My First Quick Turn Deal - I Don't Know What To Do, Please help!!!

dUstrrbUnii

Inspired Forum Member
REIN Member
This is a lead that fell in my lap
and it is from a friend of mine. He used to live in the property and
has been renting it out for the last 6 months, he has found that being a
landlord is challenging and now wants out.

Listed comparable properties in the immediate area are two for $355k and one for $329k, my friend is asking $330k.

This is a half-duplex, 1350 sq.ft., 3 bed/3 bath, built in 2006 and says it is in good condition.

My
friend has monthly expenses on this house of $1860 but is only
collecting a rent of $1750 so he has a negative cashflow of $110/month.

He
has a 1st mortgage of $290k at a rate of 3.09% with a payout penalty of
$3k. I mentioned to him after paying realtor fees and the payout
penalty that this alone would eat up $22k and that the real estate
market in Calgary was likely heading down somewhat because of the low
oil prices.

He agreed with me on these things and said that
what he wants out of this deal at bare minimum is 20k so he can put that
money down into the new house he is having built in 2 months from now
so he can lower his CMHC fees and therefore lowering the payment on his
new house by $150/month...

This is my first creative
finance deal ever and my instinct is AFS and then stick in a tenant
buyer for a classic RTO. Other than that I have no friggin clue on what
to do, can anyone please give me some suggestions?

Nick
 

Sherilynn

Real Estate Maven
REIN Member
The first thing I would do is find a realtor to pull sold comparables, preferably sales within the last 2 months. List price is not always a good indicator of sale price, especially in a softening market. Ask a couple of realtor friends/acquaintances how much they would charge you for comparables and for CMA's (comparative market analyses).

Let's assume it's worth $330k: you would be getting it for $310k, so not much of a spread (again - especially in the softening market). And it's going to cost you a down payment of $20k plus closing costs to get this place. If the property is worth less than $330k, I'd pass for sure.

Yes, you could put a RTO tenant into the property, but what rent would you achieve? Rent for RTO's is often higher than regular rent, but we must know if $1750 is full market rent. While monthly option credits would make your cashflow positive, they don't add to your overall profit.

I'm not sure what the market is like in Calgary for RTO on half-duplexes, but we have had a very small number of inquiries for duplexes. Perhaps odds would be better with a property-first RTO, but you don't really have much of a spread available to offer a discount to the tenant-buyer, so you could be working with a very small market of prospects.

Once you have a better idea of market value and rent, we can have another look at the situation. Feel free to email me.
 
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