4 plex deal, lease option a good idea?

Question

Hello all,

I stumbled upon a 4 plex for sale. The seller I learned (through my ways) is paying a $800 mortgage and all units combined rent is $3,125 and all are in leases to stay put. He's a rehab guy but not a whole lot has been done to the property since he bought it two years ago. Running comps as we speak. He's asking $275K. I think my first issue is he bought it for $118K, made minor improvements, and is asking far too high. Secondly, I do not have 20% cash to put down even if I could get it for $200K due to another wholesale deal I am waiting to close on, which I would have the money in a couple of months. Would a lease option to purchase be a good idea if I can talk him down on price? What should I look out for?

Bill B. · Answer

The problem is what would be exciting to the seller? I mean obviously more than the current rent which probably makes it a bad deal for you. MAYBE, if you just need time to get the 20% for the downpayment maybe you could lease for the current total rent for the right to buy it at the current price. Problem is, even that is really only you getting the right to buy it in the future for today’s prices unless someone moves out and you pay him. (Otherwise he’s just collecting the same rent and not getting any appreciation.)

Tyler Sample · Answer

@Bill Brandt gotcha. Any thoughts for the lease to purchase part of it?

Bill B. · Answer

I’d be surprised if he took a penny less than $275k right? I mean with $3100 in rent he could try $295k and collect offers from the 1% crowd.  What he paid doesn’t matter in the least as far as the value. What if he paid $395k 2 years ago? Then would you offer $350k?

I guess the easy way to find out it wait a couple months and see if it’s still for sale. I doubt anyone’s going to sell for 30% off right away. Plus he’s making $2300/mo cashflow. I have no idea why he’s give up $27k/year in cash flow. Imagine if you could retire well on 3 small buildings like this.