Should I just forget about this deal?

20 Replies

Hi BP'ers,

Recently came across a packaged deal in PA (1x 4units + 1x 5units) where the seller is adamant about selling it as package rather than selling them individually. I am very interested in one of the building (4-units) and have more than enough funds to buy it with a conventional loan but like i mentioned, they want to sell both simultaneously to the same buyer. Not sure why or whats the reason and unfortunately my larger pool of capital is locked up in another property.


Asking Price $600K-$630K
Capital available $135K

Should i just walk away from this deal? How can i proceed with this? The lenders I've talked to requires min. 25% down and 20-years loan which would impact my cashflow/month. A bit new to 5+ units, should i set up LLC for this potential deal and new LLC will really drive up the interest rates.


Appreciate any kind of guidance here! Thanks!

There are many reasons that a seller might only be interested in selling as a package deal. Perhaps he is trying to get out of the market or just selling one would make it too much of a hassle to just have a fourplex in the area to have a team there. Or maybe they are trying to 1031 exchange and need to sell both at the same time in order for the timeline to work for their bigger deal. If they are willing to tell you their reasons for packaging together, that might help in how to best come at this deal so that it works for both of you.

As for not having the money for the full 25% deposit for both properties, it there a way to make the numbers work with both together. If you had the full 25%, would the COC return be worth it? Is the deal strong enough if you brought in a partner to fund part of the deal?

You say you are newer to the multifamily deals (4-5 units). So would it be worth the experience if you trade some of the equity or share the deal? Just some thoughts on how to make it work. If the numbers dont work though, it is best to walk away instead of trying to force the deal to work and fudge the numbers. This is just a way to look at the deal from several different angles before getting to that point. Hope this helps 

A portfolio loan would work best for a scenario like this and like you stated a lender would be needing 20% or more as a down payment depending on experience and fico. I'm curious as to why it would impact your cash flow? Is the rate you were quoted? 

Make a quick offer on the 4-unit and move on if they pass or move forward if they bite.  Money talks.  If they want to sell as a package, that's understandable and you move on...they will also have your offer in their hip pocket if that plan does not pan out.

@Forrest Hayashi

I don't have much of any ideas right now to figure out a deal here.. But, one could look at it this way:  There is no deal here for you.  You say that only the 4plex is what you want.  Well, that's not what is for sale.  Sorry, good luck.

Originally posted by @Rolland Wimberley :

There are many reasons that a seller might only be interested in selling as a package deal. Perhaps he is trying to get out of the market or just selling one would make it too much of a hassle to just have a fourplex in the area to have a team there. Or maybe they are trying to 1031 exchange and need to sell both at the same time in order for the timeline to work for their bigger deal. If they are willing to tell you their reasons for packaging together, that might help in how to best come at this deal so that it works for both of you.

As for not having the money for the full 25% deposit for both properties, it there a way to make the numbers work with both together. If you had the full 25%, would the COC return be worth it? Is the deal strong enough if you brought in a partner to fund part of the deal?

You say you are newer to the multifamily deals (4-5 units). So would it be worth the experience if you trade some of the equity or share the deal? Just some thoughts on how to make it work. If the numbers dont work though, it is best to walk away instead of trying to force the deal to work and fudge the numbers. This is just a way to look at the deal from several different angles before getting to that point. Hope this helps 

Thanks Rolland, this is some great advice! I like the deal because it has a good CoC and yes i have thought about bringing in a partner but none of my networks are currently "active" in real estate investing and alot of it is also me since i like to do things myself and full control in a deal.

Perhaps i'll up my offer on the 4 units one since it's more attractive to me in terms of location and interest rates, and see if they bite!

Originally posted by @Troy Jones :

A portfolio loan would work best for a scenario like this and like you stated a lender would be needing 20% or more as a down payment depending on experience and fico. I'm curious as to why it would impact your cash flow? Is the rate you were quoted? 

If i buy the 4 units then i can get a low 30 year fixed rate while if i buy it as a package then i'll have to take out a commercial loan which will probably be 20 years and 4.50% which eats away the monthly cashflow :/

I probably need to up my knowledge on portfolio loans as i dont fully understand dynamics but i assumed it will have higher rates similar to a hard money lender?

 

@Forrest Hayashi

I look at it this way... Anything other than a conforming residential loan is a "commercial loan." So, commercial loans have different types of products, just like residential loans have different products (e.g. conventional, FHA, USDA, VA, etc.). I believe a portfolio loan usually refers to a loan that covers multiple properties.

Hard money loans are different since they are specifcally short term, interest onlyi loans for 3,6, or 12 months or so..

Good luck.

Originally posted by @Mike Dymski :

Make a quick offer on the 4-unit and move on if they pass or move forward if they bite.  Money talks.  If they want to sell as a package, that's understandable and you move on...they will also have your offer in their hip pocket if that plan does not pan out.

Honestly, great advice! i might just do this. Send them a sweeten offer on the 4 units and let them come to me if they changed their mind. Currently, the area that they are selling are in the range of 150-250K for MFR but their package is $600K+ so i know it will sit for a while.

Originally posted by @David M. :

@Forrest Hayashi

I look at it this way... Anything other than a conforming residential loan is a "commercial loan." So, commercial loans have different types of products, just like residential loans have different products (e.g. conventional, FHA, USDA, VA, etc.). I believe a portfolio loan usually refers to a loan that covers multiple properties.

Hard money loans are different since they are specifcally short term, interest onlyi loans for 3,6, or 12 months or so..

Good luck.

Thanks David! this is very helpful!
I guess i will need to look into portfolio loans lenders! Not sure if they are willing to accept 20% and 30 years fixed but we'll see!

On another note, i might just send a sweeten offer on the 4-plex and move on if they dont. Better time spent on searching other deals :) 

Originally posted by @Troy Jones :

@Forrest Hayashi No not necessarily. We offer them as low as 3.5% for up to 30 years. 

Whoa! that's awesome actually. I got a quote of 4.5% on a commercial loan for just a duplex! which is insane since i know my DTI is really good.

Do you provide loans in PA? I might just need to look into this now. Are there any special requirements for a portfolio loans?

 

Can you network with other investors in your area to buy the one you don’t want? You could try to get an assignment fee or small finders fee. Or nothing at all just to get the deal done.

If they’re trying to sell both, it shouldn’t matter if it’s on two different pieces of paper with two different buyers

How about submitting an offer that would make you actually want all 4 of them at that price?

It sounds like a portfolio loan would work on this deal based on your capital available. But to get a great price you need to solve the problem.

The seller’s problem = selling all 4

Do that and you’ll give yourself a good chance at getting a great deal.

@Forrest Hayashi . I happen to be a seller of my 9 unit and 4 unit which consists of a 4plex, 3plex, 2plex and 4plex on the same street but not next to each other on 4 plot of land. I acquire them all together and would like to sell them off together. Together, they fall into the more than 4 unit structure in which my worth for my buildings are linked to the NOI that my buildings provide and not what the 4 units or less sold for in the area, i.e. comps. I hope that make sense in justifying why this seller insist in selling this way. I think what you can also do is try to find another buyer to see if they can go in on the deal with you. I have tried gathering people online on FB group and has much success in meeting people. It is such a seller's market right now and there are a lot more buyers than sellers so you may find that other buyer that may be interested. Good luck!

Would it be possible to buy both units and then sell the one you don't really want? 

Shouldn't have trouble finding a buyer in this market

I'm in a similar situation, except it's me that wants to buy both (seller happy to sell one or both) but only have capital enough for 1 unit.

Seller agreed to carry back 100% of the second building as long as I purchased the other one with typical financing.

Do you have enough capital to do 75-10-15 where the seller carries back 10%? Should be able to get commercial financing under this arrangement.