Need to get creative with absentee owner

[Michael Murray]

Hey fellow BP'ers,

I need some advice on how to approach an absentee owner.

I currently own a single family vacation rental in the White Mountains in NH and one of my neighbors is an absentee owner. It's kind of a strange situation. No one has stayed in this house for at least 7 years - maybe more. The house has been showing a lot of signs of neglect too. But the owner has been paying his taxes and HOA fees (~$385 total) per month. And recently he had major work done to repair the roof which was about to cave in. When the crew came by the house was so rat infested they had to get a rodent control contractor out there before they could start the roof repair. So on one hand he's neglecting the house but on the other he's doing the bare minimum upkeep.

The owner owns the property free and clear and has never put it on the market. I heard he went there a lot when his kids were growing up (it's a great family vacation area) but now they are adults and don't use it. The rumor is that he is holding onto it for future grandkids whenver that may be.

Here's how I'm calling the numbers:

Single Fam

2BR/2BA - 1,100 Sq. ft

Estimated Repairs: $30,000

ARV: $115,000

Monthly Income: $1600

Monthly Expenses: $1166

My own rental property is a very close comp and I have almost two years of rental history now to compare.

So, my question is how do I approach this? I'm going to direct mail him with an cash offer first of $50,500 (70% ARV - repairs). Hoping he'll just walk away from the high repair cost to get it livable again. But if he does want to hold onto the house I'd like to have a backup plan? I'm thinking of something along the lines of a master lease option but how would that work with the major up front costs? I know there's an opportunity here and this property is just being wasted. There's gotta be a win/win combination here.

Thanks,

-mike

[Shmuel Harris]

@Michael Murray

Hey Michael,

First of all, I see that you are new to the BP community, so I would like to say welcome. I enjoy listening to the podcasts, they are both educational and entertaining. I also like going through the forum posts to see what new topics are being discussed. The world of REI is very large.

Secondly.

I think the first step would be to get in touch with the owner and see what possible motivations the guy has. If he does not want to sell, then I am pretty sure the conversation is over. If he does want to sell then the next step would be to try and come to a meeting of the minds on price. I don't know if I am oversimplifying this or not but I am pretty sure that is it.

If he is interested in selling, then I don't see why you would have to get more complicated and turn to a master lease option. Unless you like the idea of the creative finance aspect. (As an aside, what major upfront costs are you referring to?)

If I were you, I would take the plunge with the first step and get in contact with the owner. I would try to be respectful of the fact that this is his property where he probably has many positive memories with his children. I don't think I would blindly contact him and offer him a number. When it comes to emotions, I think it would be more important to connect with him emotionally and then come out with numbers that will make sense to him and to you.

Either way this definitely doesn't look like a bad deal, especially if you are comfortable with the area and your experience with your other property.

RE boils down to numbers. If you keep looking for deals and you keep working the numbers and you keep reaching out to people, it is only a matter of time before you will be successful IMHO.

Good luck and keep us posted!