How should I structure this deal? Sandwich lease?

Question

REF: 13008

It's nice to know that each lead I've come across so far involves strategies I know almost nothing about =D What a great life we newbie investors have!

I've linked the property packet below: (download it to access links)

https://docs.google.com/file/d/0B-SeVvpM7tGISDVpMktDdktMU2M/edit?usp=sharing

There are three sisters who inherited the house and it's been vacant for three years.

They are asking $30k, but I'm sure they know they aren't getting it...

The main concern with the repairs involves the foundation as it's cracking in multiple areas from the basement through to the second level.

I don't have any buyers in this area, but I would consider holding it myself.

Let me know if you need more info to help! Thanks for taking the time to read this and for your feedback. I value it immensely.

Brandon Krieg · Answer

Taylor Jennings, I agree that you shouldn't output that money if there's little/no chance of making a deal.  You probably have a good idea bout their level of flexibility.  Honestly, if it's been vacant for three years, they may be quite motivated.

However, before even putting out a price, I think you should  have a very good idea of your costs.  It's hard to reduce your offer once you've already thrown a number out there.

I was able to access the pictures - thanks for the tip.  I see why you like it - it's got a lot of potential!  Three things jumped out at me as things to check on.  First off, there seem to be several horizontal cracks in the basement foundation - definitely get that looked at.  Second, I saw a pest control trap.  Critters can cause a fair amount of damage you can't see.  And third, in the upstairs, it seems there may be water damage in one of the rooms (picture 3644).  You may have mold in the surrounding area.

I would definitely take the time to have at least a very good contractor come and do an inspection/repair estimate.  It may cost you a couple hundred bucks, but that's much cheaper than getting even one 'surprise' repair in a house.  Then, if the cost seems feasible, perhaps have the structural engineer come in.

I don't want to dampen your spirits (I hope I'm not), I just don't want you to fall down a rabbit hole that's best to avoid!

Taylor Jennings · Answer

Brandon Krieg I thought about getting a structural engineer in there to assess foundation issues and cost to repair. (I think that's who I would seek out?)

I'm waiting for the comps from my REA. The PDF links will work if you download the actual file. There is a down arrow to the left of the screen once you load the link.

I figured I would offer a low amount for the house after showing the owners the amount of repairs that are needed. There is no reason to pay for an engineer to assess the foundation if they aren't anywhere close to my offer. Unless you would suggest otherwise.

Thanks for the encouraging words =) I appreciate you taking the time to reply to this post.

Wayne Brooks from what I believe I know, which is very little, a sandwich lease would allow for seller financing and would require me to pay an agreed upon sum every month. The mortgage would stay in the owner's name (in this case it's owned free and clear) so I would need to pay the amount owed or the owner could eventually be foreclosed on.

The idea would be to put a tenant in the house, they would pay me, and I would pay the mortgage. I would have the option to allow lease to own for the tenant.

I'm sure I'm off on this... but it's what I've gathered without researching it directly.

The strategy was suggested by a REI who wholesales houses in that area.

Thanks for taking the time to post your concerns Wayne. I value your expertise in this matter!

Wayne Brooks · Answer

Taylor,if you don't mind....why a sandwich L/O, and what is your understanding of how the sandwich works with the seller, with the tenant buyer, and the risks to the seller, the tenant buyer, and to you?

Brandon Krieg · Answer

Hi Taylor,

I'll take a stab at it.  First, based on the issues you're describing, I would have an experienced foundation person come and take a look at it.  I am not an expert in foundations, and unless you are, you'll want a true cost of that repair before you jump in here.  You should get an actionable quote, and go from there.

Second, if the house has been vacant for three years, are there other 'unseen' issues the place may have (mold, bad wiring, etc)?  Also, make sure you have accurate costs in mind for paint, new windows, floor refinishing, etcetera.  I don't bring this up to scare you off, I mention it up so you know what you're getting into.  If you haven't already, it seems worth the cost to bring in an inspector/contractor to get a good feel for costs.

Unfortunately, I couldn't link to your pictures through the provided pdf.

Also, it's tough to judge without any comps in the area.  What is the asset value of similar homes?  If your total cost were below $30k, you may to be in an OK rent/lease option position.  However, you may need to get the house for a VERY low price if the foundation / other repairs get too expensive.

I'm sorry if that's not a totally clear answer or feedback - I don't feel I have quite enough info to give a more informed answer.

Also, keep up the great work.  You're clearly digging and working a ton, and you deserve A LOT of credit for keeping at it when a lot of others would have quit!

Taylor Jennings · Answer

Ha! Come on 30+ views an no replies!