Deal of the Day...

[Aaron Mazzrillo]

I received a call from a seller on Friday. She has a $150K 3/1.5 house in a decent area of town. I'd put it at a C+ neighborhood. She was asking $130K cash and told me it is turn key - claims she put a lot of money into it.

I ran my numbers and told her if it is really turn key and doesn't need anything for rehab, I was at $125K so we were close. I figured I could actually sell it for $160K and would try to buy it for $120K which would net me about $15K. I decided to meet her at the house because I had to be sure it doesn't need any work and I wanted to get a wet signature on the contract. I also was going out to check up on a rehab so I had to be in the area anyway.

I met her at the house yesterday. The house was nice, but absolutely dated. After looking it over and commenting on how nice it was (used to be her house so you have to respect it), I proposed a seller financed deal. I offered her $130K with 10% down, 30 year am, 5%. I told her if she wanted all cash now, I was somewhere closer to $100K-$110K. She liked the idea and said she had to think about it.

For you calculator heads, what is the payment?

Rents are $1,100. What will the cash flow be?

She called back this morning and countered with $140K, 20% down, 5%. I immediately declined stating that the return on my 20% down would be unacceptable.

My counter to her will be $140K, 10% down, 5% int, $625 pmt.

What will the term be?

Would you do this deal if she says yes? Why?

What would you do, other than changing the terms I have offered, to make this better?

[Bill Jacobsen]

As I understand, your counter will be $140,000 with $14,000 down and a loan where you would pay $625 per month at a 5% interest rate. It would take 36 years and 8 months to pay off loan.

You cash flow would be dependent on your expense ratio. At 43.2% your cash flow would be $0. At a 50% expense ratio your cap rate would be 4.7% but your loan is at 5%. I am sure you can see that this is a problem. The only way to fix this is to lower the purchase price.

Good luck.

Bill