All Forum Posts by: Nick Burns

Hello BP folks! I’m very interested in a lakeside property that consists of the main house (3 small bedrooms and 1.5 bath) and a separate building that consists of 4 identical 400 square foot efficiency apartments.  The property is currently used as a small motel and they receive $120-$140 per night per unit depending on the season.  The owners live in the main house and do not rent.The property is lakeside with a small/medium sized ski resort within 15 minutes. 

Currently, their asking price is quite high where their current income doesn’t support the value.  I’d like to purchase significantly cheaper, but I need to find ways to keep the units rented, preferably short-term vacation rental to maximize income.

One strategy I considered was short-term vacation rental during the 10 summer weeks when it is busy and then seasonal rentals during the remainder of the year when tourism is much lower, but still, using this model doesn't produce enough income (this includes renting the main house as well as the other 4 efficiency units) to support the investment resulting in a very low ROI.

The most profitable model would be short-term rentals all year long.  In addition to summer tourism and skiing, the area attracts snowmobiling, ice fishing, leaf peepers amoung others.  

How do I attract year long short-term renters to make this investment work?

I understand that as an investor you shouldn’t have to stretch your options to make an investment work, however  my family would use this some for personal use as well, so clearly there is a partial emotional attachment ;)

Any ideas are welcomed and appreciated!

@Mark Bookhagen - you took the words right out of my wife's mouth!

@Mark Bookhagen, thank you for your response.  I'm leaning that way for sure.  Other shared expenses could include insurance, snow plowing/landscaping and trash removal.  I'm sure there are other expenses that would be less with a partnership.

I'm not sure how to design this business partnership. 

Scenario: 2 deeded properties that abut one another that share a driveway with a 14 car parking lot (the parking lot is split in the middle, but the driveway is now considered a right of way.)  8 - units, can rent seasonally as it's located in a tourist town for beach rentals. 

Ideally my brother and I would buy the property together and form an LLC and run as a business.

However, my wife doesn't want to enter a "business" relationship with my brother, but instead suggests that we purchase the properties individually (since they are both on seperate deeds).

One property has a commerical space in the front that historically has been used as a take-out food stand, which could be profitable.  This same building has an ocean view and is listed $25,000 more than the other builiding which is priced at $425,000. This building clearly is the better of the two because of the ocean view and commerical unit. 

Therefore, a partnership makes sense so that the entire 8-units and commercial space is run by one entity which splits the income and expenses appropriately.

Since my wife doesn't want to engage in a direct business relationship with my brother, she would prefer for us to purchase the properties seperately; how would you suggest to organize this purchase so that both parties are satisfied?

We could share expenses such as cleaning company, property management, supplies, etc. 

The tricky part is the commercial space which could be very profitable since there is a lot of tourists and foot traffic in the area.  

How would you suggest organizing this purchase so it makes sense for both parties?

Any suggestions would be greatly appreciated. 

@Tom S. Thanks for your input, much appreciated!  

@Ian MacIntyre

I agree, these repayment scenarios are all risky for the seller.  They are motivated to sell, however after further discussions with the seller they currently don't want to entertain any owner financing scenarios at this point in time.  Bummer.

Ian,

I am looking to purchase this property.  I'm trying to create and present a purchasing structure to the seller.

Thanks. 

I am looking to structure an owner financing deal.  Here are the number:

Purchase price: $320,000

Amortization: 30 years

Interest Rate: 5%

Balloon payment: 3 years

Monthly payment: $1717.00

How do you structure/allocate your monthly payment to the seller (i.e. amortize 30 year repayment schedule, interest only, or a larger set amount as principle, etc.)?

For example, if I was following a 30 year amortization schedule then I would pay $46,941 in interest and only $14,900 in principle after the 3 year duration was up before balloon payment. Obviously that doesn't take much of a dent out of the principle and leaves a large balloon payment ($305,100).  If I did interest only, then obviously that leaves me with the entire $320,000 for repayment after 3 years.  If there was another strategy/calculation then the principle could be significantly reduced by the time the balloon payment is due; such as paying 5% interest on the principle for the entire 3 years ($320,000 x 5% = $16,000) and spreading that interest over the 36 months ($444.44 per month), which reduces the principle significantly more by the time the balloon payment is due. Using this method I would have pain $16,000 in interest and $45,812 in principle with a balloon payment of $274,188 instead of $305,100!

What has worked for you?  What have you found to be reasonable for the sellers?

What are your suggestions, I look forward to your input! 

@Azeez K.

Azeez, 

All your ideas are great; I may explore the seller carry or debt partner options.  Thanks for your contribution to this thread!

@Jay Hinrichs

Thank you Jay for your input; I've always enjoyed your posts on other threads.  This would be my second deal; I do have capital but not a sufficient amount for entire down payment, closing costs, etc.   I agree, early on in one's investing career, you may have the best luck finding capital with the one's who you know best.  Thanks for your advice.