Deal Strategies - Need Help Structuring a Deal

9 Replies

I have a multifamily building that I'm looking to purchase. It's in bad condition and I estimate the property to be worth about $260K currently. The owner took out a mortgage a few years back at about $280K (before they let the property go to ****) and wants to sell for $300K. I'm sure I can get this sale price down to $285-290 - she just wants to bring no money to the deal/break even. I estimate repairs to be $45-65K. ARV is at least $370K (really closer to $380). This is an awesome cash flow opportunity for me so I want to make something work.

Any thoughts on how to structure this deal? I know the owner so I have a lot of flexibility in how to approach this deal.   

@Wesley Williams - Community bank financing comes to mind.  They are more likely to recognize the future upside.  I would also try to reach out to whoever holds the note now.  They have already approved the property once.

Not sure if owner financing is an option.  The existing lender may not allow for a second position.

@Wesley Williams the ultimate reality is that not every real estate purchase makes money. She either has to come out of pocket or deed it over to you. You make money in real estate on the buy so it's imperative you pick the deal up at a good basis.

While you know the owner, I would still hire a buyers broker. Why not get the professional opinion, accurate analysis, and access to someone who literally does what you're asking for a living? They have the connections to lenders, and know how to put together a deal that works for everyone. 

@Greg Scully Thanks for suggesting owner financing.  I will have to investigate that as an option.  

Thanks @Danny Randazzo , that's a good point.  I'm fairly new to investing, but given the amount this property will cashflow for, the proximity to my other investment property, and the neighborhood I'm in, I think it is a good deal and great future investment. Have you ever had to come up with a strategy for a deal where you're paying the owner above what you think the value of the property is?  

@Scott Morongell do you ever just pick up property based on cashflows?  Knowing that you're not making as much on the initial buy, but knowing that you're also not losing?  My overall strategy is to buy and hold so I'm thinking long-term with this investment. Would love to hear your thoughts.   

@Wesley Williams no I wouldn't over pay because I think there are plenty of good deals available to purchase versus over paying. The only idea I have for you is maybe pay what it's worth today and if you hit your return or exit ARV you could offer the seller a bonus or piece of the upside if you feel like doing that. Don't over pay, let an appraisal decide what it's worth and pay that amount. Maybe the seller will understand reality from a 3rd party appraisal

I must be missing something. 

it's a multifamily building, so I assume(...) it's a 5 unit or more. So the value of the home is based on the NOI, right?

so, if the cashflow(NOI) is there, the value is there. When I'm looking at deals, I don't care what it costs, as long as it has a positive cashflow.

Your question is, how to negotiate with the seller.  I agree an agent[broker if you haven't done this before.  One strategy I've used, on a small scale, is offer full boat, then come down as unexpected cost arise in your due diligence process.  If you're in a small town, this may give you a bad name though.

Or, find out everything wrong, give them cost to repair, they know it's a lot, and make a presentation to them.  Here is what you're asking, here are the cost, this is why I need it @ my price.  Work up from there.

You also already know what the seller wants.  Do your best to find their break even point.  Use a amortization calculator to figure out about what they still owe, and see if that number works with your numbers.

Good luck!

Thanks, @Eric Nelson I think your idea is the best bet for me here. I think looking at this based on cashflows is the best option for me. There are strong cashflows here. I will try to give the seller as close to what they want knowing that the investment still makes sense for a buy and hold deal.  I'm going to ask for some concessions and maybe get some sort of owner financing.  

Thank you all!  

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