OfflineGood Morning DG Family,
I know that you are really busy, but wnated to ask if you could help me out putting a lease option deal together on 3 duplexs?
Seller Motivation: Very motivated to walk away free and clear, open to lease option. He currently owes property 1) 222,000 2) 222,000 and 3) 153,000. 2008 appraisal was $288,000
The Property: The property is currently demanding ~850 a unit and currently only has one vacancy. The area is very good for renters and seems to be no problem finding tenants.
Now I have not ordered an appraisal yet but was going to do that next week. I figure that the property is going to come in quite a bit lower maybe mid 190s to very low 200s. If the deal works I could be seeing ~500 a month (for all three) in cash flow this is after all cost associated with the properties.
My Plan:
--Do an individual lease option on each duplex.
--7-10 year option with $2000 back to seller a year
--Offer a little higher than fair market value which is likely not his asking/walk away price
Exit Strategy:
--Hold for two years and actively look for a buyer, possibly one of the tenants/ lease option.
--Cash out with $20,000 to $30,000 per duplex.
Please looking for any pointers that you might be able to help me with. I think this is a good deal but want to make sure that I do everything right when I craft this up. Like I said the seller is just looking to walk away free and clear and is open to anything.
Thanks in advance and your time.
Best
Darin
aka: nacentinvestor
FMV of these rentals? Looking at tax records means NOTHING to the value of a home. Is each unit getting $850? If so, here is a quick way to figure out value of the property. Add the monthly rents for each duplex then divide by two and add two zeros and that is rougly what your property is worth. Example: $800 per unit times 2 = 1600 divided by two = 800 add two zeros gives you a value of 80k for the property. Not really a deal here. Also, if the seller is motivated why would you give the guy extra money? No one is touching these duplexes because it's not a good deal. You said free and clear in your post? Does this guy own these free and clear or does he still have a mortage on them? What is this guy asking for these properties? Give me some more information and I can give you some more creative ideas.
Thanks for your reply,
The FMV for these rentals are ~150K per duplex, but still have to get the apprasial to make sure. I have ordered it to be done next week. Good point on the $2000 back every year, if he is as motivated as he indicates then this won't matter. He currently has morgages on all these properties 1) 222K 2) 222K and 3) 153K. He just wantes to walk away with not oweing any money. That is why I was offering the $2000 a year to offset the intial shock of loosing money at the end of the lease.
Thanks again
Darin
Kimmy I don't think the monthly rental income has anything to do with the FMV
so your example 800 per unit X 2 = 1600 divided by 2 = 800 plus two zeros is 80,000 I dont really think that is going to give you a FMV.
Also if you are not paying for the duplexes you are using the tennets money to pay the payments and you say there will be a possible cash flow of 500 bucks then what are you waiting for.
Anytime you can buy a property using someone else's money and cash flow at the same time Why not.
Darin .
Get that appraisal done and possible a inspection done if you haven't already done that. THEN do your numbers!
While waiting for the appraisal take a few deep breathes and keep checking. The numbers so far seem to need further explanation. The way you explained it these units MAY be upside down on the mortgages.
A second appraisal may be in order here too. Check the maintenance and repair records of the units too if you haven't. There is more to this than what you are showing here.
This doesn't answer your original question but there is information lacking for an opinion to be given. DO NOT walk away yet but DO NOT jump in totally, yet.
Keep watching here someone who does these type of deals will jump in.
Michael Radtke
www.nationalpropertyscout.com
Slide Show:
www.nationalpropertyscout.com/Slide-Show.html
monthly expenses and cashflow have everything to do with what a property is worth. I did not say it was the FMV, but that it can give you a rough value of the properties. Cashflow determines whether a rental is profitable or not and your return on investment. Multi-units are a whole different ball game then single family homes. Profitable cashflow is a huge part of the formula. Of course, if the cashflow is off a little, but the guy is willing to give you terms then sometimes the numbers can be off a little. The formula I gave is a quick method of getting a quick "approximate" value. You should always investigate further and look at cap rates, etc.