I'm a little frustrated at this last deal I've been working on. I'm working with an experienced broker that specializes in finding SF houses for investors who buy/fix/sell them. Over lunch one day I shared my vision of buying Multi family and apartment buildings that are seller financed and using private money from some investors I know, that are looking for a better return on their dollars, to cover the down payment, closing costs and repairs/improvement.
This peaked his interest in expanding his search criteria outside of what he specializes in and within a day he had a sweet triplex within a few miles of my office/shop. So far so good!
I found it hard to get him to offer the package I put together and after some compromise and adjustment we agreed on an offer that we thought would be resonable.
List price: 219,000
Our offer: 190,000
5% down 9,500
Contract for deed 30 years at 6% 7 year balloon.
Seller owns the building and it has no mortgage or loans.
Sellers realtor wouldn't verbally present the offer to his seller to start negotiating and when we sent them a fully detailed purchase agreement the reply that came back was.
"The seller no longer wishes to do a contract for deed" "cash out only"
Not sure if the seller really ever even heard the offer and I think his good ole boy Realitor didn't want to spend time on this.
Combined Rents are: $2000
2/1 is 950
2/1 is 600
1/1 is 450
Owner pays all utilities ( no separate meters) Bad veriable for cash flow in the winter here in Minnesota... and the summer too)
Comments? Feed back?
Without seeing all of the numbers, it's hard to say, but $2000 rent for $190k with the owner paying all utilities does not sound very good to me. That's not a deal I would even bother pursuing any further. But your market might be a lot different than mine or maybe you've already run the numbers and it pencils out ok.
Just to address the offer itself though, it sounds like to me the seller is looking for a big check for some reason. Some sellers are fine with getting an income stream because it's easier on their taxes, better return than they can get in the bank and they just need a monthly check to supplement their income.
But maybe this seller has their eye on a retirement home on a lake somewhere and needs a large chunk of money for that. So why not restructure the deal with 75% financing from a local bank, 20% note from the seller and a 5% downpayment from you and give them what they want?
Again I'd be surprised if that had positive cashflow so check your numbers carefully but that's a solution if you really want this property.
It's possible that as you say the sellor's realtor was not interested or he did not understand it.
So as has been suggested rework the offer and re present the new variation.
I would talk to the seller directly.
Full price but your terms
I think there is something on BP on how to talk to a seller directly so why don't you try to locate that. I think it is by Turner
I would be very hesitant to purchase a property where I am paying all the utilities. I always think back to my time in the military in post housing where the utilities were included. In the summer, there were icicles coming from my windows !
Costs to you:
$1079 payment + property taxes + insurance + utilities + vacancies + repairs and capital expenses
What do you estimate the cash flow being ?
So, this is likely to sound harsh. It is not meant this way.
If I were the seller, and that offer was presented to me, I would laugh out loud, and instruct my realtor to accept no more offers from you.
You want owner-financing, a very low down-payment, terms very positive to you, AND a very significant discount.
Nice if you can get it, I suppose, but what reason do you have for thinking that the seller would accept? How long has it been on the market? Do you have rock-solid comps that indicate that the list price is way too high?
will $9500 cover his costs to sell the property ? Short answer not likely. So he has to come out of pocket to pay the Realtor ? I could see why he turned down that offer. Maybe try a bigger down payment ?
It's not a deal but understand this.
5% is not enough down.
The seller has to pay a commission to the broker and replace their cash flow if the property is making money. 10 to 15% is more reasonable as it helps seller pay for commission and closings costs with attorney or legal and puts a little jingle in the pocket.
The 10 to 15% is still better than the bank at 20 to 25% down with short balloons of 3 years and 20 year amortization rate.
Sellers often think since they are offering owner finance that they can sell a crappy deal at an inflated price to a buyer and it is acceptable. I don't expect to get all cash pricing but at the same time your purchase needs to be at market or slightly below and then get really favorable terms.
In a perfect world you could get a cheap price and owner finance. Too much capital chasing deals these days. Even if you could land 5% down there is a bunch of reserves and costs to close this on top of that. If a seller had an excellent property that was cash flowing like a monster with no issues then they would not need to owner finance.
thank you all for the insight. That's exactly what I was hoping to get by venting my frustration. What I don't get is why the seller wouldn't counter offer with their terms...?
It has been on the market for over 250 days.
Seller is moving out state due to health of spouse.
They want too much and anybody that gives them their full asking price hasn't done the numbers. I'm squeezing the numbers and sticking to them to try and get into this property but I can't give more. I'm already at a break even cash flow. Well, give or take $10
Yes, they would have expenses out of pocket at closing, yes it's not a traditional deal and from a sellers side it's laughable....but, there are no other offers and they are motivated to get this sold before winter.
I've been told it never hearts to ask. What's the worst they could say. I respectfully submitted an offer and they won't counter and have stated no more CD option. I think that's bad business. At least come back with something. Right? They could at least Tell me their terms...25%down required or 50 or 10% and 10% interest on five year ballon. I would be ecstatic with a reply, even an absurd one.
So the strait up answer is no. Fine, I can keep looking. I had a 7plex under contract with sweet seller finance terms and almost nothing down all ready to go. Them an inspector came in and made a report that scared my investor away and poof! Canceled the purchase offer. So, I'm at two strikes-swing and a miss. But it's only the first inning.
Thanks again for all the input, truly appreciate all of it especially the hard to swallow stuff.
I know the 5% isn't enough to cover their cost and they would have to pay out of pocket b