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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!
When does the seller need their money?
This sounds like a subject-to/seller-financed opportunity. You could purchase the home subject-to the seller's existing mortgage. In effect, you take over the remaining amount on the mortgage. Let's say the mortgage is $200k.
The remaining balance of the purchase price, let's say it's $300k could be seller-financed minus the downpayment. This is where it gets fun: negotiating the terms. By playing around with the interest rate and schedule, you may be able to afford a higher purchase price. You could delay or split the downpayment into multiple payments even. I purchased a turnkey triplex this way with only $1k down and 2.5% seller's interest rate over 20 years.
Those rates seem about right. I got a 25-year, 20% down, 4.75% back in December, and rates have been on the rise.
How many units are rented/vacant?
The seller would like to sell in the next few months but doesn't seem to have any sort of deadline. Doesn't sound like he's under any sort of pressure or anything.
Seller-financing is definitely the route I was hoping to go but I thought he would need most of the mortgage to be paid off. I wasn't sure that you could do it when they still owe more than I am willing to put down for the down payment. So in this situation, would I essentially have a $200k loan with my lender and then a $350k loan (assuming I buy for $550k) with the seller? Is that how that would work?
All four units are currently rented. The seller pays for one of the units' utilities as the tenant is an older gentleman and it sounds like they are friends. He also pays for heat for the entire building, so given the already-low rents, it's not cash flowing like it should be right now.
Appreciate your response!
@James Alderman
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.
@Nick Maynard Would you mind sharing market rents...I'm guessing around $1000-1100/month?
@Nick M. If the seller isn’t in a rush you could wait a few months and then do a conventional owner occupied with 5% down. Even if it’s not a full year it should be fine because you weren’t expecting to move when you bought your current property. That’s probably your best option if you have limited cash availability.
Quote from @Bethany Turon:
@Nick M. If the seller isn’t in a rush you could wait a few months and then do a conventional owner occupied with 5% down. Even if it’s not a full year it should be fine because you weren’t expecting to move when you bought your current property. That’s probably your best option if you have limited cash availability.
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Real Estate Agent Maine (#BA921812)
- 207-409-6617
- https://www.DavidMarshallTeam.com/
- [email protected]
Have you lived in your property for a year or are you close? Could do another FHA and move into the 4-plex. Move someone out before closing and move in or better yet if a good tenant have them move into your unit right after closing and move into their vacant unit. See if the seller will hold off selling until you are able to buy with a low-down payment conventional mortgage.
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Real Estate Agent Iowa (#S68688000)
- https://linktr.ee/jaredhottle
I have a fund active in that region that could be interested in coming in on a piece.
You're welcome to message me to discuss.
Quote from @Jared Hottle:
Have you lived in your property for a year or are you close? Could do another FHA and move into the 4-plex. Move someone out before closing and move in or better yet if a good tenant have them move into your unit right after closing and move into their vacant unit. See if the seller will hold off selling until you are able to buy with a low-down payment conventional mortgage.
I did consider trying this but I believe you can only have one FHA loan in your name at a time. And the lenders I have talked to made it sound like getting approved for another FHA after just using one for a multi unit purchase would be pretty hard (assuming I refied out of my first FHA).
Quote from @David Marshall:
Quote from @Bethany Turon:
@Nick M. If the seller isn’t in a rush you could wait a few months and then do a conventional owner occupied with 5% down. Even if it’s not a full year it should be fine because you weren’t expecting to move when you bought your current property. That’s probably your best option if you have limited cash availability.
The 5% Home Possible seems like the best loan out there. Wish it was still around.
Quote from @Alex Talcott:
I have a fund active in that region that could be interested in coming in on a piece.
You're welcome to message me to discuss.
hey Alex,
where's a good place to find rent prices in Maine? I tried the rent tool on BP, but it had no info for Maine. I've looked at Zillow, but finding lots of vacation homes, monthly vacation rentals.
thanks for taking the time.