Creative deal structuring help needed

11 Replies

I have a meeting tomorrow with a lead from one of my yellow letters, sent to an LLC actually. Turns out the guy owns 4 multifamily units, I would be interested in purchasing 3 out of the 4 but I simply do not have the funds to do so.

What type of deal could I present that would seem appealing enough to have him sell me the properties without listing them on the MLS? He has stated that he wants out of the business but doesn't seem desperate to sell.

I came across a similar thread from about a month ago and a few people suggested "terms" and "quit claim", neither which I am familiar with. Would offering subject to on something liken this be crazy?

Sorry if this sounds jumbled, I'm not even sure what questions to ask to get this going.

Originally posted by @Joe Villeneuve :

Numbers????

 Joe,

The only numbers I "have" are previous listings/settled amounts of my local MLS. He has 2-Quadraplexs that are right around 400k, five 2 bedroom townhouses on one deed that were listed for 749k but never sold and one 6 unit apartment around 300k. I don't believe he owns them out right but I could be wrong, I will know more tomorrow. I just want an idea of what I can offer or what I should avoid offering that would turn him off from any business in the future.

Originally posted by @Michael McDermott :
Originally posted by @Joe Villeneuve:

Numbers????

 Joe,

The only numbers I "have" are previous listings/settled amounts of my local MLS. He has 2-Quadraplexs that are right around 400k, five 2 bedroom townhouses on one deed that were listed for 749k but never sold and one 6 unit apartment around 300k. I don't believe he owns them out right but I could be wrong, I will know more tomorrow. I just want an idea of what I can offer or what I should avoid offering that would turn him off from any business in the future.

 Can't answer the question without knowing the numbers you don't have yet.  The numbers you do have really don't tell me anything other than an old, or a wrong opinion of value.

@Michael McDermott I would mostly focus on what the guy wants tomorrow. Get financials and Rent Roll from him. Once you get those you can evaluate the property much better. I would tell you him your interested in buying his properties but need a little more info. Also ask if he would finance which could help you with getting financing.

Originally posted by @John Cohen :

@Michael McDermott I would mostly focus on what the guy wants tomorrow. Get financials and Rent Roll from him. Once you get those you can evaluate the property much better. I would tell you him your interested in buying his properties but need a little more info. Also ask if he would finance which could help you with getting financing.

 John,

Thanks, that's what I was looking for in an answer, I will update this afternoon.

A little late I know, but the meeting got pushed back due to schedule conflicts on both our ends, but we were able to meet up yesterday at noon for a cup of coffee and some conversation. Here are the details of the properties he would like to sell:

  • 5 townhouses (2brm 1.5 bath each) on 1 deed that gross 6,250 in rent monthly. They are in a great area that will appreciate no doubt and have great schools so they attract great tenants. He said that is he listed them with a realtor he would ask for 749K but with 40k of that coming off in commission he may be able to let them go around 700k to me. Taxes are 6,3XX on the lot. He owes about 450k on this.
  • One 6 unit apartment building in a lower income area with higher taxes, gross rents are 4,500, taxes are 9,127 and appreciation will be very minimal if anything. He said he would be looking for around 400-450k for these. He owes about 350k on this one.
  • Two 4 unit quardaplexes (2bdrm 1 bath each) with gross rents at 3,600. Taxes are 9,189, good school district with average appreciation expected. He said he would expect around a million for both. He owes about 750k total for both.

Here is his why: He owns a 17 unit apartment building he plans to keep but wants to pay down more of the mortgage to increase his cash flow.

Any input is appreciated!

He wants cash flow and away from the headaches. I don't need numbers to go to the concept to structure the deal.

It's seller financing, he'll have cash flow he can use that to accelerate his other loans if he wants to. If he has owned those properties for awhile, he is better off tax wise to carry the sale, not cash out. Check posts about seller financing and tired landlords.

Throwing in a lump sum on existing loans doesn't effect cash flow immediately it shortens the time to the payoff and reduces interest expenses, that are deducted from income. Additional monthly payments do the same thing from interest income. 

If he seller finances, his net worth remains the same, trades property for a note. He dumps the property expenses, vacancy and holding costs, he can be better off with the note cash flow. His cost of capital on the other loans needs to be less after taxes than his note income after taxes. He has operating income from his rentals that may carry higher tax burden than interest income from a note. 

His thinking as to his goal of paying of other loans may not be the best approach as his payment now in an old loan are contributing more to principal reduction, his real interest expense is declining, even at a higher note rate his cost may be less. He needs to look at the opportunity costs and most likely note income will be better than an alternative investment or buying down the existing debt.

Follow this path and then fill in the numbers, you do need to get the numbers, but look at it from his point of view to make it work for you. Good luck :)     

Thanks @Brian Gibbons

An elderly lady owned a farm in the city, she kept cattle to have it qualify for taxes as agriculture, residential taxes would have been a killer. The farm had been in the family since the Civil War, her basis was zip! For 50 years real estate developers, Realtors, wheeler-dealers tried buying that place, all failed. I knocked on  her door, I was getting the boot like she had given everyone else and I just told her........you know, this isn't going to always be this way, someday it's going to be something else and you have a chance of deciding what that will be. She thought for a moment and asked me inside, we had some tea at the kitchen table. In 2 hours I had her on board to subdivide the property providing moderate income homes and handicap accessible units with a park and water feature for the little children to play! The entire deal took a lot of time and was very involved setting things up for her estate and avoiding taxes, it wasn't easy, but the concept is what sold her and having a say in what happened to her family farm. 

Just saying, if you approach owners to work things out for them first, identify the problems they may not be aware of and address those, you'll be much more successful than walking in with your plan as to how yo can profit! Good luck :)    

Originally posted by @Michael McDermott :

A little late I know, but the meeting got pushed back due to schedule conflicts on both our ends, but we were able to meet up yesterday at noon for a cup of coffee and some conversation. Here are the details of the properties he would like to sell:

  • 5 townhouses (2brm 1.5 bath each) on 1 deed that gross 6,250 in rent monthly. They are in a great area that will appreciate no doubt and have great schools so they attract great tenants. He said that is he listed them with a realtor he would ask for 749K but with 40k of that coming off in commission he may be able to let them go around 700k to me. Taxes are 6,3XX on the lot. He owes about 450k on this.
  • One 6 unit apartment building in a lower income area with higher taxes, gross rents are 4,500, taxes are 9,127 and appreciation will be very minimal if anything. He said he would be looking for around 400-450k for these. He owes about 350k on this one.
  • Two 4 unit quardaplexes (2bdrm 1 bath each) with gross rents at 3,600. Taxes are 9,189, good school district with average appreciation expected. He said he would expect around a million for both. He owes about 750k total for both.

Here is his why: He owns a 17 unit apartment building he plans to keep but wants to pay down more of the mortgage to increase his cash flow.

Any input is appreciated!

I would be inclined to focus on the 5 townhouse property.  One caution is a property that size will have a limited market since it won't be able to get residential financing.

The quadraplexes look to me like a pure appreciation/speculation play - I wouldn't want to be highly leveraged on those. He probably would do better to sell them on the MLS and re-deploying the proceeds. He is at 60% equity on those with his loan being paid, so he is in a less risky situation.

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