Buying an apartment complex with an assignment of contract?

Question

Like so many others, I have been looking for small multi-families over the last year. I have browsed through hundreds of properties and run the numbers on dozens. They were either too expensive or located in a challenging neighborhood.

Then last week I received an email from an investor selling an apartment complex. He is in Texas. The property is in Ohio. I ran my numbers and dug a little deeper into the deal. Then I talked to my partner (who has way more experience than me) and he thought it was interesting.

As the process has moved along over the last week (emails and phone calls) it has become clear that the seller (in Texas) has the property (in Ohio) under contract and that he would like to assign the contract to us. I have done this numerous times with single-family properties, but is it common in larger multi-family properties? This property has over 100 units. My partner in the past has only purchased apartments through brokers.

Mike

Ronald Rohde · Answer

I don't see this come up because most commercial buyers will not go under contract with a Buyer who isn't likely to close. its a huge waste of time and effort to contract with a wholesaler who doesn't close.

Regarding financing, I would clarify that lenders look at their own appraisal, contract price is mostly irrelevant.

Ned Carey · Answer

Yes this absolutely can be done. But there are issues like Wayne Mentions. A  major issue is due diligence, What does the original contract allow in terms of due diligence and how much time is left?  With a deal of this size the contract is a major issue.

Wayne Brooks · Answer

You’ll only be able to get financing based on the actual contract price with the seller. The assignment will have to be paid separately.

David Bardwell · Answer

If the property happens to be in the Cleveland market and you need some help with boots on the ground, let me know. Admittedly, a 100+ unit property is bigger than I've ever dealt with but I'd be happy to help out if I can.

Wayne Brooks · Answer

No way I’d be relying on a wholesaler’s inspection.  Their motivation is to make a fee and in most cases don’t care what problems you inherit.  I’m sure will look at the property but I’d want my own Detailed inspection.

Michael Wentzel · Answer

Thank you for the replies. I have never heard about an assignment of contract on an apartment complex and it seems that it is a bit rare. We will proceed with caution and see what comes of it.

Mike

Michael Wentzel · Answer

@Ned Carey Thank you for the reply. My partner has worked with me on many single-family homes, but I know he has lots of experience purchasing apartment complexes. So he is happy with the numbers and location, but his concern was timing to get an inspection, environmental report and an appraisal quick enough to get the loan sorted out. The one who has it under-contract is doing the inspection and should have the report early next week. Then we have 45 days from then to close. The same guy who has it under contract was confident that we could adjust the closing back a little bit if needed.

So we'll keep taking steps forward and see if the deal falls apart along the way or if it all comes together in the end.

Mike

Michael Wentzel · Answer

@Wayne Brooks That is helpful to know. I hadn't thought about that. That means we'll need more cash.

Mike

Michael Wentzel · Answer

For Single-family properties, the investor puts the house under contract at a certain number... let's say $50,000. The contract has language in it that says it can be assigned (given) to another buyer. Normally the investor then adds an assignment fee on top, maybe $10,000 in this case and tries to find another buyer. So he or she shares with other investors that they can purchase the property for $60,000. If he finds a buyer at $60,000, he "assigns" them the contract. At closing the final buyer will bring $60,000 (cash or mortgage) and the original seller will walk away with $50,000 and the investor in between will walk away with around $10,000 as an assignment fee.

This is quite common with single-family properties. Many wholesalers do this. I just haven't heard about it being done for an apartment complex.

Mike

Buying an apartment complex with an assignment of contract?

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