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Sunday, November 10, 2013

Creative Real Estate on a Sunday Morning

I received a call from a seller on Friday. She has a $150K 3/1.5 house in a decent area of town. I'd put it at a C+ neighborhood. She was asking $130K cash and told me it is turn key - claims she put a lot of money into it.

I ran my numbers and told her if it is really turn key and doesn't need anything for rehab, I was at $125K so we were close. I figured I could actually sell it for $160K and would try to buy it for $120K which would net me about $15K. I decided to meet her at the house because I had to be sure it doesn't need any work and I wanted to get a wet signature on the contract. I also was going out to check up on a rehab so I had to be in the area anyway.

I met her at the house yesterday. The house was nice, but absolutely dated. After looking it over and commenting on how nice it was (used to be her house so you have to respect it), I proposed a seller financed deal. I offered her $130K with 10% down, 30 year am, 5%. I told her if she wanted all cash now, I was somewhere closer to $100K-$110K. She liked the idea and said she had to think about it.

For you calculator heads, what is the payment?

Rents are $1,100. What will the cash flow be?

She called back this morning and countered with $140K, 20% down, 5%. I immediately declined stating that the return on my 20% down would be unacceptable.

My counter to her, which was accepted was $140K, 10% down, 5% int, $625 pmt.

What will the term be?

Would you do this deal if she says yes? Why?

What would you do, other than changing the terms I have offered, to make this 'more better?'

5 comments:

  1. Really find interesting to read.. Thanks for Sharing..

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  2. Assuming monthly compounding, you got her up to a 36.7 year term - nice.

    If it is indeed turn-key, I would do the deal. Using a 40% management expense ratio, you should put $58 in your pocket every month. Only 5% cash on cash, but that paper is the deal-maker for me. If you sneak in a right to substitute collateral, I'll buy you a beer.

    You could maybe push her for interest only on a shorter term, but I wouldn't rock the boat if she's already on board.

    All this deal needs is time to ripen, and 36.7 years is plenty...

    Thanks for sharing, it's deals like this that get me wound up!

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  3. Thanks Aaron. Your calculation is truly great. A good amount of yearly terms now that home owner will deal each year. Even though I truly enjoyed learning each views regarding this sharing!!

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  4. Thanks for such a good information, i read to "Creative Real Estate on a Sunday Morning" blog. it very interesting blog. i have bookmarked your site and will visit again.

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  5. Great post as always. I enjoy you blog. Thanks for producing it.
    On improving the deal, how did you arrive at 5% for the rate? Did you start lower and go up? Did the seller demand that rate? Either way, it's nice. I know some investors that have been able to land 0% rates on deals. Of course, those are tougher to get.
    Thanks again for the blog!

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