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Since I came into this community and rededicated myself toreal estate investing I have been able to pick up two houses. I am too green togive advice, but I’m hoping that someone in a similar situation as me might seeit and recognize how creativity trumps obstacles every time. A little background:I have no expendable income and my credit score isn’t high enough yet tojustify a loan. I’m an introvert who absolutely cringes at the idea of callingstrangers and networking. Thankfully I’m not shy or self conscious in any way. Ifyou have similar obstacles you have no excuse for procrastination.
House 1
The seller was extremely motivated. Not distressed, justmotivated. She was pushing for something like a “Subject Toâ€, which I believemost investors would have jumped on. I talked her down. I know this may bite mein the butt in the long run, but I was afraid on the due on sale clause. I knowthat it is very unlikely that the bank even knows that the deed has been transferred,but I know that if they somehow did I wouldn’t be able to cover the mortgage.If this were to come up when I have the money or the credit to cover themortgage, I’ll take it. I explained the risks to her and she still wanted to doit, but she isn’t the sharpest tool in the shed and I felt like I’d be takingadvantage of her.
Instead we went with a 15 year lease option. I have theability to make any changes to the property so long as doing so is done withthe intention of adding value. The contract allowed 90 days to close on thelease and that closing was contingent upon me finding a tenant, meaning I didn’tpay a dime until I have a tenant paying me. The option was for $107,000. Themonthly payments ($814) mirror her mortgage payments in how much goes towardthe principle (she has a 5.25% interest).
I was able to find a lease option tenant within ten days.She purchased the option for $2500. The contract I wrote with her makes herresponsible for any repairs under $5k. She is paying $885 per month in rent (inretrospect I wish I had made it $914 or more). Her option is for $130,000. Theoption fee will be taken from the sell price if she chooses to exercise theoption. I was so excited to get someone in my first home, that I think I gave alittle too much. She has a 2 years lease with option to buy. I wish I had madeit for one year only and decided in a year whether to renew with her if shehadn’t exercised her option.
House 2
This guy is in the military and is getting out. He is movingin with his parents back home and pursuing an MBA. He has only owned the homefor a year and has no equity. His biggest concern was that he didn’t want topay the mortgage on a home that he wasn’t using and he didn’t want to land lordit from Virginia. I have a ten year lease option. The option is for $136,000.The house is worth $134,000 right now. Maybe less. I am optioning it for theexact amount his mortgage payoff would be. The monthly mortgage payments are$825 which is the amount my monthly rent will be. He has also opted for me topay the bank directly and receive the mortgage statements. The contract givesmy 90 days to close and closing is again contingent upon me getting a tenant.This home has a kind of loft/guest house hybrid in the back. It’s a two storystructure with everything EXCEPT a bathroom. The main house is a 3 bath/2 bed,but the bathrooms don’t have bath tubs. Not sure how that will affect the saleprocess.
I just got this house under contract two days ago and haveyet to get a tenant into it. I plan on getting a one year lease option tenantwho pays $2500 on the option and $950 per month.
So, there you have it. Two deals in two weeks. They’recertainly not the most profitable, but in terms of ROI, you can’t get betterthan a return on $0.
Thoughts?
House 1
The seller was extremely motivated. Not distressed, justmotivated. She was pushing for something like a “Subject Toâ€, which I believemost investors would have jumped on. I talked her down. I know this may bite mein the butt in the long run, but I was afraid on the due on sale clause. I knowthat it is very unlikely that the bank even knows that the deed has been transferred,but I know that if they somehow did I wouldn’t be able to cover the mortgage.If this were to come up when I have the money or the credit to cover themortgage, I’ll take it. I explained the risks to her and she still wanted to doit, but she isn’t the sharpest tool in the shed and I felt like I’d be takingadvantage of her.
Instead we went with a 15 year lease option. I have theability to make any changes to the property so long as doing so is done withthe intention of adding value. The contract allowed 90 days to close on thelease and that closing was contingent upon me finding a tenant, meaning I didn’tpay a dime until I have a tenant paying me. The option was for $107,000. Themonthly payments ($814) mirror her mortgage payments in how much goes towardthe principle (she has a 5.25% interest).
I was able to find a lease option tenant within ten days.She purchased the option for $2500. The contract I wrote with her makes herresponsible for any repairs under $5k. She is paying $885 per month in rent (inretrospect I wish I had made it $914 or more). Her option is for $130,000. Theoption fee will be taken from the sell price if she chooses to exercise theoption. I was so excited to get someone in my first home, that I think I gave alittle too much. She has a 2 years lease with option to buy. I wish I had madeit for one year only and decided in a year whether to renew with her if shehadn’t exercised her option.
House 2
This guy is in the military and is getting out. He is movingin with his parents back home and pursuing an MBA. He has only owned the homefor a year and has no equity. His biggest concern was that he didn’t want topay the mortgage on a home that he wasn’t using and he didn’t want to land lordit from Virginia. I have a ten year lease option. The option is for $136,000.The house is worth $134,000 right now. Maybe less. I am optioning it for theexact amount his mortgage payoff would be. The monthly mortgage payments are$825 which is the amount my monthly rent will be. He has also opted for me topay the bank directly and receive the mortgage statements. The contract givesmy 90 days to close and closing is again contingent upon me getting a tenant.This home has a kind of loft/guest house hybrid in the back. It’s a two storystructure with everything EXCEPT a bathroom. The main house is a 3 bath/2 bed,but the bathrooms don’t have bath tubs. Not sure how that will affect the saleprocess.
I just got this house under contract two days ago and haveyet to get a tenant into it. I plan on getting a one year lease option tenantwho pays $2500 on the option and $950 per month.
So, there you have it. Two deals in two weeks. They’recertainly not the most profitable, but in terms of ROI, you can’t get betterthan a return on $0.
Thoughts?
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