Duplex absentee owners with tenants. What strategies to pursue?

Question

Of the little marketing I've done so far just about all the responses I've received have been from absentee landlords of properties with tenants who will either finance no more than 70-80% if at all and won't take as little as my cash offer.

But what else can I do with these sellers?

Financing with 20-30% down isn't bad but I couldn't repeat that without earning cash at this point so I'd rather find a way to flip these or find a way to get them financed more than 80%.

Option 1) lease options

I've read a bit about these but not with tenants already in place. Would I just take over the existing lease as my own sub lease under my master lease with the seller and replace tenants when their lease is up with tenant buyers to buy the option?

Alternatively I was thinking to avoid getting in the middle of that confusing situation just using

2) a straight option. ..

as these sellers can sit on these properties as they already have tenants. Offer them a substantial non-refundable option fee to show I’m serious, deductible from purchase price, then use the option period to either find a cash buyer to flip it to or find suitable financing for myself to hold it. Or

3) flex option, so seller can still sell to someone else and I don’t have to risk much option consideration but still be able to market the property.

Any comments , corrections or suggestions to my thinking so far?

Neal Collins · Answer

Find private money or a partner to finance the the downpayment and get the seller to finance. You're in a good position if they are open to this.

Benjamin Cowles · Answer

I thought ROI was COC in this business. Anyway, I may have complicated the picture. I am looking at these potential deals as buy and holds. As buy and holds tho, still requiring a substantial down payment, it would cost me too much in the short term. And, as you suggest, focusing on the first deal, not 2nd 3rd etc... 20-30% is just to much RIGHT NOW for a buy and hold, unless I get that down payment wholly or partially financed, OR I do NOT hold but plan for an exit as I've been recently been thinking like selling it somehow before the balloon or option period come up, however I acquire it. So back to my studying and if you have a comment on how to finance that down payment... I mean, hypothetically under what conditions/criteria would YOU finance someone's down payment as a debt partner? If it's not just the security in the equity then what else? Good enough equity, trust, and a nice fat n juicy interest rate? I appreciate your advice to educate myself but that's why I started the thread.And never mind the flex option. Apparently they are barely used in the business. They allow the seller to sell the property to someone else(unencumbered) and at the same time give you equitable interest to legally market it, IF they didn’t want the encumbrance of a regular option. At least that is what I’ve gathered recently. Just another option where a seller is saying no. Thanks again Neal for taking the time to reply.

Neal Collins · Answer

@Benjamin Cowles To be successful in the industry does not mean that all you do is buy property at a steep discount at the expense of a seller. While you need to hunt for deals, the most successful people will create the deal in the process. This starts with educating yourself on values, furthering your knowledge base on the technical side, sharpening your negotiation skills, and working on your belief system. That is your rule of thumb.Partnerships come in many different forms and can help you get your to your goals quicker than if you go at it alone. You also assumed 50/50 which is interesting. Like I said, if you are finding sellers willing to participate in the financing, that's taking on a partnership of its own and you need to treat it as such. Your worries about finding deals with enough equity spread may be an indicator that you need to continue to educate yourself. Julie gave you a great example of how she was able to add value to a property in order to create equity with the end result being a nice property with little to no money out of pocket after the refi. If you are looking at the returns and you are finding sellers that are willing to finance the transaction then you are forgetting about one of the most important metrics...Cash on cash return. The ROI may not be as high but it's nice to have to come out of pocket or secure costly hard money.Focus on your first deal, not number two or three. If you want to find a fixer then go after that kind of property. What you are looking for does exist, but your going to have to work in order to find it. Hopefully by that point you are able to see the opportunity and then create the solution. Learn to do that then start branching out to do lease options and other creative forms of investing. (By the way, what is a flex option? You can purchase the property but the seller isn't locked into selling to you? Isn't that what all properties are? How is that of any value to you?)

Benjamin Cowles · Answer

Thanks Julie. Not sure how that answers my questions but I'm happy for you nonetheless. That's awesome. Im looking to flip deals like that too. So far I'm not getting anything distressed. Good luck with that deal you have. Very nice.

Julie Haveman · Answer

Benjamin Cowles We bought a duplex recently in pre foreclosure. Paid 88K for it. It needs a roof, siding, Windows, and we already rehabbed a bathroom. Once it's done we should have 108k into it, and it should have ARV of $140k. We should be able to refi and get all our $ back out of it.

Benjamin Cowles · Answer

Thanks Neal.As far as going in 50/50 with a partner, I suppose if it were a matter of just the amount of cash I wanted to put up then that would make sense but it's more a matter my ROI and then the amount of cash I'm investing. I want to make investments I can repeat so this method doesn't seem to solve that issue, just cut it in half. So while I could do it once perhaps I'd still need to work on getting cash. So I like the idea of getting the DP financed but I still gotta figure out how that can work. Seems like I'd have to get the property at a low enough price so that god forbid the seller has to foreclose there would be room for the fc proceeds would cover the seller and then my partner right? Is there a rule of thumb for how to go about securing deals like this? Seems to me that on top of getting seller financing you'd have to get a low enough price to get some equity right after closing for a partner to want in on a 2nd position. Any tips on this? Sounds like risky business for a newbie