How to offer landlord a win-win deal for 5 properties at $2.5M?

7 Replies

Hello BP!

The Portfolio: Five multi-families (All 3 units, excellent tenants, excellent locations, well-kept). Purchase price: $1.3M. Value today: $2.5M

The Background: My landlord (let's call her Sara) owns 5 properties in West Hartford, CT and she wants to sell all her properties. A few months ago I reached out to Sara and asked her to be a mentor as I began my real estate investing journey. I've been listening to BP podcasts, going to local meet-ups, rapidly digesting books, building relationships, researching markets and seeing properties. In other words, I'm hungry. Also, I work full time as an engineer.

The Need: How can I go to Sara with an offer that is beneficial for her? Can I build my case around helping her avoid capital gains tax? What are the benefits of selling to me now that outweigh waiting 30 years for a $2.5M pay-out? The motive for Sara is she does not want to manage these properties anymore. The disadvantage for me is I don't have 25% of $2.5M. Sara has made it clear if I can present a case which is beneficial for her to sell the properties to me, she will do it.

I welcome all feedback, comments, constructive criticism. Bonus points if you are an accountant in the CT area :)

Annie Pitkin

@Anne Pitkin

Always speak to an accountant and attorney before entering into seller financing deals.

What the seller purchased the properties for is not a factor in the equation; what they owe on the properties does matter (if anything). It sounds like they do not owe anything which makes seller financing much cleaner. Typically with seller financing they are not waiting 30 years for a payoff. We might structure this; 10%-15% down (so they know you are serious), ~5% interest only paid monthly, 30 year amortization with a balloon in 5, 7 or 10 years. No prepayment penalty.

Our goal would be to purchase the property with the above terms; add value to the property over the next 4-6 years and refinance the owner out with long-term, fixed, non-recourse, agency debt.

Adding value to the property is key to not going into your pocket when you refinance. You really need to boost the property's value by 15%-20%+ so when you refinance and they are offering only a 70% LTV, you do not have to make up the difference. Of course if you can increase the value by more, you can put some money in your pocket. You are not taxed on any money you pull out of the property from a refinance.

@Wayne Brooks

Oops - clarification: the purchase price value of $1.3M refers to the price at which my landlord bought the properties.  They are now worth $2.5M.  If she were to sell she would pay capital gains on the $1.2M plus depreciation. 

@Anne Pitkin

We have only discussed the purchase price and financing. You need to run the underwriting on the properties and make sure to adjust the current taxes with your new taxes after purchase.

@Anne Pitkin

DM Me and I will suggest an underwriter. I am from Avon; I know that area very well. In my experiences; most accountants and real estate agents do not know how to underwrite commercial multifamily.