Distressed Seller - Advice Requested

[Peter Sobotka]

I have been talking to an individual as a propsect for my side business during the last two months. While prospecting for the other business we had been talking about a 3 bedroom 2 bathroom lakefront condo that he has been having issues with for 7 years. He purchased the property 7 years ago at the top of the bubble. He not only purchased this condo but a second condo in the same complex. Property taxes and HOA fees have increased and due to his purchase price he is fighting an uphill battle trying to get positive cash flow. I've discussed with him how he's been upgrading the properties to demand a higher rent.

The second part of the issue. He has an ex girlfriend that is living in one of the condos. He called me last night and explained he doesn't think it would be worth a legal battle with her for not much reward on the property. He mentioned he was thinking about foreclosure but didn't want to do that to his credit to get her out of the property. He then said he would be willing to sell the property for pennies on the dollar due to the lack of control on his side. He said he would be willing to sell it for $200k which is also the value of the remaining lien on the property. I did a quick research on the property, tax value is around $265k, and I see similiar properties currently listed for $275k on the lake. I'm waiting for comps on sales of properties from a realtor. I've also mentioned I would give him a room rent free in one of my properties for two months on condition of me buying this property. Trying to make the situation work for both of us.

Questions - what do I need to be worried about? I will need a good legal real estate lawyer to correctly word the contract. How will the ex gf affect the situation if he does want to sell? How does it affect the situation if she is also on the title, if she has been leasing the property, or if she's just been a freeloader? Other key things will be the title search and making sure of the liens on the property. What else am I missing and what should I be aware of?

Exit strategy - Setup a sale of the property quickly, take the profits of the sale and do a 1031 on a downpayment of SFH's or a MFH. Silly question - do you avoid any PMI or additional charges by putting 20% down on investment properties? What are the benefits of 20% down on investment properties?