AFS Deal - Edmonton-

[Snicoll]

I was looking for a second set of eyes in a deal that I am working on.


The property is a 1150 sqft bungalow (3 bed+2 bath), with a extra large double car garage. The house is move in ready with nice decor and colours. Property is located within in Kenilworth, here in Edmonton. We are purchasing the house for the debt which is $358K. The based on recent comparables the house is worth $355 to $360. We are looking to purchase this property under an agreement for sale. With a term of two years to match the current financing.



The rent in the area for similar properties is about $1600 to $1700. The current mortgage + insurance+ property taxes+ vacancy + maintenance is $1660.





We are looking at two exit options


- Lease Option the property, with a 1 year term, with the a possible extension of an additional 6months.

• Rent + Options payment - $1,800-$1,900
• Lease Purchase Price ` within 1 year $380,000
  Lease Option Down Payment - $ 15,000 min
  
  
  - Rent property out for one year
  
  
  This would likely be a break even cash flow for the first year if not slightly negative, with positive cash flow in the second year. Our objective would be to sell in 1.5 to 2 years for the $380,00 range depending on market conditions.

I would like have a second option or thoughs on this deal. I am little concerned that I only have two year term (the sellers are pretty fixed on not extending this term) , which does not give me a lot of time to get a tenant buyer in place and get them qualified for there own mortgage.

 

[neill]

Hi - looking at the figures you presented, I stopped at "the house is worth $355 to $360".



If your purchase price is $358, it sounds like you are paying market value (and possibly over market value if the 355 is what the house would sell for on MLS (after realtor fees or before?), it appears the only advantage is the AFS no money angle.



Highly recommended to make money when you buy, make a payday soon after (rto option deposit), make cash-flow and make a back end when you sell.



Counting on the property to appreciate enough to the 380 price is speculative in nature. Given the current market conditions and Don's predictions, it seems like a safe bet, but it is speculative in nature.



If the debt was 330k and you were buying it for that, I would be all over this deal in a heartbeat - the 355 is the only potential deal-breaker that I can see.



Best of luck!

 

[BHoward]

I'd be concerned about the sellers giving you only a 2 year term.

Assuming it is worth $350K ... at 4% appreciation ... the property will be worth $378,000 in 2 years.



I personally would not move forward unless sellers would agree to 2 year term plus extension of minimum 1 year.



... I wonder what the best way to write this into the contract would be?

ie: Term is 2 years. Seller agrees to additional 1 year term if property appraisal is less than $378K at end of term.



Anyone else have thoughts on how best to write that in ... to protect our REIN buyer?

 

[antaynguy]

This is not a great deal, but if I can get a tenant/buyer for it before I buy it, I would definitely go for it.



First of all, put it under contract with a $10 deposit, include in the contract a 4-week condition that you'll find a suitable tenant for the property.

You just give yourself an exit if you cannot find a tenant who will give you money now and monthly cashflow.

You should always do AFS deals via a company.

Make sure you have power of attorney on the mortgage as the seller has no equity.



If in 2 years, your tenant/buyer walks, you keep the $15K option deposit and if you sell the house for what you bought for. You're still ahead with $15K, plus monthly cashflow, plus some principal payments over the 2 years term.



Hope that helps!

Hanna

 

[GaryW]

[quote user=antaynguy]This is not a great deal, but if I can get a tenant/buyer for it before I buy it, I would definitely go for it.


Hi Hanna:

I think we all have our buyers lists - some with big cash and most with little. It has to be a deal 1st, then go for it, in my opinion anyway.



[quote user=antaynguy]If in 2 years, your tenant/buyer walks, you keep the $15K option deposit and if you sell the house for what you bought for. You're still ahead with $15K, plus monthly cashflow, plus some principal payments over the 2 years term.


The whole idea is do everything you possibly can to ensure the T/B - Buys. If , after that effort is pushed through, then you keep it. It's definitely not something I'd rely on when buying at market value. They would have to sign with No Payments-No Interest and no equity share in the end. I agree(as stated) it would have to be at least at 2 year deal and in today's kind of market(growth in near future)



My Thoughts Anyway,

Gary



P.S. Are you guys going to Jacksonville in August?

 

[DenisEncontre]

I would first negotiate a better purchase price. If he has a mortgage for $358K on house that is worth $355 to $360 and sold it with a realtor he will loose. He is really in a very poor position to negotiate. Get a better price and better terms other wise I think this deal is to thin.

 

[antaynguy]

[quote user=GJWCA][quote user=antaynguy]This is not a great deal, but if I can get a tenant/buyer for it before I buy it, I would definitely go for it.




My Thoughts Anyway,

Gary



P.S. Are you guys going to Jacksonville in August?




Hi Gary, how are things in Real Estate? we were seriously planning to go to Jacksonville then take a cruise afterward, but decided we need to spend time with the kids in the short summer that we have. So no, we're not going. Are you?



BTW, we just made it to Ron's wall of fame!

Hanna

 

[GaryW]

[quote user=antaynguy]Hi Gary, how are things in Real Estate? we were seriously planning to go to Jacksonville then take a cruise afterward, but decided we need to spend time with the kids in the short summer that we have. So no, we're not going. Are you?



BTW, we just made it to Ron's wall of fame!

Hanna




Hey Hanna/Antay:

Congratulations on the Wall Of Fame!!! I'm off to "The Rock" this summer, so I'll miss that big wall he has out there in Jacksonville with you guys all over it. Awesome persistence and way to go on "Never Giving Up"!!!

Ron told everybody in the class back in '09 that this crowd will bottle neck, that's just human nature , well , good to see you in the neck! LOL! You should be in the Success Stories on here.

Gary