Wait or take this deal?

Question

Hey guys. I'm a newer investor from Alberta, Canada. I bought my first property in January 2022, and since then, I've had other deals come to me but none worth pursuing until now.

I had someone approach me asking if I'd like to buy their property. I know the person well which is why she came to me. It's a 2 bedroom/2 bath house that they gutted and redid about 9 years ago. Everything's in great condition honestly. She's asking 100k, seller financing, 0% interest (not a typo). Basically I'll just pay her every month until there's 20% and then I get conventional financing plus I'll pay her enough to cover insurance and taxes. She does want 5% down though. There's a renter in there already paying $900 a month plus utilities. I know the renter personally and he's a good guy from what I know.

My issues I'm having is

1) I'm a little low on capital after my first purchase plus Renos.

2) I've been saving for a house that I can house hack. I own a large rescue dog that doesn't like people so a house hack for me means separate units. Personally I think eliminating my housing cost would benefit me more.

What do you guys think? Should I take this deal or pass on it?

Stevo Sun · Answer

I'm in Calgary, Alberta. I'm not sure there's a house any where I'm closed to for that price (no matter what condition). I assume you are in a smaller market if 100k is a realistic price. That said I would be a little more skeptical of the transaction in terms of economics. Consider some worst case scenarios, like if the renter ditched or if something unforeseen happens and need major repairs, if you can handle those scenario and make it work I would say go for it. Don't stretch yourself too thin! Interest rates are going up (I think BoC is expected to hike another 50 basis points this Wednesday) so factor that in as well. Ie. By the time you can do conventional mortgage what rates are you expecting and does that work for your economics. Good luck!

Bill B. · Answer

If a $5,000 down payment is giving you pause I would pass. What’s your plan if you the fridge or ac goes out the month after you buy it, the furnace in 5 months? You seem way too cash poor. It would be new having a $280 payment for 4 1/2 years until you had to refinance. You might be better off moving in to the property to save up money for future deals and rent out your current place instead?

Jeremy Heaman · Answer

I believe Steve is right. Stretching yourself too thin is a good way to get into trouble. It may be best to wholesale the deal, and build your war chest for the next one.

Dwayne Poster · Answer

Oops...

Elijah Williamson · Answer

@Owen LangisFrom what I know, her mother originally bought it then eventually sold it to her. She Reno'd it and lived there for awhile until she outgrew it then rented it out. Turns out she doesn't like landlording and me being the only investor she knows, offered it to me. As for the 0% financing, I think it's due to her not being financially savvy. I mentioned that 0% is crazy and she clearly didn't realize

Dwayne Poster · Answer

where you at Elijah? If you are exposed to oil and gas, things are looking up. I know a couple who purchased building lots south of Camrose, and 15 years later, they haven't built a single home, or can sell a single lot.

Elijah Williamson · Answer

@Bill BrandtI actually moved back into my mom's in order to rent out the first property which is giving me a decent amount of cash flow now.But yes, this was my main concern. If something goes out, will I have enough to replace it? What if something goes out on both properties or both properties become vacant at the same time? I'm not sure I would be able to cover all the costs.

Joe Villeneuve · Answer

Nobody can tell you what you want, or don't want, to hear without the complete info. All we know is the rent...which means very little. What's the Cash Flow? In other words, who cares how much money the tenant is giving you, what matters is how much you keep.

Owen Langis · Answer

I agree with @Bill Brandt If you are struggling with the $5k dp to purchase a $100k property you should not do it. Red flags are everywhere with the details that you posted as well. 100K purchase price? $900/mo rental income? 0% financing? fully reno'd with a great tenant? Something stinks IMO if it is indeed that great of a deal, I am 100% sure you can find $5k to get the deal done. (people would be lining up for a deal like that - all day long)And finally - in this market there are buyers everywhere - why would the seller give a deal to you when they could sell the property on the MLS and have the cash to do something else with? (not loaning it to you at 0%)

Dwayne Poster · Answer

if you needed to sell the property tomorrow, how would your finances look? Will she give you the right to assign?