This deal is a little more creative than my last deal, We Turned a We Turned a “Don’t-Wanter” into Monthly Income. But like I said before, every deal is a good deal if the price and terms are right.
A few weeks ago, a friend of mine pulled me aside at church. I had looked at his daughter’s house several months ago when it was listed by a Realtor. I had thought originally that it was too high, needed too much work for what I do, and that she eventually sold it. Come to find out, she had never sold the home and listing had expired. She had rented it to a single mother and purchased another home.
After looking at the home for a second time, I still felt she was asking too much, but decided to ask some more questions. You can never ask too many questions; you just have to know which questions to ask.
While talking to her, I found out that she owed about $25,000 on the home. Her payment was $375 per month including taxes and insurance. She was renting the home for $500 per month, she was tired of taking care of the lawn, collecting the rent, and was too busy to be a landlord.
I agreed how terrible it is to be a landlord and how I really hated doing the lawns on my rentals (I don’t do them. I have the tenants do them or I charge them extra. Oops, I didn’t actually tell her that part.)
Hmmm….what I really heard during that conversation was,
$125 positive monthly cash flow
She didn’t want to have to deal with the tenants
Well, the home did need work, and I really didn’t want to spend any of my own money. So a few hours later after running the numbers, I called her back. (I like a home owner to think I’m putting a lot of thought into this when I’m really not.)
My offer was that I would purchase the home in the next five years, but during that time I would lease the property from her for $375 guaranteed for the next five years, and that I would handle all the maintenance, fix-up, and landlord duties during this time.
I put together a quick purchase contract for the payoff with her providing clear title to the home to close in five years or less and a rental contract for me to rent the home and to sublet the property to whomever I want, which will be to the current tenants for now if they continue to pay their rent on time.
I make $1,500 per year or $7,500 total in five years to be able to make improvements to the home using none of my own money. I will end up selling the home for $45,000 to $50,000 when I’m done or more if it continues to appreciate.
I didn’t figure this into my equation, but if you have a 15% vacancy rate which is all I normally have, it comes to $1,275 per year or $6,375 total in five years.
Quick, easy deal. I found someone with a problem; gave her a resolution. I risked none of my own money. I will save the the first three months of the tenant’s rent to help pay my rent if home ever becomes vacant, and will start painting in four or five months or once the weather gets warmer.