Potential Real estate deal - comments appreciated

[spex x]

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Did you tie up this property yet?

I'd get over to the owner ASAP and work up some sort of purchase and sales subject to all the documents being furnished to your satisfaction.

I don't know why you are waiting for more documents to make your offers. I wouldn't.

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Yeah, I know, but something is making me hesitate. The deal seems a bit too good to be true which is why I want to see everything up front before making any kind of committment. The thing that I keep coming back to in my mind is that the property has been lease/optioned twice and neither person made it work. Somehow I just can't figure how that would be possible unless the payments on the least agreement were ridiculously high or something. I dunno, I just wanted something a bit more. I should probably just get it under contract. I know you're right.

Edit: Part of it is that I want to verify the motel income. All the rooms are full now, but I want to be sure that they're STAYING full all the time, or at least have a reasonable vacancy rate. Seller claims that the rooms are always full, but sellers tend to ....well....lets say exagerate. Since the motel income makes up so much of my gross, I wanna be sure that the income is correct.


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Last question, is the motel self-managed?

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There is a manager in place that oversees the entire property. She gets a free apartment and $600 per month. I don't know what kind of job she is doing, but the place seems like its kept up very well. The manager has a decent situation for herself, and I'm sure that she'll want to stay on. I haven't asked her yet though.

[Tien]

Well, I would probably be sitting with the seller either tomorrow or at the latest Saturday morning and pound out all the details.

Dying to sell is a good word and enough of a good word to proceed.

I'd iron out an agreement and make it subject to whatever the hell you want.


Have you spoken with the manager yet? I think this is the KEY person you need to speak to ASAP to find out whats going on. Also knocking on tenant's doors and talking to them directly is something I often do. You will be bound to find one honest tenant in there that will sing the entire story of the property.


Another thing. What's your exit strategy?

If he accepts cash, do you flip or keep?


I like the owner finance approach but why are you voluntarily giving him 6.9% interest? Since when does a motivated seller get to have 6.8% interest?

[Tien]

Normally when I make them take back a mortgage, I just assume not payments and no interest.

When they ask for payments I say "How much do you need a month?"

Then I'll negotiate that part down.

If they ask for interest, I'll say:

"Interest? Why do you need interest for? Are you a bank?"

"Do you want to sell or do you want to be a bank?"

"The most I can give you with interest is what a bank would give you, or else it isn't fair"


The fact that he leased this property out to a bunch of idiots TWICE makes me think this guy is not really savy and you can get a really good deal out of him.

[spex x]

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Another thing. What's your exit strategy?

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Yes, this is the biggest problem with the deal that I can see. I would buy this with the intention to hold it long term since it would be such a good money maker each month. The problem that I can see is that the area is such that any future investor that is serious will recognize the inherent tenancy issues with the property. I've got two sex shops accross the street and a strip club about 2 blocks down. Not really conducive to a family environment. Tenancy is likely to remain highly transient. Most of the time I like to buy mobile home parks that can be made into communities. Thats not an option for this property. Any serious investor will immediately see this problem.

Another problem is that I think that its going to be kinda tough to find a bank that is interested in financing the property given its mixed use. Plus, most serious investors will probably not like the mixed use anyway. These issues highly limit the pool of future buyers that will be interested in the property. This is a very difficult issue, and I'm still not really sure of the answer.

In sum, I know that I'll keep the property long term. I just don't know how I'm going to be able to sell it later on.

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If he accepts cash, do you flip or keep?

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I'd keep it for income. See above.

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I like the owner finance approach but why are you voluntarily giving him 6.9% interest? Since when does a motivated seller get to have 6.8% interest?

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mmm...good point, and normally I would agree. Actually, I considered this issue and decided to offer the interest in order to better differentiate the lease/option offer from the seller finance offer. All the offers are good, but the offer I want him to take is the lease option. I can make the most money with the least risk with the l/o deal. Would you disagree with my thinking?

[Tien]

Looks like you will be a slum lord. Always good deals in slum areas.....


What are the neighborhood problems? And shootings? Violence? Crime?


Considering the fact that he has been burned TWICE before by lease option buyers, it may or may not be a hard sell. The 2nd option is the owner finance option which I like the most since it would give me absolute control over the fate of this property and what happens down the line.

I normally don't like to have any strings attached to the previous property owner.

[Tien]

Either way, with the price you are buying these things at, meaning IF you get your price, it's a steal regardless of any offer / option you pick. It almost doesn't even matter.

[ahnuld]

interesting thread. Keep us updated spex. Also, does your friend expect a finders fee or was he just doing you a solid?

[spex x]

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interesting thread. Keep us updated spex. Also, does your friend expect a finders fee or was he just doing you a solid?

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It was a solid. We look for each other like that. This is one of those situations where being involved in the local community of investors paid off.

[spex x]

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Looks like you will be a slum lord. Always good deals in slum areas.....

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haha, I already AM a slum lord. I've always focused on low income housing because, as you mentioned, there are always good deals in low income areas. I makes for more tenant headaches, but I screen tenants extensively and only chose the best of the bad options. I also limit my tenancy issues by accepting Section 8, and that creates a lever with which to control tenancy much better. I rent to low income people, but I'm proud to offer the BEST low income housing in the area. My places are kept emmaculate, and this property will be no exception. My places also attract the best tenants in the market segment I'm after. this property wil just further build my slum empire. [img]/images/graemlins/smile.gif[/img]

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What are the neighborhood problems? And shootings? Violence? Crime?

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Well, there aren't really NEIGHBORHOOD problems. This property isn't really in a neighborhood at all. The property is on a 45 mph split highway with commerical buildings on both sides of the road. This property is the only residential anything for some distance. So the property is pretty isolated. Crime and such are low in the general area. The only real problem is that lots of the commerical buildings that are there are boarded up (maybe 15-20% of them), and the presence of the sex shops. The other businesses that are right there are mostly used car lots, RV sales lots, and that kind of thing.

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Considering the fact that he has been burned TWICE before by lease option buyers, it may or may not be a hard sell.

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yes definitely. This seller doesn't seem too bright though and I think he could be convinced. I'm pretty experienced as a landlord to low income tenants, and I've done projects like this one before. I've got a long-term employee that has agreed to live in the MHP and start renovations immediately. His property is in capable hands, and I think I can convince him.

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The 2nd option is the owner finance option which I like the most since it would give me absolute control over the fate of this property and what happens down the line.I normally don't like to have any strings attached to the previous property owner.

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yeah, agree. The only reason why I prefer the l/o deal is that it limits my risk so much more. This property seems like an enourmous risk to me, and I want to limit my downside as much as possible. The l/o deal gives me the ability to get away from the property with minimum fuss for both me and the seller.

[Groty]

I have a bunch of dumb questions. If you don't want to waste time responding, I understand.

When you model this up, do you anticipate future rental income increases are offset by expenses increasing by the same amount?

Do your expense estimates include insurance and property taxes? Do they include an estimate for depreciation to cover periodic big ticket items like replacing roofs, siding, appliances, etc?

At what point in the process do you conduct a lien search?

After you purchase the property, how much time will you spend "managing" it?

Just out of curiosity, how big is the parcel of land all this sits on?