Investor · Lake Oswego, OR · Member since 2022 · 36 posts · 19 votes
So I'm currently looking at a deal for new construction in Alabama. It is a Turnkey company that specializes in new construction. They are the builder, the listing agent, the title company, and the property managers (they have four companies). However, you are not obligated to use their title company or property manager.
If you use their title company, they will cover 2% of the purchase price for closing costs, and if you use their property management, they will provide a 12-month builders warranty plus an up to 12-month lease back if they can't find you a tenant.
They are partnered with a credit union offering a portfolio loan with 0% down (interest rate will probably be 8-10%). It is a 10-year term amortized over 30 years.
Essentially instead of putting a chunk of money down, you are negatively cash-flowing for several years while your equity is building. They increase rents by about 5% each year, so at some point, you will stop negatively cash flowing. When rates improve and you have some equity, you can refinance.
The contract seems pretty aggressive, though, and not many ways that you can back out and recover your earnest money deposit.
Sounds risky hoping for yearly rent increase and equity increase. If it is a cheaply built house(painted siding, carpeted floors) you may have to pay a big capex by the time you can refinance. It may always have negative cash flow.
@Jamie Stone interesting concept. Feel like you can get more. Why only a warranty if you use their PM. What is the contract with the PM? Increasing rents 5% each year is a promise they can't make. Nobody knows what the market is going to do, and rent is set by the market not by the landlord. You can't collect what people aren't willing to pay. What are the terms on the loan? 0% down with 5 points to close would be similar to 5% zero points to close. Is it fixed or floating rate? What are comps for the properties, are you buying above, at, or below market?
Would want to know a lot more before investing in it. Could be a killer opportunity or a nightmare. Bad PM's can turn a good deal sour where as good PM's can turn an ok deal good.