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Updated almost 3 years ago on . Most recent reply
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Off-market 4-unit opportunity - can't decide how to proceed
I'm trying to decide how to approach an off-market opportunity I've just come across. I recently purchased a three unit building in Saco, Maine which I'm currently house-hacking, and when talking to the landlord of the four unit property next door he mentioned he's interested in selling. He showed me the house and it's in decent shape - a few units could use some cosmetic updating but overall it could be a turn key purchase.
I already have an FHA loan under my name and my lender is telling me the best options I currently have are:
1) A non-occupant co-borrower loan - 20 year amortization, 20% down, current rate around 5.375%
2) A commercial investor loan - 30 year amortization, 25% down, current rate around 5.375%
I haven't discussed a price with the owner yet but I'm thinking he will ask between $500-$600k, hopefully on the lower end. The rents are currently a bit under market so they would probably need to be raised for this to make sense.
I've analyzed the deal a few different ways and with rents raised to market I think it would cash flow around $1,000 a month.
This seems like a great off-market opportunity for me to snag another rental property without buyer competition, especially being right next to my current property, but with rates rising so quickly and a large down payment needed, I can't tell if this is something I should just let pass me by.
I could probably get $100k together but I would need to bring in a friend or family member to help out. I know the seller still owes $200k+ on the mortgage so I don't believe seller financing is an option.
What do people think about this situation? Is the close proximity to my first rental and the off-market deal worth taking a risk on stretching myself thin for a few months? Does this sound like a decent wholesale opportunity? Do these rates and terms sound about right?
Really just trying to spark some conversation and see how people would approach a situation like this right now. Any thoughts or insight is appreciated!
Most Popular Reply
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The $200k loan would remain under the seller's name, but you'd be making payments on their behalf. That mortgage will have a "due on sale" clause which means that the bank could call the whole loan due because of the sale (and if you don't have the cash, then foreclosure), but they "usually" don't. That's the risk here, but you can mitigate it by purchasing "due on sale" clause insurance which will cover the loan in the event that happens.
The payments made on the seller's behalf can be "serviced" by a company so that the loan no longer applies to the seller's DTI, if this is something your seller is concerned about.
"Investing in Real Estate With Lease Options and ''Subject-To'' Deals" by Wendy Patton is a good source.
And yes, the remaining amount would be seller-financed, minus any downpayment that you agree on.