I am in negotiations on a package deal for multiple properties and am running into a wall with the seller when it comes to determining the value of his properties. In my past dealings I always include an 8% line item for property management in addition to my 10% for vacancy and 10% for CapEx/Maintenance. My reasoning is that either I pay someone to do this, or I should get paid to do it, however my current seller disagrees and wants this removed when calculating the price. Am I off base on this?
What does he think is reasonable? Vacancy can be calculated using his rent roll and CapEx/Maintenance is a real thing, not some mythical unicorn. Does he want it removed or does he have a more reasonable (to him) figure? As far as property management, if he wants it removed then I would add it back elsewhere into what you think is a good profit margin.
I would ask the seller to give you a reasonable counter, that you cannot just remove it. If you remove it here, it just gets added back in elsewhere. I like to use a quote I stole from the Million Dollar Listing TV show, " You have to give me a counter, I cannot negotiate with myself." Then i would follow it with, shaving 28 points (10,10,8) is a deal killer. never give away without getting something in return.
Thanks @Clay Smith !
I have only bought single properties from mom and pop sellers before, so I was walking the sellers through the process as much as myself. This guy seems like the real deal and I know he does this full time, so I wanted to verify before I stuck my foot in my mouth and said something stupid.
Be careful, early on i was handed a 6 package deal with great cash flow. I was ready to negotiate but forgot to look back at my must haves. For rentals I want brick homes, in low rent areas, priced under 50k, with off street parking, not near commercial property, and not a corner house. I do this because I need to keep a good exit strategy for selling to people other than investors. I handed this deal to my wife and she called me out. She replied, "these houses are all vinyl siding in area you do not farm", and she was right. Be sure you are not blinded by the light (cash flow) and be prepared to walk away. The bigger the deal the better the reward, just make sure it is an amazing deal.
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