Guest Nikki Report post Posted August 13, 2003 Hello: I have a potential deal that I'm not sure what to do with. A lady called me today wanting to get rid of two properties because 1) her daughter is dying and she wants to dedicate herself to time with the daughter and 2)if at all possible she would like to get some money out of the deal to take care of her daughter during this time. Both properties are "sober living facilities." However, unlike assisted living, they don't require a nurse or any staff - they live on their own. The first one has four tenants (with the potential for a fifth), each paying $400/mo (they pay utilities). The FMV is 159K and she owes 90K on a 1st and 49K on a second (139K total). It needs no rehab. The second house FMV is in the upper 90's and she owes 73K on a 1st and 28K on a 2nd (101K total). Three tenants pay $275 each and one pays $200 (he takes care of maintenance and oversees property). It needs very little, minor rehab. My question is what are some ways to structure this deal? She was on a cell phone so I was unable to get more info from her (such as her current monthly payments) but I will drive by the houses tonight and call her back tomorrow. Since I don't plan on landlording, I'm thinking it might be best to get it under contract and flip to a landlord? I did ask if the tenants are on a month to month lease and her response was no, they can stay as long as they want. The area the houses are in is a nice neighborhood I just don't know if it's worth tying it up with all these, seemingly long term, tenants inside. Plus she's maxed out on the value. However, depending on the term, appreciation may be good in the area. Any ideas? Thanks in advance. Share this post Link to post Share on other sites
MichaelC 160 Report post Posted August 13, 2003 Nikki, I'm afraid I have more questions that I do answers at this point.First, what is a "sober living facility"? I assume this is housing for recovering substance abuse users.This is located in a residential area? My first step would be to verify that the zoning and permits for this are on the up and up. A disgruntled neighbor could make your life miserable if they aren't.I'm confused about the tenants. Are they on any type of written lease agreement? Are they month to month? Or is everything done on a handshake with these individuals?In addition to these questions, you already know you will need more info from the homeowner: monthly payments, specs on the mortgages, taxes, additional liens, is everything current, etc. Come back with some more info and let's see what we have. Share this post Link to post Share on other sites
Guest Nikki Report post Posted August 13, 2003 Okay. I found out that she calls it a "sober living facility" because recovering addicts rent out rooms there. However, it is not zoned as such (just a regular residental house zoning). It's basically just a rooming house/independent living. They don't have any written lease at all! I've never heard of anything like that before. But if they use drugs or don't give 30 days notice that they are leaving then they have to leave and forfeit their security deposit (1 month's rent). Currently all the payments are current. Her mortgage payments are $926 on the 1st mtg and $601 on the 2nd. This includes PITI. It's a conventional loan at 8% fixed interest. There are no other liens or debts on the property. In addition, the house has central air, new windows 9 years ago, gas heat and no roof problems. She is open to a creative offer. Any ideas on what the best route to take is. I definitely want to do a deal that is good for us but also be gentle to her since she is suffering with a daughter that's dying. Thanks again. Share this post Link to post Share on other sites
MichaelC 160 Report post Posted August 13, 2003 No surprises with the sober living facility. It's just as we figured. I have two big concerns with this deal. First, the fact that this is in a residential neighborhood, and no variance has been granted to this property worries me. One bad incident, an upset neighbor reporting it to the local authorities, and you have a huge problem on your hands.Another concern is the lack of any type of written lease agreements with all the various tenants. Personally, I'd walk from this deal. But, that's me, and you didn't ask what I would do. You asked what you should do.The positive is that you believe the homeowner is open to something out of the box, something creative. But, she also said that she would like some money out of the deal, "if it's possible". You'll have to quickly make her realize it isn't so. According to your numbers there isn't much in the way of equity here. So, what does that leave you. Well, there seems to be some nice cash flow. If you could get her to accept a lease purchase for 36 months or more, with you getting in for no money out of pocket, and you taking over her payments, you'd have about $eleven hundred$ reasons for doing the deal. I mean, if her/your numbers are accurate, this cash cow is generating $1098 in positive cash flow each month. If you can get in with the right terms, your terms, and alleviate this headache and debt for the homeowner in the process, you just may have a winner of a deal. It seems to me it comes down to how much of a hands on landlord do you want to be. Not much, by the statement you made in your opening post. Then, the possibility becomes one of you locking up this deal with the above terms and assigning it to a third party. It probably wouldn't be too difficult with that kind of cash flow happening. Again, it's going to come down to an individuals comfort level with such transient tenants, no written lease agreements, and possible zoning violations. Let us know what you decide. Share this post Link to post Share on other sites
tanyikaj 0 Report post Posted August 14, 2003 Your detailed responses keep me coming back to your site. I really appreciate it. In ref to the deal, I think I skipped some info b/c as it stands, there is no cashflow at all. Initially I spoke of two houses she's trying to sell. However, after driving by both I realized one is in a neighborhood I'd rather not deal with. The other home was spoken about in my second email. She has a first mortgage payment of 926 and a second mortgage payment of 601. Her four tenants pay a total of 1600/mo. Therefore, it's only a $73 monthly cashflow. The only way I can see doing the deal is moving all the tenants out (I don't feel comfortable dealing with renters, especially transient ones), get a tenant buyer and paying the seller $1000 for the mortgage. This would mean she'd be paying $527 herself/month which I can't imagine her doing since her mortgage is currently covered by the tenants. But this is the only way I can see making any kind of monthly cashflow on a house valued at maybe 145K. If she agreed to this I could do some research to find out what the appreciation rate is in the area. By the looks of things the neighborhood seems very nice. That would be the upside to doing the deal - taking advantage of the appreciation. Again, I can't see her doing this but from lease option info I've read, many people are willing to work with the investor and pay some of their mortgage if it means it will free them from dealing with the headache of the house. Anything I may be missing? Share this post Link to post Share on other sites
MichaelC 160 Report post Posted August 16, 2003 Hi, Nikki. I'm just now beginning to catch up after being away for a few days. I had a great time speaking to the members of MAREIA, and I was glad you took the time to introduce yourself and your husband to me. That's quite an association you are a part of. I've been to many of them and MAREIA seems particularly beneficial to its members.From our talk after the meeting, am I correct in assuming that upon further reflection you have decided to pass on this deal? Share this post Link to post Share on other sites
Guest Nikki Report post Posted August 18, 2003 My husband, Antre', and I also enjoyed meeting you and hearing your discussion and tips. Minh is a friend and mentor and speaks highly of you often. You are correct about this deal. I spoke with the seller, offered to do a split equity deal with her but only after she cleared out the tenants and we found a tenant buyer where we would pay no more than $1000/mo to the her for the mortgage. This would have meant she would have to pay $500+/mo herself. As I suspected, she didn't agree to this (according to her she's paying nothing/month now b/c the tenants cover the mortgage). So there was no deal. On to the next! Great again to meet you and thanks again for the help and insight you've provided. Share this post Link to post Share on other sites
