All Forum Posts by: Mike Palmer

Sub2 is subject to. You sell the house (give them the deed) subject to the existing financing (keeping the existing loan in place). So they would assume making the payments on the loan that is already in place. There are some risks with this so you will want to know what you are doing and may not be the best method for your first deal.

So a few years ago (in a down market) it was worth $230k and they owed around $244k? And now (in a more sellers market) it is worth $280k?

You will need a team in the area (including a realtor, contractor, etc.), which will more than eat up the $16k you have left to work with. It doesn't sound like there will be any profit in this deal, and a good chance you will lose money. Are the payments current? Is it vacant? Are you showing $280k as ARV or as-is? If that is the as-is value then get it on the market the way it sits and you might have a chance to come out ahead.

If not, I would maybe look at some creative options. Can you sell it as-is, either sub2 or on a lease option? Can you partner with a local investor in the area that can buy it as-is and is willing to re-work it on thin margins and re-sell (maybe an investor/agent that also does their own rehabs would be able to make this work...)? Could you rent it at lower than market rent value to someone that is QUALIFIED to make the repairs (maybe rent it short-term to a handyman at discounted rent in exchange for the materials and work)?

It seems to me you will need to think outside the box on this one...

@Account Closed:

I am not sure I follow, can you elaborate. 

Do you mean historic yearly average of 8% APPRECIATION (not equity)? If that was the case, how/where are you finding these properties for under $100k? Wouldn't they all be worth way more than that after experiencing 8% appreciation every year?

Are you getting $666/mo cash flow after expenses? That is better than we can do in Ogden on $100k property. How much are these places renting for?

If you close (buy the property yourself) then re-sell/double close, wouldn't that then be flipping (not wholesaling), or am I just getting hung up on a technicality? 

Hello:

I bought a new personal residence last year and rented out the unit I was living in (it has a basement apartment that I have been renting for years while I lived there, so now the upstairs is rented as well). 

The new upstairs tenants informed me they were looking for a house and would not be renewing their lease. Then about a week later they informed me that they are having a hard time finding a house (we are in a really hot sellers market), and that they might stay a little longer. All things considered they are decent tenants. Then they approached me about buying the house they are living in from me...

I had not previously considered selling it, but there are some pros and cons and now I am on the fence. In our hot market the value has gone up significantly since I bought it and I have a bunch of equity. I don't know how long the market will be like this, so it may be a good time to sell. On one hand it would be nice to cash that out while I can take the homeowner tax exemption on sale of a personal residence. I don't know how much depreciation recapture I would have to pay or how that works (especially where I also occupied/house-hacked it), but that is another factor. 

On the other hand the place cash flows about $500/month as it is, and I don't think I could take the money from the sale and find anything else that cash flows that much. 

Yet another aspect to consider is that there are a few odd things about the house (nothing really wrong with it, but some things that might turn off a few buyers), but they know and like the house. It could also use carpet and a few little things that I would not have to pay for (depending what they ask for). It is also not a legal 'duplex', so technically the city could force me to kick out one of the tenants (but they typically only enforce this if there are complaints or problems). 

I told them it was not technically for sale but as the saying goes everything is for sale for the right price and that they are welcome to make me an offer and I will consider it. They apparently have a buyers agent they are working with (which I think will just complicate things and cost more--and I am an agent myself), but they said they are working on making an offer. I am not sure what price would motivate me enough to sell it, but I have a hunch they will not qualify for enough to make me happy. But IF THEY DO, should I keep or sell? Is there anything else I am not considering?

@David Moore:

You are not likely to get over $1k cash flow in this area for that price. $250/month/door in our market is doing very good. 

@Tim Mellor:

I see this as able to go 2 ways: there are not a lot of people looking to rent a 6 bedroom place, so it seems to me that you may go a LONG time looking for new tenants (unless you rent by the room/to singles or students), but when you find the right tenant they may stay a LONG time too (which is good, unless they are bad tenants). 

When renting out something that large you tend to attract LARGE families and/or students/singles, both of which have the potential to put more than average wear and tear on the property. 

Personally for about the same price I would prefer a 4 plex of 2 or 3 bedroom units which are quick and easy to rent and would be less risk, but that is just my preference. You are looking at something a little unique (in the size of units), and if that is the market you want to work then there may not be many of those deals out there, both for you to buy and/or for a tenant to rent, so it could be a nice little niche. You just have to decide what space you want to work in.

The utilities do sound high to me, so you might have some opportunity there. I would bet they would go down if the tenants were paying them...

I have worked in insurance as well and a referral partnership probably works the best. Send me a PM if you want to connect and/or talk more about it.

@Mike Krog:

Are you actually finding/getting deals in Utah at that ARV, or are you just throwing that out there? If you are, hit me up and let's chat.

@Chris Watkins what did you end up doing?

@Jake Maughan

Most of the comments here seem to be from people in areas where they can meet the 1 or even 2% rule. They are probably not familiar with the local market here. You need to evaluate the deal and decide based on YOUR criteria (and the LOCAL market) whether this is a deal (or good enough deal) for YOU or not. 

Keep in mind that a lot of these projects have restrictions that do not allow use as a rental, so if that is the case be careful that you only have 1 exit option, and on top of that are restricted to the 55+ population (meaning a lot less potential buyers). I am a little surprised at that value for a condo in Springville anyway. 

Given all the restrictions I would say you are taking a big risk, and I would only proceed if you can wrap it up BEFORE the bankruptcy starts. Once they file for bankruptcy you have almost no chance anyway. 

If you proceed I would probably try to negotiate with the 'associate' to walk away for the $45k (or less). He stands to possibly lose a lot if it goes to bankruptcy while he has the deed (and at minimum he may not get anything for several years). That would save you a few thousand, but again you need to evaluate and determine if the deal meets your criteria first, then figure out if or how to make it work.