How low is too low to offer?

Question

Have my eye on a 16 unit that has been hit with a death of owner and now illness of surviving spouse(at least that is what RE agent claims.)  Looking at possibly putting an offer in but from what I can tell( I am relying on pictures, apparently the tenants don't know it is for sale and I can only physically look at the outside??) it needs a lot of work.  Anyway getting to the question...This building is listed at 450k which is about 60k above appraisal imo and the counties. But I'm thinking it will probably need a full rehab on the interior.  Some of the appliances look original from 1963..lol  Is 100k or less too low to go? I am still waiting on the financials but I don't think they pull 6k/month in it's current shape. I am about 90% leaning towards just forgetting about the whole thing.

Janelle Groenhout · Answer

@Timothy Neafsey Is this the Livin' On Main Apartments?

Gino Barbaro · Answer

@Timothy Neafsey

Hi Timothy

I think the biggest challenge is getting any type of financials from them and getting financing from a bank. It will make the pool of buyers smaller and thus the price will drop.  Find out what the value is based on actual performance and subtract the deferred maintenance on the property.

I would not forget about it.  You have motivated sellers that you can provide value to by buying their property

Gino

Hadar Orkibi · Answer

@Timothy Neafsey tel them you did the drive by, and it looks like there are many diffed maintenance in the property.

To bring the building to rent ready at your standard, you need to spend a lot of money. typically you will be spending around 10k per door to get a reasonable standard including HVAC etc.

Then meet with the broker and offer YOUR price. crunch the numbers as if you need to do the improvement and work on the Total COST base.

1963 Building may need re wiring and plumbing, new appliances etc etc - Tel all of that to the Broker/ Seller.

Put an offer in with building inspection contingency, even if they want you to buy it As-Is.

Make sure to put other contingencies according to your requirements.

Even if you don't have the rent roll, get an estimate of potential market rent from apartments.com or and rentometer.com.  Then base your offer on the info you have.

Be conservative and allow to negotiate upwards.

Check the current occupancy rate and base your offer on Actual numbers - you may want to wait for the financials. it depends on what info the broker can provide.

$100k under the county appraisal is not to low - just work with your numbers.

you can put it on paper with 30 working days Due Diligence clause and option to increase it by another 21 days.  do the same with finance if you need any.

Ask the broker if they had any offers so far? and how did they establish the 450k asking price?

This is just my opinion, you may want to seek legal advise before signing any contract.

Good luck!

Timothy Neafsey · Answer

There is a property down the street that was 700k and has 8 units but it was renting weekly to tourists for 8 months or so per year.  Irregardless, the actual question is how low would be considered too low?  I just thought of something...I may be significantly underestimating what the post rehab value is. Thanks, back to researching deeper.

Russell Brazil · Answer

You have not provided a context for the properties value. A county tax assesment has almost nothing to do with the properties value.  $100k under might be perfectly ok, or $100k over list might be what it is worth.

What are other similar properties selling for? Similar cap rates, similar proce per units etc?