Need advice. 20k deal. tenants live free 10 yrs

[Steve Miller]

I was offered to purchase a single house for 20k. It’s worth about $160k. However the tenants are elderly, desperate and want to live rent free for ten years. Taxes are about $4k. Needs some minor improvements that I can do myself. It would be my first time buying. I’m on the ropes and need some solid advice. Thanks in advanced for anyone to that replies

[Andrew Syrios]

It sounds like a good (albeit very messy) deal, but it would only work if you're 1) willing to have a lot of red in cash flow and 2) This is truly a very long-term hold. I ran the numbers in the CCIM calculator assuming the market rent is $1000/month. At that rate, the cost of missing 120 payments for $1000 over the next ten years (assuming you want a 10% rate of return on your money) is $75,671.16.

You would still have $64,328.84 of "equity" ($140,000 - $75,671). It's a bit closer for $1500/month,

Then the cost is $113,506.75 in present dollars to not collect any rent for 10 years. In which case you would have a positive $26,493 to begin with. Again, all of this assumes you seek a 10% rate of return, which is pretty decent.

Again, I would only consider this if you are comfortable with a very long term hold. You should also make it clear that in 10 years, you will start charging rent again no matter what. These types of things can easily be forgotten and create a big mess down the line. I would be nervous about it, but I would certainly consider it.