I am in negotiations on a 2/2 duplex that is owner occupied, with another tenant, on one side and long term tenants on the other. Owner is asking $175,000. I offered $150,000(based on running the numbers). After working on the terms he told his agent to tell me that he no longer wants to sell. After about 30 days I called his agent and asked to speak with the owner and went to work. I am offering $150,000 with a $45,000 down payment @ 3% on a 30 year term with a balloon in ten years. The seller wants more. The seller also wants to stay in the property. Seller also does not want to raise rents on anyone in the property because they are living on fixed incomes. Also seller has 16 other properties here in Florida and another state. The seller definitely does not "need" the money. He offered me another property here but same thing. He is asking, basically at best, break even prices. The good news is that I have him talking and he likes me. I just cant get him pinned down.
I have asked him over 30 questions on his motivations/desires/wants etc... I have structured the deal around his answers. I have put him in the driver seat and in control of this deal. I am pretty sure that he cant commit to the 3% and purchase price. Even though I have showed him, with owner financing, he ends up with well over his original asking price of $175,000....
Any help/tips/ideas/suggestions would be great! Thanks!!!!
He sounds like a pretty well versed RE investor. That said, he probably knows several things such as;
the time value of money (future vs present)
3% is way below market rate for lending
The full value of his property (it will likely be tough to get a screaming deal from him as he doesn’t have the motivation that a distressed seller might)
With these things in mind however, he also may have other significant value to you. If you close on a deal with him and build a strong working relationship, he probably has lots of knowledge to offer and maybe future (better) deals when he really wants out of the game. And lastly, getting seller financing can be tough and you may have to concede on some more items to get it. Is there a reason the DP is so high? You could probably get a loan from a bank and offer the 150,000 without seller financing and have a more attractive offer as well. Just thinking out loud
I would say that you should offer him a little less money down, asking price if it cashflows and a higher interest rate. With no living rights. Maybe at 5% interest he would be happy to leave the place.
@Eben Rohling he wanted 50k dp at first. He has a realtor at 7% plus capital gains. He bought this property at the low in ‘08. I could do bank financing np. He wants 165k and based on the fair rent rates that is too much. He has both rented for $625/month currently and I think they would rent for $750/ month. I could do that except he has lifers in there now that I’ll lose if I raise the rents that much.... thanks for thinking out loud. It’s helpful
@Eben Rohling also if I just get a loan and buy it for $160k that’s it. That’s all he gets. Wouldn’t it be better to keep the financing so he continues to make the interest? Especially that he does not need the money. Also he said he’d hold the financing for less or more than ten years....
Yeah it may be that there just isn’t a deal to be had here. It doesn’t sound like he really wants to sell unless he can get full retail value. As a primary residence someone may pay what he wants, but if the numbers can’t work and he has reached the end of his rope in terms of negotiations then you may just need to let him know and say to keep you in mind if he has other opportunities in the future.
Try not to get tunnel vision on one potential deal.. there are always other opportunities out there if this one doesn’t work out
As for the reason he might prefer 160k upfront is that he can turn around and put that in an index fund or some other passive investment and get 6-8% returns
When you say that you have put him in the driver seat on this deal, what did those terms come out to? And are your numbers still attractive at $150k with 3% and 30 yr amo. if you can't raise the rents from $625 for the next ten years?
Also, market rents of $750 sounds low for a well-to-do experienced RE investor's residence. What kind of area is this?
@Eben Rohling I forgot to mention he is not a “market” guy. He has never invested in any market and will never. To him the market doesn’t exist. You’re 100% correct though. Those of us that invest in index funds would shoot down a 3% offer every day of the week...
@Kiley N. Yes the #’s make sense at 150k @ 3%. I even offered to sign five year lease agreement between all parties involved as I know it’s important part of this deal. And if they want to leave that’s ok also because rents should be 750-850/month. Which makes the deal even better for me. I should just buy it at the 165k he said he’d take and raise rents to 850/month but I’ll lose all tenants, need to get new tenants, and then I’m at the end of the spectrum. For me it’s better with less moves and already established good tenants. I’ll trade that over bout anything. Nothing makes a deal heavy like having to scramble to make it work... :/ but that’s just my approach
@Zac Boelkow Hey Zac, if you have $45k, I'm sure you can find better deals with that capital.
This Seller wants more money, has no motivation to sell, and wants to stay in the property. This all doesn't sound good to be honest.
Remember, no emotions when it comes to investing. This Seller might not be your guy, and I know you are somewhat vested already but I'm certain you can find better deals with your capital...
If you're planning to raise rents, I'd probably prefer to have the seller out of the deal entirely given that he has stated that he does not want any of them raised. If you must have an agreement to limit rents in order to close this deal I would want to get something in return.
If the market is at $750/$850 you should have no problem getting these leased up at the low end which would still be a substantial increase over the $625 currently. It'll be more upfront cost with turnover though so make sure you budget for that.
If it sounds like too much involved to make this work for you, maybe you leave the seller knowing you'll still be interested in the future at your basic terms and move on.
@Ola Dantis possibly, probably, true and correct. For me a lot of investing is the chase. Working hard to negotiate good deals that work for everyone. I believe in people and enjoy working with people even though sometimes I should just move on. I think this is what has made me successful thus far. Of course you’re correct that there comes a time to move on. I’m just not at that point yet...
I’d ask why you even want this deal . Your giving up a huge amount of money down (45k)then having to be on the hook for the balance in ten years via a balloon which really sucks . Your helping him more than your helping yourself if you go through with this Edie silly if you have the means and credit to just use the bank instead . The biggest hurdle is the numbers on the property . Your willing to pay 175k for a duplex that gets only 625$ per side ? That’s not a good value and way below one percent rule .you will not cashflow on this property and it’s not even a good deal to bother with at that price . I don’t care if you can jack up the rents to 750$ a side it still would suck so why are you racking your brain over trying to line the sellers pockets with your hard earned money ? Are you that desperate to find just any deal ?
Thanks everyone for all the tips, advice, and suggestions. By using “never split the difference” principles and sticking with this deal I was able to get the seller to sign a contract today on the exact terms I originally offered! And some!! We will be closing in less than 30 days...🎉👏💪🏽💥💥💥