I posted this in the advice forum, but maybe that wasn't the best spot :)
Good morning,
This might be a little bit long but I am looking for feedback and opinions about this situation. I have been reading this website for awhile, listened to all of the podcasts at least once, started reading Brandon’s book, etc, etc. I eventually want to be a buy and hold investor investing for cash flow and long term wealth building. I have looked at wholesaling, but am not really confident in how Atlanta, GA is looking for that. The learning process goes on- I had to promise my wife to not get into anything until I finish my Bachelor’s degree in May.
So I was volunteering some time this Saturday and got into a conversation with a guy I had just met. He is a carpenter by trade, but recently went back to school, got a degree in nursing, and a job in that field. He is married, has an 18 month old boy, and they want to grow their family.
I told him about my background and current job, but that I was very interested in getting into real estate investing. He shared that he is in a house he bought as a foreclosure in 2010, for $60k. He is in a good neighborhood on a popular lake, and there are some very expensive houses that are lakefront. His monthly PITI is $400, and it's a great situation for him right now. He figures with his current income he could probably pay off the house in 5 years. He does feel the need to make some decisions soon, as the house is only 2 bedrooms, 1 ½ bath on 1 acre. So the conversation got going and I had a bunch of thoughts flying through my head. All I could think of was to make suggestions about how to help this guy out. I let him know that I was neither a lawyer nor financial advisor.
First I asked him what he thought the house was worth if he sold it today to an owner occupant. He felt that he would probably be able to get $80k. So then I asked him what he thought it would rent for. He thinks $800 a month. I said that that would be an incredible thing to do. I mentioned BiggerPockets and how it would be a great resource for him if he thought about keeping the house and becoming a landlord.
Then I talked through the possibility of offering owner financing to an investor if he did not want to deal with being a landlord. I told him that my understanding of the process would be to keep his current financing in place and offer to hold the note for 30 years for an investor willing to pay fair market price on the property at a reasonable interest rate. The homeowner becomes the bank, receives the monthly payment from the investor, pays the debt he currently holds, and the difference is profit. I told him I thought it would be interest income and taxed at a different rate than his W2 income, but I was not a lawyer or a tax professional. He seemed super excited about this option, calling it “Rich people money” at that point. J
Another thing he mentioned was adding on to the home, but didn’t know if it was worth it. My suggestion was to find a local realtor and ask for comps for a 3/2 in his area that would match his property after the build out to get an idea of how the addition would affect his property value. He understands that the house will only be worth what somebody is willing to pay for it.
I know it’s not a great resource, but I looked up the property on Zillow when I got home and sale price came in around $116k. Who know how close that as to reality?
So now I am thinking about how to get into this deal if he will do owner financing for 30 years on $80k. I don't know if he would need some cash up front to enable him to get a new place to live, but I have about $22k in an IRA that I could convert to a SDIRA. I am thinking of offering him 10% down to put some cash in his pocket to help his family out, leaving me with a good bit of reserves. And I don't know how that monthly payment works out, if he would have some cash in his pocket monthly after paying the PITI of $400. Also, I do not know what rental rates are in that area, nor do I know the best way to look into it. Go onto Craigslist? Try and find property managers that work in that area to ask?
Anyway, I look forward to hearing some feedback about the different suggestions I made while trying to help him to see things differently than just listing and trying to sell the home in a traditional manner. It seems to me that because he was able to buy the property for $60k as a foreclosure that there has to be some meat on the bone to make this work well for him and an investor, even if it’s not me. I am trying very hard to figure out what a deal looks like when it’s on sale.
Anyhow, BP rocks! Sorry if I got long winded or gave info that may not be important. I was just excited to talk to somebody I didn’t know about real estate investing, and not be too nervous.
Thanks everybody! I am a chef by trade, so have a thick skin. Don’t pull any punches, I am trying to learn!
