First AFS Deal, looking for a second set of eyes.

Snicoll

New Forum Member
REIN Member
Apr 15, 2008
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0
1
#1
We have a deal that we are working on and we have negotiated with the Seller to purchase their house through an AFS.

Details are as follows:

Existing Mortgage $298,500 – Expires in 2019 ( 3 yr deal)
Mortgage Payment + Property Tax + Insurance $1850

Purchase Price $329,500
Seller Equity 2016 $8,000
Seller Equity 2019 $23,000

Estimated Value (Current) $340,000

Estimated rent for similar properties $2,100
(4 beds, 2 bath, double car garage, nice looking property)


We are looking at one of the following 2 options:

1) Sell the property to a rent to own buyer. Being as our first rent to own property. We are thinking something to the following.

Sell the property at ~ $ 360,000 (based on 2% App. Rate of $340,000)
Rent $2100/month
Monthly Option payment $ 250 depending on initial down payment (assuming a 5% down payment in 2019)
Initial Option Payment $ 10,000 to 15,000 depending on the buyer.

2) Standard rental and sell in the future.


We just have a couple of questions:


1) How easy will it be to find a rent to own buyer?


2) What are your thoughts on our exit strategy? and the future mark-up of the property

Any additional thoughts, comments or advice would be greatly appreciated…we are just having a bit of a “what do we do if we get it” moment. :)
Thanks so much!

Sean & Leona
 

ThomasBeyer

Senior Forum Member
REIN Member
#2
Unclear why there is seller equity that is higher in 3 years ?

Usually you buy for X $s today with a certain monthly payment of Y and then Z at the end.

Future markup to RTO buyer depends on market. Where is this ? The biggest risk is that a credit challenged RTO buyer can't get a mortgage if the appraisal comes in short.

It is relatively easy to find RTO buyers on major centers but you need decent advertisement in place plus a proper screening system. The trick is line them up at the same time and have them come up with the $10,000 and have an expectation of decent enough credit in 3 years.
 
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Snicoll

New Forum Member
REIN Member
Apr 15, 2008
13
0
1
#4
Unclear why there is seller equity that is higher in 3 years ?

Usually you buy for X $s today with a certain monthly payment of Y and then Z at the end.

Future markup to RTO buyer depends on market. Where is this ? The biggest risk is that a credit challenged RTO buyer can't get a mortgage if the appraisal comes in short.

It is relatively easy to find RTO buyers on major centers but you need decent advertisement in place plus a proper screening system. The trick is line them up at the same time and have them come up with the $10,000 and have an expectation of decent enough credit in 3 years.
Thanks Thomas, for the comments they are appreciated.

The Property is located in NE Edmonton.

To clarify, we will be purchasing the property from the original seller for 329,500, of which they received $$8,000 today and $23,000 in 2019 when the AFS deal closes. The total purchase price is $329,500 which includes the initial mortgage amount of $298,500 +$8,000+$23,000. The initial seller was not interested in monthly payment or interest on the $23,000 that they are financing us.

Our intent is to sell it to the tenant buyer, for ~$360,000 to our tenant buyer (which we have based on 2% appreciation rate for three years with the estimated property value being $340,000).

Our tenant buyer would be responsible for an initial down payment of $10,000 + a $250 monthly option payment for 3 years. Which should provide them with approximately 5% down in 2019. In addition tenant buyer will also be required pay a rent of $2,100.

Thanks again
 

ThomasBeyer

Senior Forum Member
REIN Member
#6
I'd use a flat value growth in Edmonton for three years at best, or -5%.

Rent over $2000 sounds high to me in NE Edmonton, and certainly $2100 plus $250 plus utilities

What kind of person can afford that but has credit problems today ?

While oil is low and NDP in power Edmonton is a high risk place to invest for the next three years.