Subject To

[Shawn Connors]

Hey BP Family,

I need a little help with my situation.  I am going to look at a house tomorrow with a motivated seller.  She paid 130k, she owes 95k and is asking for 115k.  The house is in good shape but in a C or D neighborhood.  The great thing about it is that it rents for about $3500/month.  That sounds crazy, I know, but it is a women's recovery house and there are 8 women living there (9 total can live there) paying $440/month.  The mortgage is $650/month and the total bills are about $900/month.  I am trying to figure out the way to best approach the situation.  Should I offer her a subject to deal?  I was thinking i could offer to buy the house at 95k at a 10 year lease, paying her $750 so over the life of the lease she will make 12k.  Need some feedback please

[Don Konipol]

i know this post is old, but just wanted to state where new investors sometimes err.  This is a business investment that also includes real estate, not a real estate investment. A recovery house with nine clients requires intensive management.  The management cost was not included in the expenses. Further, significant repair, maintenance and depreciation expenses will occur with this arrangement.  This $2600 per month "net income" is a fallacy generated by omitting the "business" portion of operating expenses necessary to run this "business".  

This is not a new phenomena. Sellers of various business in which real estate is an integral part attempt to sell their investment/business by comparing the income generated to other real estate investments, not other business investments.  Owning a bed and breakfast, assisted living center, rooming house etc can only be compared with less labor/ business intensive real estate investments if one can lease the property on a true net basis to a single operator who will run the business, and if fails another operator is available to take his place. Then the rental income paid by the operator becomes the gross income, not the gross income of the business