I decided to turn down the offer the broker sent me yesterday. It sounded okay, but there were just too many unknown variables. Even he said the cashflow would likely be <$150/mo based on numbers he produced. However, I got an email this morning from him with another offer. The price is REALLY outside my criteria, but the offer may be attractive enough to see past my maximum purchase price. He said he has a family wanting to buy the home ASAP. They want to do a 2yr L/P. It's a brand new construction home located in a nice part of town. Here are the numbers ...
PITI: $1,400
Purchase Price: $153,000
Broker's Comps: $165,000
My comps: $170,000
Monthly Rent: $1,600
Financing: NOO 5yr IO ARM
L/P Term: 24 months
So there would be an immediate $12-17k worth of equity as soon as the place was purchased. The broker claims there would be $200/mo CF, but I figured the worst possible scenario: $0/mo. However, with annual market appreciation rates of 4-5% in the area, coupled with the immediate equity, I could theoritically ask for a maximum $187,000 option price, giving me about $34k in gross profit. I'm thinking I'd probably ask for something more like $175k to make the deal more attractive to the buyers (i.e., give them some equity when they do decide to buy). I told the broker the deal looks promising, but I'd need to run it by my partner first (i.e., my wife), and get back with him.
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Sounds good. If it's new construction, make sure the builder doesn't have any rules about not leasing the property in his contract. And don't forget to collect a non-refundable option fee from the buyer. Put that in the bank and let it become your emergency fund.
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