How I got an 8 unit apt complex for no money down!

38 Replies

I came across a women who was liquidating her rental property. She had 10 properties...duplexes, commercial building w/ 8 rental units above it, sfr's, quadplex, 8 unit apt comlex etc..

My business partner was interested in the commercial building(listed for 250K) and I was interested in the apt complex(listed for 225K). I made her a 300K cash offer for both just to see where she was at and she countered at 350K!! I countered back at 315K and she accepted.

I then wrote it up as 2 separate contracts explaining that I would be buying one and my partner the other. She was fine with that. So after some negotiating with my partner, I wrote up my 8 unit for 135,500 cash and his at 179,500 cash and got them escrowed quickly.

After doing a few inspections on the 8 unit which all came back fine. I then went back to the seller and told her that I wanted to make her another package deal... 225K for the 8 unit AND the 3 duplexes she owned right across the street(listed for 75K each) on an owner finance deal of 125K down, 100K @ 6% on a 30 am with a 3 yr balloon. After some back and forth we settled at a sales price of 240K, 115K carried by the seller at 6% on a 30yr am with a 3 yr balloon.

I then brought in an investor to buy the 3 duplexes for 125K cash. Leaving me with the 8 unit apartment complex for 115K owner financed with nothing down at 6%. I plan to do some value add by increasing rents(which are well below market currently) along with some capital improvements then refinancing within the 3 yrs.

Final numbers after value add will leave me a conservative $1,800 monthly cash flow!

Bang Zing!

Well done! That's awesome! 

The duplexes were listed at 75k each but you only got 125k for all three from the other investor, was that a fair price? Were they just over priced to begin with?

Yes they were slightly over priced. But the investor I sold them to was my father-in-law. So.... I wanted us to both get a great deal and didn't want to be greedy. If I can keep getting him great deals he will keep buying and I can potentially do this again in the future. Another bonus is that I will be managing them for him($$) and they are located right across the street from my 8 unit. So together we can really make a positive impact on the neighborhood and hold each others values by keeping the properties nice. If he wanted to, after sprucing them up some he could sell 2 of them and get all his money back. Keeping one for free!

Cliff great read, however when I saw the 36 month bullet it lowered the deal somewhat in my mind. I had a bad experience with a balloon on a seller financed property a few years back.    

What's your plan to address the 3 yr balloon?  

@Cliff Zarbock undefined. Great deal. As  newbie Im very interested in how you structured the deal and would like if can I have you explain some finer points

"After some back and forth we settled at a sales price of 240K, 115K carried by the seller at 6% on a 30yr am with a 3 yr balloon."


My understanding, and tell me if I'm wrong. You had to bring $125K to the table (which you got from your father in law) Did you sell those duplexes prior to owning them? As a wholesale deal? I'm just confused how do you get the $125K to pay the seller before or after you take title to be able to sell the three duplexes.

What does 30yr am with a 3yr balloon? Simple question for some, but im still learning the lingo

Wow. I love hearing deals like this one. NIce job orchestrating it all! 

Way to think outside the box! Congrats!

Originally posted by @Federico Gutierrez :

@Cliff Zarbock undefined. Great deal. As  newbie Im very interested in how you structured the deal and would like if can I have you explain some finer points

"After some back and forth we settled at a sales price of 240K, 115K carried by the seller at 6% on a 30yr am with a 3 yr balloon."


My understanding, and tell me if I'm wrong. You had to bring $125K to the table (which you got from your father in law) Did you sell those duplexes prior to owning them? As a wholesale deal? I'm just confused how do you get the $125K to pay the seller before or after you take title to be able to sell the three duplexes.

What does 30yr am with a 3yr balloon? Simple question for some, but im still learning the lingo

Originally posted by @Federico Gutierrez :

@Cliff Zarbock undefined. Great deal. As  newbie Im very interested in how you structured the deal and would like if can I have you explain some finer points

"After some back and forth we settled at a sales price of 240K, 115K carried by the seller at 6% on a 30yr am with a 3 yr balloon."


My understanding, and tell me if I'm wrong. You had to bring $125K to the table (which you got from your father in law) Did you sell those duplexes prior to owning them? As a wholesale deal? I'm just confused how do you get the $125K to pay the seller before or after you take title to be able to sell the three duplexes.

What does 30yr am with a 3yr balloon? Simple question for some, but im still learning the lingo

 Oops! Trying o figure out how to delete the part I don't want in order to answer the part I do want.

 Anyway, the translation is: the seller financing was amortized over a 30 yr period which would make the payment smaller. Then, in 3 years, the entire principal balance is due. By that time, a buyer would put some other financing in place and the seller would be entirely cashed out.

Account Closed So I amended my current contract with the seller for the 8 unit apt complex. Changing the sales price to 115K and the financing terms to owner carry. And then wrote up another contract for the 3 duplexes with my father-in-law as the buyer. It was written up as a cash deal. We will be closing them on the same day. Let me say that this was all explained in detail with the seller and full disclosure was preformed. Since the numbers ultimately didn't change for the seller she had no issues with it.

In regards to the "30yr am", it is short for 30yr amortization schedule. Which means that the monthly payments I pay to her will be calculated on a 30 yr loan. Making them much lower. I believe my monthly payment is only $689.00.

The "3 yr balloon" means that in 36 months I will need to pay her the full remaining loan balance. Which will be like $110K. If I do not, she can take the property back and I lose everything. As mentioned above in my reply to @Account Closed , I plan as of now is to get it refinanced before that deadline. Or I can sell it for 250Kish and pay her the 110K I owe her and keep the profit. 3 years gives me plenty of time to claim the income on tax returns to show the bank that it is a profitable property. That along with my personal financials I won't have any issues with the refinance. Worst case I just pay her off with my own cash and then take out a line of credit on it and use it to buy some more property.

I hope this answered your questions...? If not let me know where to clarify.

Excellent work Cliff.  I am a newbie, but I am hoping to do the same on day.

Blessings!

Dave Gaines

@Federico Gutierrez The Payment does include principle. Not very much however since the bulk of the payments in the beginning of any mortgage is primarily interest. In the 3yrs I will have paid the balance down by only $4,500. Leaving me with a payoff of about $110,500. 

So if you do the math. $689 X 36 payments= $24,804 paid to the seller over the 3 yrs. Which only reduces my payoff by $4,500. So it essentially puts an additional 20K in the sellers pocket. Making the 115K sales price really look like $135K to the seller at the end of the day. This was also explained to the seller which helped her agree to this structure.

Awesome deal @Cliff Zarbock!

Can I ask how did you come across this woman?

@Federico Gutierrez Forgot to include that the taxes and insurances are my responsibility.

@Jeff Tang I was lead to her by another realtor here in the city that knows my investment criteria. I got the jump on them prior to them being listed on the MLS.

Originally posted by @Brian Gibbons :

@Cliff Zarbock

I was lead to her by another realtor here in the city that knows my investment criteria. I got the jump on them prior to them being listed on the MLS. 

I hope you paid that realtor something.  Nice creative work!


 What would be considered a nice "gesture" to the realtor...for future reference.

@Brian Gibbons

@Jeff Tang

Even though I'm a licensed agent, I let that realtor represent everyone involved on the buyer side. So he's making a decent commission. Ya see, the seller had already signed a listing agreement with her realtor, who told "my realtor" about them about to hit the MLS. "My Realtor" called me to give me the jump on them.

@Cliff Zarbock

 Great job on putting together a creative deal!  I've done a few myself, so I can appreciate the creativity that went into this one.

I just wanted to point out another option with the seller financing.  At the end of 3 years, during which you have made your payments on time every month, the Seller may very well consider extending your loan.  Her motivation for selling the property was probably to retire and no longer have to deal with property management.  She would then take the cash from the property sales and convert them into some cash flow to live on.  If you give her a fair (better than the bank!) interest rate, she would probably consider extending your note at the end of 3 years.  Most of the time, people have a need for a steady cash flow, rather than a lump sum.

Or, perhaps at the end of 3 years, you have improved the value enough to where you can 1031 exchange up into a larger building...

Erik

Nice work, and well explained. Thanks for sharing

THANKS for posting this! I am working a 16 unit multi family myself and I
picked up a FEW nuggets (more like BOULDERS) that I can use in my 
negotiation!

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