (HUD) was threatening to put him in jail if he didn't upgrade them. I was a Banker at the time and was afraid to jump on these properties. That was a big mistake on my part, because now the properties are in a great urban renewal area. I am still kicking myself for not closing that deal. He was offering me 9 single family properties around the city.
So, look over this deal real good… You don’t want that hanging over your head good or bad…

Much luck to you,

Ty

Hi Brian,

Any update on this deal? Seems like a good one!

- Tom

I like the deal the way you posted it, but definately do you due diligence. Im sure you know the area, you could also check the rents in the area by using rent-o-meter to see if there is room for increase.
You could also have the tenants pay their own utilties and adjust the rents to counter that which would stabilize your profits if utilities go up or they leave everything running since they dont pay the bill. Some owners rather pay the utilities especially in colder states for obvious reasons.
Good luck and I hope we read that it was a done deal later on.
Richie
Never EVER give up!!

The 3 duplex package is still moving forward. I have regular conversations with the seller. He's not renewing the lease for one of the tenants. One of the contractors working on the unit found drugs in the attic. The seller told me he wants to hand them off to me with the best tenants possible. I'm liking the seller more and more.

He's not in any hurry to pass these off to me cause he knows I want them

I live in a town of 30,000 people and am the only one that puts up bandit signs. I put them up late Friday night and take them down Sunday night. I get lots of calls.

I have 3 purchase agreements signed and am trying to wholesale one of these properties, flipping one, and plan to sell one on contract.

I signed up for the Success Academy in March so should have my 5 deals to get my tuition back.

I'm really pumped!

Brian