Let the creative property selling begin!

 Let the creative selling begin!
A friend of mine forwarded me the following email requesting my opinion:

 
Hullo everyone!
 
I just received several newly built properties that a builder is trying to liquidate in Surprise (about 10 here) and Queen Creek (2 left here), AZ.  They range in price from £284,000 (1393sf) to £360,000 (1987sf).  I'm closing on one in Surprise next week and the Queen Creek by end of November.
 
The Downside:  The properties are not priced below market value.
 
The Upside:  Zero down is possible (depending upon credit approval) (£3000 in earnest money required)
 
The BIG UPSIDE:  The builder will put £50,000 into a separate escrow account and pay your mortgage till the £50,000 runs out. (£6000 of it goes towards closing costs).  First come, first serve!
 
What you can do:  Get a property manager to manage and fill the property for at least half of your loan (preferably more); save your cashflow; when the £50,000 runs out use your saved cashflow to continue to make payments.  This could stretch the free mortgage payment up to 4 years; providing enough time for the house to appreciate.
 
Tax Benefits:  Write off £8000 to £20,000 per year.
 
If you want any part of some turnkey solutions, here's what we have lined up:
 
1.  Home inspector to do the walk-thru and follow up walk-thru to make sure all ticket items are complete.  He uses infrared technology, which is the latest thing!
2.  Highly experienced realtor to help fill the property with lease purchase or rent option and attorney to complete lease option or rental agreement.  Or property management company to fill and manage.
3.  Attorney to set up LLC and operating agreement so you can run it as a business along with all the protections and benefits of that.
4.  Someone to put blinds in.
 
Let me know if you are interested.
 
Towards financial freedom!

Here was my response:

BJ,
 
Tom is giving you good advice in pointing out that it depends on your risk tolerance. Is this a deal I would do? Yes, I believe so. As you are essentially getting £50,000 off, but getting it in a way that lets you ride out the slow period and creates about £1000 a month cash flow for roughly 18 - 24 months. However you need to consider the reversal that will occur at the end of that period, as you will go from £1000 a month cash flow to about £1200 negative cash flow. If we were to do a simple equation (which is all I can do without a lot more time) we could take the £1200 negative cash flow and multiply that by 12. That would be £14400, which is 4.8% of £300,000. Based on this simple maths you would want appreciation to be back at at least 4.8% to justify the claim against landlord for not protecting my tenancy deposit. The thing to keep in mind here is that we are talking simple math. I am not calculating for vacancies (I personally have two now that have sat vacant for over two months) and repairs (although a new house should have close to none). Other things to consider / or ask yourself:
 
1) Is there a better market to invest in that is currently appreciating or am I only comfortable investing in my own backyard?
2) If now is the time to jump in, is this the best deal in the Valley of the Sun?
3) Do I have reserves to cover the range of things that can go wrong with rental properties (I typically recommend 6 months PITI)?
4) How does my spouse view this potential investment? Are they onboard with investing in real estate? What is their risk tolerance?
 
Let me know how else I can help. Can I post this on my blog?
 
Truly,
Keith