Trade rental income for a lower price on home?

Question

Good day all.

A friend just got his unit appraised in Bahamas for $282,000. Take away closing costs, he’s left with $245,000 in his pocket. He’s offered it to me for $240,000 and i pay all closing costs, 13% on the $240,000. Unit is in a great location, shops, restaurants, beach all within minutes of walking. Short term rentals are allowed. Fees are about $450 per month. Rental income is $2000 per month.

I reached out to a local bank, and they require 40% down payment. They’ll finance the 60% over 10 years. Not a good deal with the bank.

Owner financing is not an option since he had a mortgage and bank will want their money right away if he sells.

I have a vacant unit for rent he really wants to move into for $3000 a month. I’m trying to figure out if I should let him live in the unit for a year rent “free” if he takes off the annual amount, $36,000 off his asking price.
Would this make sense? I’d love to read your thoughts. Thanks for your time!

Aaron Montague · Answer

@George Allen

Is the rental in the Bahamas a good deal for you at all?

2000 - 450 fees - 1530 mortgage (144k at 5% for 10 years) = not much for you: $20/month

I didn't throw in taxes or insurance.

Now if your short term rental income promises to be quite a bit higher than the 2000/month, then it could be a better deal.

Did I miss anything?

George Allen · Answer

Hey Cody,

Thanks for your reply.

I’m a little hesitant, in the “analysis paralysis” phase, because I’d be without income for a year. But the unit is already empty costing $ to maintain anyway and doesn’t seem like people are looking to rent. Is this smart to do? Ahhh

George Allen · Answer

Hey Cody,

Thanks for your reply.

I’m a little hesitant, in the “analysis paralysis” phase, because I’d be without income for a year. But the unit is already empty costing $ to maintain anyway and doesn’t seem like people are looking to rent. Is this smart to do? Ahhh

Cody Barna · Answer

@George Allen if he's willing to do that and reduce the sale price by $36k that could save you a significant amount of money, considering the loan term is only 10 years. Worst case scenario you could reduce his monthly rent and use that difference to cover the closing costs. If your closing cost are 13% of $240k then that means you could reduce his rent down to $500 per month and call it even. (Quick math)

Trade rental income for a lower price on home?

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