Need some advice guys!

[Austin J.]

4plex for sale for $134,900. "Well maintained brick and vinyl 4 unit apartment building. Fully occupied with all tenants on a month to month lease. Unit 1-includes new oak cabinets and new carpet. Owner pays this units electric. Tenant pays $435 per month. Unit 2-rented furnished for $450 per month. Tenant pays electric. Unit 3-newer counters and newer floor coverings. $415 per month. Tenant pays electric. Unit 4-rented furnished for $450 per month. Tenant pays electric. All 4 units metro approved. Electric, baseboard heating all separate meters. Owner pays water, sewer and trash with average of $164 per month. Includes all 4 ranges and refrigerators. 2 window air units owned by the tenants." Having $5,000 to invest, what are some creative ways I could buy this property without living in it? Seller financing seems most plausible. How do I structure a seller financing deal and present to seller or agent?

[Bora Yalcin]

Hi @Austin J.,

This sounds like a good deal! 

First off the price is a really good value and the opportunity to increase cash flow by implementing lease agreements annually, as well as making some improvements seems to be there.

The question you need to ask yourself is what the neighborhood is like, and is it a neighborhood you want to own a property in. If the units are month to month I would take the whole “fully rented” aspect of the owners/agents sales pitch with a grain of salt...why are there no leases in place to protect the owner? Is it month to month because that is all the property attracts in its current state, or is it just prone to those types of tenants due to location? You need to find that out first before jumping in.

Before going for owner financing as an option you should find out if its even possible. Go to the county tax assessor website for the county and enter either the address or the parcel number to find out who the actual owner is (if its a company, trust, or bank owned owner financing won’t be an option). If the property is indeed owned by an individual or “mom and pop” investor you’re in business. 

Their personal address, they might live in the building might not, will be listed as part of their tax information. Use this address to contact them either via letter or use it to attain their phone number.

The tax accessor site should also let you know what loans/liens are on the property. If the information is populated with the term “release” then you can keep moving forward. This means the property is actually clear of debt, and the owner CAN finance it to a new buyer if they want.

Pitch the owner by telling them they’ll make more money by financing to you. Structure at a higher than bank interest rate, with a balloon payment after 3-5 years. This allows you to make improvements, put in place better tenants, improve cash flow, and put into place some forced apperception.

Once the balloon becomes due you can refinance using the rental income as part of your income. The owner will get their cash payment on the property as well as “mortgage” payments and interest in the mean time.

Create an IRR and present it to them if you get a sit down, they'll bite if you push the idea that at the end of the deal they come out with more cash then if they just accept conventional or even cash (tax purposes).

Good luck to you, and if you have any questions or want to bounce some ideas let me know. 

PS. you should be proud that your taking steps toward your goals, if you close a deal like this with just $5,000 you’re on your way to a very bright future.