i’m a grad of steve and corey’s bootcamp and have been browsing this board for a bit. i think i may have finally found a deal.
i am looking at a MHP with:
-70 spaces 59 (4 vacant) MH’s and 11 (4 vacant) RV’s (supposedly the Rv’s are long term tenants)
-city util’s (sepr metered)
-17 park owned homes (seller agrees to keep all POHs and all the notes and will continue leasing to the tenants)
-the NOI is $102,000/yr. (lot rent only)
lenders are requiring at least 25% down in this environment. i dont have that kind of money and the seller has agreed to carry.
it was initially priced at a 13% cap including the note income from the park owned homes. i told him to keep the POHs and notes which brought the NOI to $102k. i offered a 13 cap on lot rent only and “mentioned” $775k price, 10% down, 5 yr balloon to his agent. i plan to refi in a yr or two.
the agent runs this by him, and we find out the seller has a mort payment of $6k/mo. the agent said he is afraid of triggering the due on sale clause and has proposed a lease option ($825k price, $50k option payment…it was originally going to be a $ 80k down payment, 7.5% rate). he wants at least $6k/mo to cover his mortg payment.
i see a lot of upside to this deal because the rent is ridiculously low (lot rent avgs $225/mo and the market rent is $350). i plan on raising rent $25/mo day one and another $25/mo after one yr. there are also 5 spaces to fill. i will then refi and take cash out after raising the two rent raises and filling the vacancies.
i know that this is a good deal at a 12 cap on a straight purchase on contract (even without raising the rent). what im not so sure about are the lease/option terms (im not really familiar with L/O’s)
my questions are:
what do you think of the seller’s lease option terms ($825k, $50k option payment, 7.5% int rate)? are they good, bad, fair? the seller wants to keep the interest rate at 7.5% because his mortg is at 7.75%. he also needs $6k/mo to cover his own mortg payments.
how would you counter? keep in mind he needs $6k/mo to cover his own mortg.
is the $50k down payment too high?
what pitfalls should i be concerned about w/ L/O’s (should i record if im worried about him backing out, dying, etc)?
since $6k/mo and 7.5% are what he is requiring, i think the only terms i can negotiate are the price and down payment…correct?
im not sure if im leaving out any important info or not, but can provide more if needed.
thanks in advance.