Can you Properly Analyze a Deal if you can't see Inside?

52 Replies

I'm trying to analyze a triplex that's for sale, but the units are fully rented out and the owner wants a written (and accepted) offer BEFORE scheduling a time to see inside. 

He then said, to go inside I need an "insurance inspection" or to go through a contractor because the tenants don't know it's for sale and he wants to know I'm serious. 

The triplex is listed for $149k and it's renting for $2035 with current tenants in place. 2 units have Section 8 Tenants in them. 

The reason to sell is to "alleviate some of the basic property management problems", but it's managed by a professional property management company. 

Stats about the deal

- Built in 1920

- Last renovated 12 years ago (roof, kitchens, furnace, floors, electric, and "90% of plumbing")

- No Central Air

- Garage converted to shared coin operated laundry/storage

The seller is an international investor. He would like 20% down payment Land Contract at 9% interest on a 6 year note. 

I don't like the 6 year note on 9% interest and can get better rates with a bank loan, but I would like to come up with a fair offer for him based on the necessary repairs. With the property being rehabbed 12 years ago, I know it's going to need some CapEx work done shortly.

Without being able to go inside, how do I come up with a far offer for the seller?

Originally posted by @Matthew John :

I'm trying to analyze a triplex that's for sale, but the units are fully rented out and the owner wants a written (and accepted) offer BEFORE scheduling a time to see inside. 

He then said, to go inside I need an "insurance inspection" or to go through a contractor because the tenants don't know it's for sale and he wants to know I'm serious. 

The triplex is listed for $149k and it's renting for $2035 with current tenants in place. 2 units have Section 8 Tenants in them. 

The reason to sell is to "alleviate some of the basic property management problems", but it's managed by a professional property management company. 

Stats about the deal

- Built in 1920

- Last renovated 12 years ago (roof, kitchens, furnace, floors, electric, and "90% of plumbing")

- No Central Air

- Garage converted to shared coin operated laundry/storage

The seller is an international investor. He would like 20% down payment Land Contract at 9% interest on a 6 year note. 

I don't like the 6 year note on 9% interest and can get better rates with a bank loan, but I would like to come up with a fair offer for him based on the necessary repairs. With the property being rehabbed 12 years ago, I know it's going to need some CapEx work done shortly.

Without being able to go inside, how do I come up with a far offer for the seller?

 You can't. If he won't allow you to inspect ( you could tell the tenants you are a contractor/handyman that he is having look over each unit for safety and upgrades) if he is serious about selling. Besides, Section 8 tenants have few choices and are loath to move anyway, so that is an unlikely excuse. He is hiding something.

@Matthew John

I think it’s a waste of time to make an offer and inspect afterward although there are a lot of blind offers that are made everyday.  Then they use the inspection contingency to evaluate the interior.  You usually end of re-trading the price based on all of the conditions.  

I do understand not wanting the tenants to know it’s for sale.  There is always a concern the tenants will stop paying rent or start telling the At the end of the day your offer will need to be low because you nothing to be basecit onperspective buyer all the problems with the building.  I always ask the tenants if there is one thing they could get repaired what would it be.

At the end of the day your offer will need to be low because you have nothing to be base it on.  

I've seen properties advertised a number of times with no inspection prior to an accepted offer. I think that's just silly and move on to something else.

If I were you, I would tell the seller that you need to see inside before you make an offer. If they can't allow that, then move on. It's not worth the risk. As stated previously, there's stuff they don't want you to see...

@Kenneth Garrett Judging by some of the responses I received, the bulk of the renovations are 12 years old. I factor in about 35k in CapEx (without seeing the inside) and I think starting an offer at 115k is the way to go. I think he just doesn’t want to disturb tenants with people who aren’t serious. If I can justify my offer, maybe they’ll bite. With a strong cash flowing property, I think it’s worth pursuing. I see people trying to sell 2 units in this same area for 150k.

@Matthew John

Sounds like it is a strong cashflowing property.  However, .....

I would be a little cautious about having to do the loan "through him".

Make a "curb offer" based on area comps. If there are no area comps then offer him maybe 2% LESS than what the asking price is,....but make sure you out in an appraisal contingency and an inspection contingency.     Then of course while walking through the property you and/or the inspector do not need to tell the tenants you are a potential buyer....ask the tenants what they think needs fixing and ask what the process is like now when they do ask for something to be repaired....that will tell you a LOT about the current "property management".

@Brian Garlington Do you think I lose negotiating power if I find anything during an inspection if I already offered near market value?

Based on the last reno being 12 years, I know it will soon need a roof, furnace(s), hot water tanks, and from the pics of google maps a new driveway soon. I am coming up with a flexible price of 115k to start before looking at the inside. 

I also don't want to rule myself out because even at 150k, it will still cash flow decent. 

@Matthew John

Negotiating power? Remember, you're the one "potentially" buying the property. The seller right now is likely not getting very many "bites" because he won't let people inside the unit unless it's a signed offer and because many people also don't want to deal with Section 8 tenants (I happen to like buying units with Section 8 tenants already in them, but that's a story for another time).

Don't be offended but if he perceives you as an "eager beaver" he will be the one that calls all the shots and you will get rolled over.

Your offer is not binding IF you put an inspection contingency in there and an appraisal contingency. IF he counters and says you need to waive either of those then he is definitely hiding something and you need to walk.

@Brian Garlington Solid Advice! So the goal is to not look "overly interested" while also coming up with a fair offer. 115k sounds low, but if it needs 30k+ in repairs soon because everything is old then I don't think it's unreasonable. 

@Matthew John I would not be paying 9% interest and I think 20% down is even a bit steep considering the bank wants the same thing down .id say 5.5-6% interest and 15% down . 150 grand and only getting 2000 in rents isn’t anything I’d be that excited about personally . I’d walk if he won’t budge on that interest rate if it were me.if he doesn’t actually own it and have deed I wouldn’t do it . A wrap is riskier than a true seller finance aka land contract .

With Section 8 there are annual inspections.  Ask for a copy of those reports.  Ask for the rent records, are the units rent paid on time?  Section 8 will hold rent if there is a problem until its fixed.  That information may tell you of any problems.

And for the other unit it may tell you that you will be dealing with an eviction.

Surely you ca get the PM's records?  That will tell you if they keep up on repairs, get the rent on time.

I just walked away from a 4 unit property on 1.5 acres in Nor Cal. Put $40k in escrow. did lengthy inspections. Found $200k in deferred maintenance. (primarily a 70 year old septic system that was failing). Took a bunch of my time. Countered with $150k price reduction. Was in contract @ 1.3 million. Seller said no. I went on to the next one. Would have gross rents of $8k/month once rehabbed, which is pretty good for the Bay Area.

You can make a full price offer. Explain that means it's rent ready, no deferred maintenance. Part of contingencies are proof of income, (bank statements copies of rent checks), full inspections, estoppels, credit checks on tenants, confirmation of Sec 8 inspection approvals. 

Personally, I don't like the 1920 part. Knob and tube wiring? What wouldn't pass code today? 

@Dennis M. Oh yeah, no way they're getting that. I would rather do a bank loan with 20% down. Knowing the last updates were 12 years ago, I'm factoring in 35k off the top for expenses (mostly capex). My initial offer will be 115k and see if they talk from there. 

@Lynnette E. Wow! This is a great idea if they're willing to talk. Could be a red flag if they don't. 

@Steve Hodgdon Wow! Good thing you did your due diligence. Hearing those prices in your market sounds crazy because in Metro Detroit you can get a 30 unit for 1.3 million. 

In my area, all the houses are older, especially the multi families. 

They said they updated electrical and 90% of the plumbing 12 years ago, but also did the rest of the CapEx. I figure in the next few years it will need roof, furnace, water heaters, driveway so I'm going to present them $115k and see if they want to talk. If not, onto the next one. It'll be a tough sell if they won't let anyone inside!

Originally posted by @Matthew John :

@Steve Hodgdon Wow! Good thing you did your due diligence. Hearing those prices in your market sounds crazy because in Metro Detroit you can get a 30 unit for 1.3 million. 

In my area, all the houses are older, especially the multi families. 

They said they updated electrical and 90% of the plumbing 12 years ago, but also did the rest of the CapEx. I figure in the next few years it will need roof, furnace, water heaters, driveway so I'm going to present them $115k and see if they want to talk. If not, onto the next one. It'll be a tough sell if they won't let anyone inside!

 What part of town? built in 1920 I would be checking the windows, settling of the foundation, and the clay pipes to the street breaking down.

Central air in a triplex is no big deal, just get each unit some windows units and call it good.

Also, the fact its Section 8 means cosmetically its probably decent. I assume the knob and tube wiring is gone and you have newer plumbing lines.

I would take his financing pay him for 6 months and then secure traditional financing via a bank.  Also, I would low ball him, but offer him some extra money down to make him feel better about it.

Good question.

If you know your market well, you can understand if a deal is interesting without even looking at it.  Since most deals are overpriced, I can quickly focus on looking a the good properties and weeding out the rest.

Often, you can find an archived listing on the MLS, Costar, etc.. that will have pictures, layouts, etc..

Last, it is not a good idea to purchase a property without seeing it.  For newer investors, please get your properties inspected by a professional.   Investors who buy foreclosed properties at sheriff sale auctions are the only ones I know that routinely buy properties without inspection.  Note buyers as well.

@Brian Ploszay   As a note buyer, I have lots of stories on why that's been the worst part of the niche. And the one about the guy who flooded his own basement during foreclosure to start a mold problem...

@Matthew John Yeah, just nuts. Can't expect to cash flow anything without huge down payments. Most of my recent work has been in FL. I have 3 mortgages in MI. didn't buy them well, so turned me off on the market. When guys in the midwest see a California investor, full price + 20% is the usual routine. I'm looking for seller carry paper. Would be interested in partials there.  Let me know what's up. 

@Christian Hutchinson Roseville - The numbers aren't bad, but it will definitely need some big items replaced. I do think 6 years on a LC is way too long to wait, so he's going to have to negotiate if he wants to sell. 

Pretty much everything around here was 1920s - 1950s in Warren/Roseville area. 

Are you still looking to buy in this market?

@Steve Hodgdon The problem out of state investors have in Michigan is they are buying in Detroit. Yes, there are great areas in Detroit, but if you don't know the market you'll lose. 

My focus here is in the suburbs on the cities bordering Detroit. Most people don't want to live IN Detroit, but they want to live close enough to enjoy downtown. My houses are cash flowing, but these multi families here are cash cows & they aren't *that* expensive. A little money in California will go a loooong way in Metro Detroit! 

Your description of type of tenants suggests there are deferred maintenance.


I would look at it differently. The lack of transparency prior to offer reduces the seller's leverage during the inspection period. Everything you find in inspection is fair game for negotiating the price downward. 

I would make a fair offer, maybe slightly below market, with an inspection contingency. Then you inspect. If any renters are present during the inspection, ask them what needs fixing etc. Make a thorough list. 

Then ask for a full set of concessions based on that list. You can't call that retrading since your original offer was based on a view from the curb and a presumption that everything inside was perfect. 

There is so many tire kickers in today market can be a big waste of time .

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