Structuring this deal

[Doug Haisten]

A landlord in a small town (population 69K but the biggest town in the county) that had a FSBO house I approached to buy that house, as we talked, said he was wanting to get out of the rental business (he's mid 70s and has another non real estate business he is in) and said he would sell me the house I contacted him about and his other properties. I met with the owner and we are looking at 4 properties. These are SFH rentals in nice neighborhoods, the houses, with a couple of exceptions, are fully rented to working people (no Sec 8) and the houses and yards are well maintained. The houses are mostly 1970-80 vintage. There is almost 0 vacant houses in these neighborhoods. The houses are stated to be free and clear. Rents average about $700 pm.

At first blush he wants the tax assessors valuation for the properties, about $1.12M. Going through each property that valuation is sometimes higher sometimes lower than the comps on like houses about 1 mile or less. My total comps are $1.24M. The owner did make a casual comment he has done owner financing.  

I have not made any deals yet and I am working this as a wholesaler. I don't know if this will be the first but I am working on 3 other deals, trying to stoke the boiler so to speak. Any direction to where I can get mentoring or advice on what I need to be working toward is appreciated. I am meeting with the owner again next week. Thank you

[Karen Rittenhouse]

@Doug Haisten

Three things you need to know to calculate offer: true property values, repairs needed, true cashflow.

Realtor.com is no way to figure true value. You'll need an agent or appraiser to give you real numbers since you're not skilled at this yet. And perhaps a contractor or inspector to look at the properties and tell you what kind of work they need. At that age, some probably need roofs, HVAC, water heaters, etc. and all need carpet, paint, appliances, the list goes on and on. A lot of your cash flow will go toward maintenance, a lot toward Uncle Sam. 

The seller should have numbers for true cash flow. I'd also want to see what type of contracts he has with each tenant and when those expire. I always want my own contracts so I have control over rents and evictions as needed.

From the information you've given, there is no way to determine true value or if this is a good deal. Since you don't have experience, get help from some in your community who do.