Hey everyone, I am in a unique situation and looking for advice on how to come up with an offer to my landlord. A couple years back, I was in talks with my landlord about purchasing the house I have rented out of for the last four years. 2 years ago she came to me with a price for the house. She was going to sell the house as is for a really great price here in the Nashville. I ended up not being able to get approved. So I put the house purchase on hold for the next year and saved. In May of 2020 I revisited purchasing the property with my landlord. In that year she increased the asking price by 10k. I still thought this was a great deal for my market. I was able to get approved this go around. My landlord and I were in agreement (not in writing) that after I was preapproved, we would go the next step and she would sell the house. Within the timeline of my landlord and I making that agreement and me actually getting preapproved, I was notified that my landlord was ill and they did not want to make any financial decisions. At the end of February my landlord passed away and her son has since taken over the business. I still am looking to purchase this property, but not sure how to bring up the conversation to my current landlord. I am looking for advice on that and how to present the offer. I was thinking about sitting down and while presenting the offer but know know where to begin coming up with it. I was thinking of increasing the offer by another 10k since that is was my original landlord had done. However; I know how hot the Nashville market is and feel he might not like my offer knowing he could potentially sell it for more down the road. Just not sure where to begin on making the offer. I am looking to do this without an agent because I want to make the offer more attractive for him not pay unwanted fees. Please let me know what you think, and any advice you may have! Thanks
There are a few things that are unanswered with your new landlord: 1: If he even wants to sell 2: If he is aware of the arrangement you and his mother had 3: If he will honor the arrangement you had with his mother.
Perhaps approach your new landlord and ask if he is aware of the arrangement you had with his mother. If he is, ask if he intends to honor your prior agreement; if not, let him know about it and see if he has any interest in moving forward. Unfortunately, he is now in the driver's seat so just go in knowing that you don't really have much of a leg to stand on.
Do you have any emails or correspondence with his mother you could share with the son demonstrating your arrangement?
Yes I agree.
Yes, I have the texts showing the purchase price she was wanting in April 2020.
Since the market has changed a lot on the past year, it does not seem reasonable to just keep an old price or randomly assume $10k is the right amount to increase the old offer by.
I would suggest that you see how high you can afford to make an offer and how close that is to market value before seeing if you want to proceed. If your preapproval is not near market value, you might want to just keep on renting!
If you are qualified near market value, maybe suggest that you will pay for an appraisal or you two could split the cost of an appraisal then you can buy the house at 5% off the appraisal value. That gives you a good discount, but it also does not hurt the seller's bottom line as he would likely be paying 5 to 6 % in commission to a realtor if it was sold the traditional way.
Does the new owner have other properties? Most people don’t want to be landlords and they may only be taking the easy money and hanging in there until you move out to sell. This may be especially true if they aren’t local. You can also remind them they received a stepped up basis when they inherited the property and should be able to sell tax free.
I have been approved over market value for this house. I have looked up some comps in the area and I know I can afford what the market is going for. But as an investor, I am also trying to get the best deal I can. I also don’t want to low ball to where he doesn’t even want to entertain.
My first landlord mentioned when I first moved in that she had 6 or 7 properties. I believe these were also passed down to him and he is taking care of those as well.
What is this stepped up basis you speak of?
@Kevin Phillips I'm an Agent and I don't mind helping you out to determine a fair market value for the home. I'm not looking for any compensation, just to help out.
If would like the help, email me the address and any details that might affect the property value (i.e. updated / not, pictures of deferred maintenance items, bed / bath count, etc).
Awesome, I will do that today!
If your previous landlord had sold to you they would have owed 15% capital gains tax on the difference between what they sold to you for (net) and what they paid for the property when they bought it. They would also owe 25% depreciation recapture tax. But when their son inherited the property all that went away. They are considered to have paid whatever the property was worth the day she died.
Kevin, start a conversation with the new owner, her son, find out what his motivations are. Once you determine that , you have a basis to work from. Perhaps he wants to sell quickly, maybe he wants to build on this property to increase his own portfolio. You don't know where to start until you get some answers to these basic questions. Find out what moves him and work from there.
Best of luck on your adventure!