Hi Guys,
Thank you for your support. here I am another topic to get your thoughts.
I came across this builder (smaller local builder), He has a nice display home for sale ( all completed, landscaped and only 3 months old) in newly developing estate. Asking price is $290K and he is happy to lease back for next 2 years for 7.5% gross rental. From my research, I know that price is inflated, actual price should be about $250-$255K. I had phone conversation with builder and he is happy to negotiate various options. From my gut feeling, it seems that he is in need to cash and hence might accept good offer (Win-Win situation as Steve calls it).
Now my question is, if you could share some of the terms or deal I can offer to him, please?
For example, I was thinking if he could give me advance rent 7.5% and prop. price would be $260K. or something.
Second question is, how should I start negotiation (given that asking is $290K and I know it is worth $260K)?Any pros and cons of buying displays? my feeling is price will not go up or down in that area for next 1 – 1.5 years and 95% confident that after 2 years I can easily sale it for $260K.
thanks
DM.Doesn't sound that great a deal. This is a business transaction, and emotion should not be a factor, and if the deal doesn't stack up FOR YOU you shouldn't do it.
If he needs to sell as you say, you are giving him a win by buying it at all.
You could always tell him it is only worth $260k and offer him $250k (assuming he needs the cash as you mentioned) and still with the 7.5% lease back. There's nothing to stop him from re-negging on that down the track though.
Especially if you reckon it will only be worth $260k in 2 years; why would you pay more than $250k and then sell for $260k in 2 years; the cap gain tax will wipe out almost any gain.
If you don't sell after 2 years, and then have to rent on the open rental market, you may not get a return anywhere near 7.5% and the cap gain hasn't been that good.
I can only see the upside being a short-term decent rent return with some good on-paper deductions. Your only hope would be a better cap growth than you've predicted.
If you could get it for around $220k with the 7.5% leaseback then you may have a decent deal. Be prepared to make a very short settlement on that offer though.L.A Aussie wrote:Doesn't sound that great a deal. This is a business transaction, and emotion should not be a factor, and if the deal doesn't stack up FOR YOU you shouldn't do it.
If he needs to sell as you say, you are giving him a win by buying it at all.
You could always tell him it is only worth $260k and offer him $250k (assuming he needs the cash as you mentioned) and still with the 7.5% lease back. There's nothing to stop him from re-negging on that down the track though.
Especially if you reckon it will only be worth $260k in 2 years; why would you pay more than $250k and then sell for $260k in 2 years; the cap gain tax will wipe out almost any gain.
If you don't sell after 2 years, and then have to rent on the open rental market, you may not get a return anywhere near 7.5% and the cap gain hasn't been that good.
I can only see the upside being a short-term decent rent return with some good on-paper deductions. Your only hope would be a better cap growth than you've predicted.
If you could get it for around $220k with the 7.5% leaseback then you may have a decent deal. Be prepared to make a very short settlement on that offer though.Agreed, thats what I was thinking to get good rental return for 2 years and deduction to offset income ( I am in highest tax bracket) and also I was thinking to ask him to pay rents in advance . I will try to nego. 2 years rent in advance that way I have a guarantee that he won't disappear.
thanks
DMConsider the "real rent" that you will get for this house. Use this to work out your total "extra" rent and be sure that he would have added this to his asking price.
$290K rent @ 7.5% = $21750 pa roughly $40K over 2 years.
You indicate that his price is 35-40K inflated. This accounts for why. It would seem that you would be better off considering a purchase at the "right" price and leasing to a different tennant, granted at a lesser return, but comparatively a better potential combination of growth and yield.
Cheers
Tammy
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