Need feedback on my first commercial residential offer- is this a good deal?
Hi everyone, I would love some feedback on a property that literally fell in my lap. A 6 unit building next my complex went up for sale. At first it looks amazing, property next door to mine, PM is the same PM that manages my units, however after looking at their financials I am not sure the numbers look good. It is an older building with a duplex, triplex and SFR on a lot. both duplex and triplex are 1/1 with carports, and SFR is 2/2 with garage, built in the 60s. Neighborhood is B/C with this property being a C. Seller is older couple who wants out of the game, very motivated, own the property free and clear, they tried selling it back in 2007 via seller financing but foreclosed on the investor (investor was a newbie with no landlord experience, didnt do repairs, blamed everything on the tenants, and purchased at the height of the market so eventually stopped making payments and they took back the property. Now they've listed it for $260K, potential rents (if all units are rented is $3200 and $38,400 annual). two units are vacant and completely remodeled, and one tenant gave her notice. Based on these two numbers and what my expenses are (water, trash, insurance, taxes, PM at 8%, 12% vacancy (comparing to my units), 10% cap x and 10% repairs), even if I offer full price I would be positive cash flow.....where do I sign right?
here is the problem. I requested 3 years of income/expense sheets for the property from my PM. (remember the property is free and clear). and the property has been negative cashflow for the past 3 years not including insurance and property taxes
2013 income $15K, expenses $15K
2014 income $19K expenses $21K
2015 income so far $13K expenses $26K - granted they did alot of repairs and paint to get the property ready for sale. but even at $13K for 1/2 the year, at full year the rent is roughly $26K, $12,400 short from my anticipated gross annual rental income.
I've heard of people on the podcasts and here on BP where they've turned around poorly managed properties, but since this PM is the same as my property's PM, and there really isnt that many PM in the area that are competent, and this property is negative cash flow for three years and its owned free and clear. I am waiting to hear back from my PM why the expenses and vacancy so high.
This is my first deal as seller financing (and commercial property) I would like to approach as seller financing since I've found out this retired owner also has other SFR that he wants to get rid of, and if this goes well I would like to approach him on the other ones as well.
What do you guys think is it a good deal, what should I offer? Initially I was going to present the seller with 2-3 offers, one at full price with 0% and 0 downpayment for 30 years, and another two with less sale price, but with some downpayment and 0 or 4% interest depending on the purchase price and downpayment. But now that I have the real expenses sheet, I dont know how low to go, because even if they just deed it to me, I will still be negative cash flow.
Also I wouldnt need to do any work to it right now from what my PM tells me, they revamped it trying to get it ready to sell.
Any input and help would greatly be appreciated.