How would you guys structure this deal ???

Question

I have a motivated seller out of Memphis ,TN that I am working with she is a burned out landlord who just lost her mother and is to busy to manage her rental properties and just needs a break. The numbers are tight on this deal but I am hoping I can help her... the deal goes as follow :

Rental Property #1 Saint Charles Memphis TN 38127 ( 3 bedroom /1 bath )

Currently has a mortgage that she still owes $30,000 Current market value of the home is $33,000 property needs minor repairs new carpet and toilet other than that property is in great shape

Mortgage Payments are at $395 per month ,the property is currently being rented out at $695 per month she is currently collecting rent her self ,so no property management is in place  tenants have been in place for 2 year now and are great tenants property annual tax is $405.

Rental Property #2 Steal Street Memphis TN 38127 ( 3 bedroom /1 bath )

Currently owes between $36k - $38k on Mortgage monthly mortgage payments are 1st mortgage payments are $365 2nd Mortgage payments are $120 total of $485 per month

Currently being rented out at $695 for the past 2 years property needs no repairs annual taxes $500  Current Market Value $36k !!!

( She is willing to do seller financing or just sell the property for she owes)

How would you structure this deal ???

John Chapman · Answer

Darren, unless I'm missing something, I'm going to offer the opinion that this all sounds like a horrible idea. It appears that you are an out-of-state investor who is looking to pay full retail for $30K homes in Memphis, TN.  There's been a lot of discussion about $30k homes and whether you can ever make a profit on them in the long run.  (I fall in the camp that you can't.)   Unless, you are a seasoned landlord who can handle this neighborhood (which I'm guessing is pretty rough just based on the numbers), you will get creamed on these deals with repairs, vacancies, etc.  Not trying to be mean, but that's what the situation appears like to me.

Thomas S. · Answer

There is no cash flow in either property. Business is not about helping others out it's only about helping yourself. Unless she is prepared to take far less than she owes on the properties she is not motivated enough. She does not have enough equity in the properties to interest any buyer in my opinion. Plenty of reasons this is a bad deal for you.

Do yourself a big favour and walk away.

Alex Craig · Answer

Just buy for what she owes. Make it cleaner.  Also, make sure you are up for the area.  This is one of the most economically depressed, high crime areas of Memphis. People do not choose to live in low income areas, the area chooses them. All it takes is a rival gang member to move in and the tenants get fed up with the routine gun fire and you get the "I moved out yesterday, keys in the kitchen" call.  Then that is when the headache comes as the neighbors steal everything in the home.

What I laid out is worst case scenario, but sadly realistic too.

Ida T. · Answer

It is great to help people. I learn a hard way that you need to be able to help yourself first before you can help others. If you are looking at this as investment, I would for sure stay away. it is very hard to manage the properties long distance without any property management. Plus the cash flow is not there.

If you are looking at this as helping a person in need, make sure you think through it first. Otherwise, you will be holding the hot cake without anyone wanting to take it over.

Dan H. · Answer

@Darren Crawford Are you thinking of this as charity?  When adding in cap expense, maintenance, and vacancies both are likely to have negative cash flow and there is no equity.   The only way this works is if you are thinking of it as you are willing to donate money to help her out because that is what you would be doing.

I think she will be lucky to be able to sell it for what she owes to a local investor who can self manage.  If she sold at less than she owes it could be worth it as managing/owning rental property takes time; it is not the same as investing in a mutual fund.   If she sold each at 5% below market it might be best option for her (and I still think that may be challenging).

Darren Crawford · Answer

Thanks everyone for all your input and trust me I know the deal  doesn't have any meat on the bone and isn't something worth pursuing , specially not for me seeing how I am in San Diego was just hoping maybe with all creative people in here I could figure a way to help the seller out instead of just turning her away after hearing all the bad stuff that she has recently went through not every deal is all about the money for me ....

Mike Hanneman · Answer

I'm curious as to what your plan is with these properties? There is no cash flow!! I hardly doubt they would appreciate in this decade. Please explain?

Derrick Craig · Answer

@Darren Crawford

This deal is not a good one unless she can short sale it to you for $15k or less then find a PM that can manage in the Frayser area..

To be honest with you on this particular one I would pass on or try to wholesale it to someone familiar with the area.

Chris Clothier · Answer

I would call Terry Kerr at Mid-South properties and get his opinion on the homes, the street, the area and see if he would be:

A.  interested in buying from you so you can make a quick wholesale deal

or

B.  would manage the deals for you since you live in San Diego.

Either way, I would not attempt to purchase these houses and manage from afar.  I would not attempt to manage the managers from afar.  I would suggest you either wholesale them to someone who actively works in that area or you hire a company to do everything for you.

There are some other investors on here who invest in the Frayser area of Memphis and they may speak up or reach out to you about buying these deals from you.  Either way, I would definitely get the opinions of some investors who deal with these streets daily before moving forward.

Good luck

How would you guys structure this deal ???

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