Hi all,
Lots of questions on the 6 homes deal.
Here are the details.
I bought 6 homes as a 'package' from one guy 4/26/2013. . He was a senior real estate investor who had 'made his money' and just wanted out and was moving to Las Vegas. I used an 'old time' realtor who knew the town and headed up the Landlord Association. He was very well known in town and 'knew everyone'. All homes were rented. 4 had renters who had lived there 7 years or more. 2 homes had renters who were a year old (rental status). Seller owned these homes for 12 years. One home was fully rehabbed (fire years ago). Homes were maintained reasonably well. All homes were Section 8 and are in working class areas. Homes are approximately 1000-1400 square feet. Most have basements.
Purchase price $275k
I put down $30k
SELLER CARRIED the loan (agreement for deed) .. $245k at 3.15% over 5 years (the loan will be fully paid off in 5 years)
I am not able to pull out any cash flow on these in the first 5 years in order to meet the short amoritization. In fact (per chart below).. I may have to put in up to $1000 a month. *I have the income to do this** Currently I have to put in less than $1000/month
Safeguards built in the deal
1. If I default I have 60 days to cure. If I do not/can not cure,. seller can only take the homes back.. no recourse against me personally
2. I worked in the deal that I can pull out 'fully paid off deeds' every 14 months . So in another 8 months I will get a deed to one of the homes and can sell it or do with it as I please at will and it will NOT be encumbered by any debt. If I default. the seller can NOT take these homes (that were pulled out) back. I am 6 months into this deal already.
3. Section 8 gives me some more confidence with rent (thought it comes with pitfalls too)
4. I retained a local management company who runs all 6 homes for me
5. I have placed $6,000 in escrow for large repairs not to be used (this is based on reviewing prospective large costs, roof, water heater etc and the current shape of the homes)
My plans with the homes
1. Remove 3 homes from Section 8 as they come up and folks move out. Section 8 has a rent freeze and homes can attract non S8 renters. We are removing one now -in process
2. Separate out the 3.5 car wide garage and rent it separately (in progress). I get no rent for this garage currently and it not used.
3. Baseline costs and get maintenance repairs slimmed down as much as I can
4. Hang on. This will be tight and scary the first few years.
Chart below.
Anatomy of the -6 Homes-deal
October 23rd, 2013 at 07:47 pm
October 23rd, 2013 at 08:08 pm 1382558886
Wow is all that I can say. Looks like you've got a plan in place and probably buying a "package deal" from a trusted individual saved across the board (think about closing costs on each one of those!). We've managed rentals in Westmont, Berwyn and Cicero and never dealt with Sec 8. The largest building was 8 units. Have you kept the maintenance man and property managers that the previous owner used?
Thanks for sharing the details, I wondered about it. In another life I might have done something like this. I've got college tuition for five on the horizon, so my fate is sealed.
October 23rd, 2013 at 09:09 pm 1382562598
October 23rd, 2013 at 09:29 pm 1382563774
October 23rd, 2013 at 10:10 pm 1382566231
What are the tax benefits of this deal? Just curious ... can you tell?
October 23rd, 2013 at 10:53 pm 1382568815
June 12th, 2014 at 05:46 pm 1402595168