OK. So here is where I am at today.
I have made an offer for a 4 unit individually deeded property for 258,900.00.Initially I offered full price (what he owes on mortgage) with 8% interest with a 5 year balloon. Monthly rent income is 2941.00, monthly mortagage is $2,699.30. ($1,899.72 principal & interest + $702.58 real estate taxes + $97.00 property insurance). Which gives it a positive cash flow of $241.70.
All units are rented but the guy doesn't want to do the deal I initially offered, he wants to do a Land Contract with terms...
Responsibilities of the Buyer
1. Maintain exterior landscaping of the premises
· This includes, but is not limited to, cutting grass, trimming bushes/hedges/trees, removing any unsightly debris/trash from the property.
· Keep “trash corral” in neat order
2. Maintain exterior of building.
· This includes, but is not limited to, window screen replacement, replacement of any broken windows/doors, roof repairs, siding repairs etc.
3. Tenant maintenance calls
· Any normal and customary maintenance requests by the tenants are to be handled by the Buyer
4. Vacant unit preparation
· Should a tenant vacate a unit, Buyer is responsible for preparing the unit for the next tenant. This includes, but is not limited to, interior painting, cleaning (carpets included) and any other repairs needed to rent the unit.
5. Leasing of units
· Buyer will be responsible for leasing any vacant units. Rental rates are to be agreed upon by both Buyer and Seller.
6. Eviction of delinquent tenants
· Buyer will be responsible for filing eviction paperwork for delinquent tenants and attending the court hearing (if applicable).
Responsibilities of the Seller
1. Pay real estate taxes, insurance and existing mortgage
2. Collect monthly rent from tenants
3. Send three-day eviction notices to delinquent tenants. If three-day notice is unsuccessful, the Buyer will take over with the eviction process (as noted in item #6 of Buyer responsibilities).
4. Hold and refund all security deposits of tenants, existing and future.
Payment to Seller
· The terms of this contract call for a purchase price of $258,900. Given the “seller financing” component of this transaction, the Seller will act as a bank and collect a monthly principal and interest payment from the Buyer. Like a bank loan, a portion of the monthly payment will be used to reduce the principal balance. The terms for this loan include:
· Loan amount = $258,900
· Interest Rate = 8%
· Term = thirty-six (36) months
· Amortization = Thirty (30) years
· Monthly payment amount = $1,899.72
· Pre-payment fee = None
· In addition to the principal and interest payments, the Buyer will be required to pay the Seller a monthly amount for the real estate taxes and property insurance. The amounts are as follows:
· Real estate taxes = Annual cost of $8,431. Monthly payment amount of $702.58.
· Property insurance = Annual cost of $1,164. Monthly payment amount of $97.00
· Buyer’s monthly payment to Seller = $2,699.30. ($1,899.72 principal & interest + $702.58 real estate taxes + $97.00 property insurance).
· Because the Buyer is not required to deposit any funds as a “security deposit,” only the Seller will collect the monthly rent from tenants. Once all rents are collected, Seller will deduct the Buyer’s monthly payment amount from the combined rents. The difference between the monthly rents collected and the Buyer’s monthly payment amount of $2,699.30, will be given to the Buyer.
· Should the Seller not collect a combined $2,699.30 from the four tenanted units, the Buyer will not receive any funds for that month. The deficiency between the collected rent and Buyer’s monthly payment will be repaid by Buyer in the form of withheld future monthly payments from Seller. For example: if Seller only collects $2,500.00 in combined rents for a certain month, the amount owed to Seller from Buyer is $199.30 ($2,500.00 collected rents - $2,699.30 Buyer payment). If in the following month, the Seller collects $2,950 in combined rents, the monthly payment to Buyer will be net of the previous month’s deficiency. ($2,950.00 collected rents - $2,699.30 Buyer’s monthly payment - $199.30 prior deficiency = $51.40)
Basically I need someone that has experience to look at this and hold my hand (I generally don't like to ask for help that way but Im being truthfull.
The guy seems like a nice guy and to me he seems to be on the up and up but I wanted some advice... should I take this deal and run with it or run! Gut tells me to run and then it tells me to stay... O M G.... lol. Help me guys please.
PS. I have basically another deal exactly as this one for a triplex from the same guy. I'll post that one in a seperate thread.
PSS.. The guy did say that if I came to the table with $10,000 then we could do a Owner financing... but who has 10k laying around, lol, I dont.
SHORT TERM & Long Term GOALS
Expand my knowledge about REI and read 2 more books.
Never Give up and Succeed!