Creative Real Estate Investing

I've been mulling over a big decision lately. Let me regress just a bit first ... In George Keller's The Millionaire Real Estate Investor, he mentions that you should create a set criteria for your investing and stick with it. He goes on to say that investors get in trouble when they steer away from their initial criteria, because conditions have slowed or whatever. I've noticed myself doing the same thing. I admit I haven't gotten a lot of calls, but the calls I've gotten are from people who are either upside-down on their properties or are right at that line where they owe exactly for what the property is worth. One of my first leads involved a person who owed almost exactly what the house was worth. I ended up telling him 'Thanks, but no thanks' on the deal, and left it at that. Over the last several days, however, I revisited this deal thinking that I could somehow make it a win-win situation. Here are the revised numbers:

Description: 1997, SFR, ~1100sf, 3/2
Repairs: <$500
Loan Balance: ~$87,570
PITI: ~860/mo.
Rent Analysis: $800-$850/mo.

I figure to get someone in quick, especially this time of year, I would need to drop the rent down below $800. Therefore, I would rent the place at about $795/mo (possibly even $750/mo). That brings my CF to about -$100/mo (without factoring repairs, maintenance, or PM). I figure another 13%/mo for those things, which brings the monthly CF to about -$200.

Now, what I was thinking is the homeowner could be motivated enough to not only give me their house, but pay me to take it off their hands. This assumes, of course, that (1) they aren't already behind on payments (note: he wasn't back in June), and (2) they have the financial means to pay me, which sounds improbable, but one sometimes never knows the cause behind the motivation even when they talk to a homeowner about it.

So, I'm behind about $200/mo in CF on this house (about $150, if I do the PM for free myself). Seeing as how rents and appreciation should be increasing by all likelihood in the area over the course of the next couple of years, here is what I propose:

1. Take Deed of the property for $0.
2. Have homeowner pay me $5,000 for taking over his property, with $2,500 due at closing and the remaining $2,500 due in installments of $100/mo for 25 months.

This accomplished two things ... First, I have the funds up-front to deal with immediate repairs and marketing of the property (~$1,000). Second, the remaining $1,500 plus the $100/mo payment will offset the negative CF for the next 25 months (~$160/mo.). Depending on what I'll be doing in 25 months, I may either sell the property, if it appreciates eough (doubtful), or increase the rent to accomodate the now lost CF.

Of course, there are a lot of "if's" I need to turn into definate answers first before I'll consider entering such a deal. I may ask for more $$$ upfront and/or in the form of a note to help ease the burden more.

In the back of my mind, though, I keep hearing the echos of George Keller saying "DON'T DO IT!"

;-)