Analysis and Advice on 3/2 with 1508sf and tenants

[Dave Hall]

Hello Everyone,

I am putting together an offer on a 3/2 sfh with 1508sf. The owner lives out of state and contacted me off of one of my yellow letter campaigns. The owner rented the house out to a family for $700 per month which is at least half of market value. It would easily rent for $1,500. He did this as charity but now, as he says, he is bringing his children and grandchildren into his investment business, he doesn't feel that the property is a good investment and I don't think he wants to be the one to raise the rents, so he called me.

Ideally, he would like me to keep the tenants in the house, although he knows I would have to raise the rent considerably. I drove by the house and it looks to be in good condition. It's 1963 construction and from the pictures I saw on Zillow, the interior is very dated and will need an update. I'm estimating around $20/sf for rehab costs. The lot is huge for the neighborhood (.33 acres) and has very nice landscaping.

DEAL SUMMARY

• ARV $253,000
• REHAB COSTS $26,500
• CURRENTLY OCCUPIED $700/MO RENT 
• OUT OF STATE OWNER
• OWNED FREE & CLEAR

The owner stated that he would like to get close to market value, which I can't do on an all cash offer, so I'd like to make him 3 offers to see how he'll respond. Please let me know if you think this is a good offer strategy and also let me know if you have better ideas. I'm still working on my first deal. Thanks! 

Here are my proposed offers:

• $140,325 ALL CASH (Exit strategy: Wholesale to cash buyer)
• $253,000 LEASE OPTION with $100 for the option and a 3 years lease of $1,000 per month. Convert the existing tenants into tenant/buyers or get new tenant/buyers. Get a lease option fee of $5,000 and a lease for $1,500 per month. Option the house to tenant buyers for $284,000 to be bought in 2 years. No rehab costs.
• $260,000 SELLER FINANCING, principal only assumable loan, amortized over 40 years, balloon in 5 years (the owner says he's 78 years old and wouldn't want to hold a note too long), 6 month moratorium on 1st payment. (Exit strategy: Landlord assumes the loan for a fee??? I'm not sure of the best exit strategy for this. Hopefully you can help. :)

I told the owner I would present my offer tomorrow.

I look forward to your analysis and advice. Thank you!

Dave