2 Units for $11K | Breaking Down a 2-Unit Lease Purchase Deal

Who you are, where you're located, what you do outside of investing.

I am located outside of Buffalo, New York, in a small suburb of Buffalo. I am a registered nurse, work part-time there. Also have multiple long-term holds and do some fix and flips. Converted over to this model because it's a better model than what we've been doing.

Love it. And yeah, registered nurse, other deals, get going. You're probably mad at the Chiefs right now, which I'm mad at them too. Don't worry. Um, okay, awesome. So, uh, maybe walk us through, uh, where you found this deal as I pull up, uh, the whiteboard so we can walk through it. Uh, where you found the deal and, uh, motivation, and we'll keep running from there.

So this was from My Plus Leads. It was an expired listing, came from my VA. The homeowner— this is a multi-unit, a 3-1 up and 3-1 lower. She had purchased the property a few years ago, and her first tenant became her first nightmare. She had to evict her first tenant. So she was a tired landlord and did not want to continue being a landlord and could not support the property without renting the top. Mm-hmm.

Got it. Okay. Uh, all right. Well, this would be interesting, and I'll— I'm assuming you're on the market and working with Nick too. So I'm gonna— when we have a 2-unit, which is always a unique opportunity, right? I'm curious on what you guys are doing through this as well. But let's talk about the purchase first, then we'll talk about what you guys doing for the exit. So are both units occupied?

Um, no. So the upper was vacant because they evicted the tenant. Um, it also had some damage from the tenants who were not happy that they were evicted. So there were some repairs that needed to be done to secure the unit, and she was in the lower unit.

Got it. Okay. And we, and we're buying— the type of deal of this is a, is this a sub-2?

Yes. Okay.

Awesome. Okay, so what do we agree to for a purchase price?

So we had some back payments that we have agreed to catch up on for her, so our purchase price is going to be $233,700.

Okay, plus, uh, does that include the arrears or plus the arrears?

That includes the arrears and closing costs.

Okay, so you're agreeing to, uh, what's the mortgage?

Uh, approximately $222,000.

All right, so we're buying it for the, for the exact mortgage balance plus arrears and closing costs. Okay, got it. All right, and the monthly payment?

Is, uh, $1,775.

Okay, awesome. Out of this, how much is the exact arrears?

Out of the mortgage balance? Well, we're paying closing costs and I have them together. So it's the closing costs as well as the arrears to bring us up to the $233,000. So approximately $11,000.

Got it. Okay. Um, I'm curious, what are the, uh, the purchase— like, what's the rent comps? Let's do rent comps first.

Uh, rent comps are probably about $1,200 to $1,300, $1,400 per unit.

Oh, so if she actually like manages correctly, this could have been a profitable even rental for her.

Yes.

So it's like $2,800 all in, $2,800 to $3,000 in current condition?

No.

Okay, got it. All right.

Well, since we, we have gone in and done some repairs on it, um, because it had, you know, broken windows and so forth that had to be taken care of to even keep the property secure. So it is in a rentable condition now. And that would be the rental comps now.

Got it. Okay. So how much have you guys already put into this property?

Probably just about $1,000 maybe. All right.

So it was $1,000 to get these things rent ready for good comps. Okay. Love it. And I'm assuming this was not contingent in any form. Okay, so you guys committed to the deal?

Mm-hmm.

Okay, awesome. All right, now tell me, what's the, um— maybe we have Nick's available here too. I'm assuming you guys have been speaking about this exit.

Mm-hmm.

Hey Nick, are you around?

Yeah, I'm here.

Thank God.

I'm here. Hello Sandra.

Hey Nick.

Well, maybe you guys can, uh, talk about what we're on the market for, what, like, what's the game plan. I wanted to hear people kind of hear Nick, how you communicate with our associates on how to put together a plan. And this is not a cookie-cutter single-family property either, even though we've done plenty of these. They're just— they have uniqueness to them. There's obviously more opportunities. So let's walk through it.

Sure. So, um, Sandra, you probably— I don't have— I wasn't prepared to go over numbers on this call.

No, no, I assume she'll go over the numbers, Nick.

Just generic.

You could chime in.

All right, awesome. Well, I will mute.

So we're on the market at $249,900.

Okay. Would you assume like when you guys bought the property that you like the property had no equity in it? Because you only increased it by, I don't know, like $17,000.

It did not have a lot of equity. Matter of fact, she wanted to exit within 24 months, which was too tight in our opinion and the guidance that we got. So we offered to pay her $100 a month and she extended to 60 months. Nice.

I'm curious. I appreciate the creativity, but what, what other options does she have?

She would have gone and just abandoned the property. She was done.

So she would have— let me just make sure I'm clear. So she would have rather abandoned the property than just have somebody keep her mortgage current, whereas where she doesn't have to worry about anything yet, she doesn't damage her credit.

Yeah, she was very frustrated and had taken a lot out of her going through the eviction process. And she's got some health problems too. So she really just did not want to deal with it.

All right, so we give her $100 a month. Okay, fair. Okay. I'm okay with that. So we're on the market for $249,900. We couldn't squeeze out any— we couldn't have got like $259,900?

No, the comps, if I can chime in, please.

Yeah, please.

So, uh, they were so tight, um, where I really felt like Sandra, um, Sandra and Tim haven't had a deal. So I wanted to give them every reason to get a deal rather than to get $10,000 more. Um, they're— the comps are really tight, and I didn't want to mark it up too high because if we got— if we got someone that was good, ready to go, good down payment, And then they were price shopping us against another competition. We've had it in our experience happen where sometimes they don't ever call us again and they go buy something else. So I wanted to give her every chance to get us sold.

And what's the underlying— if you guys said it, sorry— the underlying rate on that mortgage?

5.25%, I think.

So how long is she on this? 24 months? Yeah, yeah, it sounds right.

So we'll see with the 3 paydays. I was just curious, to Nick's point, and see how the whole thing looks. Yeah.

Well, I, I think that we might have some— I think you might be wrapping this, keeping this going. Okay, um, what are we on for, for monthly payment?

Uh, so we have it on the market for $2,400 a month.

Okay, is the $1,775 PITI correct? Does that also include the $100?

Does not.

Okay, so we're at like $1,875. Okay, how long we've been on the market for?

So we've had it on the market, I don't know, 2, 2 and a half weeks maybe. I'm not quite sure because my husband handles that. We weren't able to go in and show it yet. Our first showings are going to be this weekend, but we have had a tremendous, I feel, response of people that appear to be well qualified. They're coming in with, uh, a fair amount of money down, some far in excess of 10%, some at 10%, some less.

Already?

Um, yeah, and it's good with income to back it, but with credit issues or self-employed where they need to adjust their— or properly report their income, make them more ready. So, um, yeah.

Awesome.

Okay, Nick, you had something?

Uh, well, I was just gonna say, Zach, as you can see here, there's plenty of room between what we're starting at and what the pricing plan calls for as far as adjustments. Uh, every, every 3 weeks if it's not sold. So they, they can do potentially very well here.

Yeah, no, it's a nice little cash flow, right? $600-ish or $500. Yeah, I like it. Okay, um, I'm assuming we did, uh, at least some projections. So what are we thinking for the 3 paydays, just for everybody's—

So when I did my 3 paydays, I also included Under the PITI, our insurance is going to increase by about $200 a month compared to what hers was included in that PITI. So I did calculate that in.

Why do you say that?

That was our quotes from the insurance company.

Did you? Who'd you use? Our NREIG.

Yep.

Okay.

Okay.

Just making sure.

Then did you try out any other local insurance companies?

I have not. Uh, we have not solidified the insurance on that at this juncture. I think we're just going to go with them and we can always change to someone else 2 or 3 months down the road. But I think that transition, because they're so well established in this market, I feel comfortable with them.

And quick question, Sandra, I'm assuming you watched the video on how to do that properly, because that has been a stumbling block on occasion for some of the community members.

Okay, great.

Yeah, um, and, and the rep there is right on top of things, so great. I feel comfortable with them handling it and would rather do it properly than to save a few bucks and end up with a headache.

Yeah, yeah.

And those, those—

I just wanted to ask my, uh, dad and Zach, uh, well, kind of hypothetical. They, they both know because we've had We've sold property and we've done deals in New York. It can be expensive.

Yeah. And just for those outside the community, I don't want to make assumptions that— so the video I just referred to is super important, but all these videos live in what we call the Associate Resource Center because there's all these little things that come up. And over the years, we've created videos to make sure you're not stumbling. As long as you're following the checklist, you're good.

And then I would go, if I was you, I do this, I'll be quite frank, I do it every like 12 months, is go shop the insurances because the way insurance is going on right now, it's absolutely insane. If you don't watch it, like my house insurance has increased drastically since I moved here. So shop it around if you can once you get settled. Uh, okay, cool. All right, so walk us through, uh, non-refundable deposit, payday 1.

So using the 10% figure of payday 1, it'd be $25,000 down.

Okay. Uh, payday 2, you said you're using a projected figure based upon increase of insurance?

So that would be $325 a month times the 60 months.

Nothing to sneeze at, Sandra.

Pardon?

Nothing to sneeze at.

That gets you to $19,500.

Okay, what's the principal paydown on the 17?

$300 a month.

$300.

$18,000.

$16,000 is $18,000. So that's the principal paydown. Okay. Uh, all right, so bought it for— oh, sold it for $249,900, collected $25,000 down. I'm I'm guessing we get a— because we're collecting it up front, we only increased the purchase price by what, like $17,000?

Uh, $16,130.

Okay, so what did you have for the back? What'd you have to pay? Uh, what did you have for payday 3?

Uh, total, uh, cash out payment, $9,130.

The reason why I asked her that is because obviously she's receiving some of her money up front above and beyond what she had for a premium, right? So we have to wait for that principal paydown to continue to pay down. There's some techniques that we recommend in case somebody cashes out early. As you take the amount of profits that are available, you can, you can do whatever you want with that, but then put It in like quote unquote escrow, right? And as the principal pays down, you could pull out more money. Let me make sure everybody understands that. Any questions on what I just went over as far as managing the cash flow on this, on these type of properties? You type in the chat or you can just say hi.

Hi.

Could you, could you say that one more time, Zach? Yeah. So if you— and this is happening to Rick, right, as well. It's happening to a whole bunch of our community members, but he just comes to mind because he received such a large down payment. On the first lease purchase that he did, like let's just so in this circumstance she only has seventeen thousand dollars in equity, right? Because she bought it for two thirty and she sold it for two forty nine nine, right? So it's only seventeen thousand, which means that she only that she has a certain amount of money that needs to go sit into a bank account because if a buyer comes and cashes her out early. She has to bring money to the table to pay off the mortgage in order to get this thing done. Does that make sense?

Yeah.

Yeah.

Okay.

Sandra, Zach, I was just gonna say, Sandra, there are so many options here for ways that you can increase the price. So if anything happens and they— and the buyers for whatever reason default, you can just raise that. You can raise the price depending on the market at that point. And if they don't qualify within 24 months, you can just raise the price at that point.

And just everybody thinking, you, you can restrict the cash out too. We don't do it often, but we did it with Dave because there was liens that had to go past the statute of limitations. So we, we put up, you know, you couldn't buy it, you could not cash out before a certain date. You can do that. We just don't do it a lot. But just to get everybody thinking, there's never one path.

Yeah. Yeah, for sure. There's always multiple options. And the good thing about this deal, right, is because you caught up the arrears. So she's— you're back down to $222,000. Right? And so, like, you're getting your money back. So there's still— I mean, in that circumstance, you'd probably be able to put it all in your bank account, but you know that you get your $11,000 back. All right. Total paydays on this?

$53,630.

If you don't ever finance a buyer, nothing changes, and it gets, you know, so it could be lower or higher.

In a perfect world.

Well, and this was a deal that, like, Sandra put together. She owned rental properties before, right? Has, has this knowledge that she doesn't mind going in and fix up the property a little bit and also catch up the arrears, right? They were capable of doing it. So she spent $11,000 to get $53,000. She almost 5 times her investment. I don't know any other place. I know we always talk about no money down deals, but I don't know any other place where you can buy property for like 11 grand. Like, it's, it's impossible. I love it. Um, all right, questions, and then we're gonna jump to Jeff. Stephen.

Hello, Zach.

Sandra, can you walk me through how you got the $325 for Payday 2? I just didn't see how that came out.

Um, so the $2,400 is the monthly Rent from the tenant buyer.

Okay.

Our costs were the PITI of $1,775 plus $100 that we paid to the seller each month. And then I also included the $200 for the increase in insurance.

Okay.

Premium. So that should get you to $2,075.

To $2,075.

Okay.

Yeah. Making projections based upon the new insurance.

Got it.

And that's how you get the 325. 2075 minus the 24.

Okay.

Well, awesome job, Sandy. I know, uh, I know you've stuck with it. You're one of those people that I'm like, patience and perseverance. Uh, and now, I mean, we get this first one popped for you, and now all of a sudden you're gonna be, you're gonna be running full speed. So awesome job. Uh, and, and, uh, we appreciate you sticking with it for sure.