Landlord offering to sell me the apartment

18 Replies

Hi all,

My landlord gave me a call this morning to potentially offer to sell me the current apartment I am living in. I do not own any real estate and this would be my first time owning RE. While I'm saving up for my first rental, and the idea of us buying this apartment as a primary residence, maybe the idea of building some equity, rather than just renting is a solid option? I'm curious what others think, and maybe some advice people can give me about first time ownership and potentially using this to grow equity and eventually moving out and using as a rental. I'm all ears.



@Jason Appel some questions for you to ask

1. Why is he selling?

2. How much does he want?

3. What would a loan payment plus property taxes, insurance etc. look like compared to your current rent?

4. Can you even qualify for a loan high enough to cover the purchase price, if not is seller financing on the table?

There are many other questions as well that aren't on the top of my head.

Everything Aaaron said! 

Dont forget if this is a co op type purchase/investment you may have to pass a board interview even prior to being considered as a prospective buyer.

you would most likely need better than average credit or buying cash, shared loans are provided by less lenders. In regards to equity, a co op is viewed as personal property and not real estate. 

also take into consideration down payment and closing cost, a median going price seems to be upwards of 200k for 2bd apt in ny. COH would need to be between 42-44k.

im new to this and hope this helps, if im incorrect always open to education :)

I think it can be a win win if the price is fair.  He saves on realtor's fees, you know what the place is like.  Check out the condo docs and find out how the price he's willing to sell it for compares with recent sales in the complex.

@Jason Appel this could be a good deal, or not so good. Unless you are an experienced buyer you should consider a Buyer's Agent to price the deal with comps and handle the transaction. Paying this person 2-3% is fine IMO, it is a much needed layer of safety, this is REI after all and stuff happens. If you are considering using the onit as a future rental you will have to go through the HOA agreement to see how it handles LL and tenants. Buying a condo or house is pure business and numbers get rid of as much emotion as possible.

I think it could definitely be a win-win. But you want to make sure you're paying a reasonable amount for it, and get a good understanding of what you're buying in terms of the HOA. HOA fees, what they handle, and the overall repair of the building(s) are something you didn't have to worry about before, but as a homeowner you will.

I wouldn't hesitate reaching out to a good realtor (one that comes recommended) and seeing a few similar houses for sale.  Are there better (for you) houses out there at a similar price-point, or is the one you're in the best one?

One RE investment I regret is not taking advantage of my first rental, when the landlord offered to sell.  

Good luck! 

@Aaron K.

I am also in the same boat, my landlord will let me know his price later this week. Bearing in mind that he didn't use an agent for the current lease, I'm thinking he'd want to do same with the sale since I've been a tenant for a while

I'm a first time home buyer, looking to use this as a stepping stone to REI. What factors should I consider in negotiating a lower sale price?

I'm assuming he'd save on realtor fees, marketing costs, staging costs, vacancy costs,

Should I evaluate repairs that need to be made? Can I also ask for some closing costs assistance?


@Folarin Komaiya yes the seller should save about 6% of the purchase price in realtor fees so if you choose not to use a realtor I'd try to get at least 3% off of what similar properties go for. I'd negotiate repairs as normal, the good thing is you know where most of the problems are but it may still be worth it to get an inspection. Not sure where you are but not every seller incurs marketing or staging costs, it is more for high end homes that those apply. You can ask for closing costs, as you can ask for anything but whether or not that is accepted is a different question.

@Aaron K. great starting questions. I will set up a call with him to discuss.

@Jody Roussel

. In regards to equity, a co op is viewed as personal property and not real estate.

-What do you mean by this exactly?

also take into consideration down payment and closing cost, a median going price seems to be upwards of 200k for 2bd apt in ny. COH would need to be between 42-44k.

-What is the 42-44K referring to?

Purchasing a apartment in a building is usually viewed as personal property verses owned real estate. This is because you purchase a share of the building that is typically owned by a larger corporation. 

42-44 in my opinion would be the minimum cash assets as dp to get considered for a loan because most lenders require 20% for co ops and that is only a figure on a 200,000k apartment. Get his asking price and see if seller financing is available and the terms. 

Best of luck! Co ops in new York can be a great opportunity if you rent them out I hear but that would be if you're considering the brrr method

I recommend comparing your financial deal analysis on this property with deal analysis on numerous alternatives. The numbers will speak for themselves on whether or not it is a good investment opportunity. Building equity is not automatic...but losing it can be.

Don't forget to investigate if there are special assessments now or on the horizon. Some HOAs/condo boards underestimate the HOA fees needed for upkeep or there is a natural disaster, and then bill you for a one time payment to make repairs or improvements. Could be a few thousand, and I've seen 20K or 30K assessments. Large or frequent assessments mean the management is not doing a good job, and they don't have enough money in reserve to cover normal expenses.

See if the landlord is willing to get an independent appraisal.  Then set the price at 5% under the appraisal.  That is fair to both of you.

@Jason Appel , congrats! Besides inheriting a property, this is by far the easiest way to acquire a property. You already know you like living there, the neighborhood, and if you've been there for any length of time, all the issues that are currently wrong with it. That being said, i'd still spend the $200-400 for in inspection, especially if you can find an investor friendly inspector (one that doesn't have to do the 200page report, just let you know if there's anything major that might come up in the future, like HVAC crapping out on you.) 

As mentioned previously, if it is a co-op, co-ops can be challenging to qualify for. Talk with your neighbors or anyone that you know that also owns in that building to figure out the pros/cons. Failing that attend their next meeting or contact their office.

I'd dig into why he's wanting to sell. Figure out his pain point. If he needs cash fast, probably won't be able to talk him into carrying the financing or doing lease option (unless you can do a significant down.) If he's just tired of landlording or needs to unload it from his portfolio, then you can possible work out some creative financing. Maybe if he won't carry it, maybe he'd be open to doing something like Lease Option where you can start building equity now for future purchase or long close/Lease Purchase where you buy in the future when you can qualify.

I'd also get an investor friendly agent involved. Ask the seller if he'd cover the agents commission, go over that it's your first time and you'd like representation so your interests are protected. If he balks at the costs, go over the fact he can still save the listing half plus any marketing costs of selling, and would help you afford the final purchase (and rehab if it needs work.) 

Run the numbers, and figure out how it could work for you, not just now, but in the future when you roll out of it and turn it into a rental (if that's your intention.) 

Once again, congrats on having a potential deal delivered to you! It doesn't happen often.. (unless you're one of my tenants! :)

@Tim Winter

All very good points. I have spoken to him, trying to iron out the details. Trying to figure out the numbers. If im living here now, I assume I wouldn't want to pay more than what Im paying now in rent, and later onn when I move, I want to make sure it'll cash flow. Any tips for properly running the numbers for both?

Thanks for all the advice.

Underwriting a property for rental or seller financing is a huge topic that I wouldn't be able to do justice to in a quick form post. I'd say use the calculators on here on BP or spreadsheets that you've found. I personally like to throw any potential deals into a short matrix spreadsheet that I've developed over the years that is easy for me to enter and shows me things like current/max rents for area, income expenses, cash flow, cap, CoC, location rating, if they'll carry to judge side-by-side before I spend the time do a deep dive into the numbers. In addition to running numbers on your own, wouldn't hurt to run numbers on a few others in your neighborhood, especially any sold or recently rented in your building for real world comparisons.

I also don't know your short/long term investing goals. Are you wanting to buy and hold, use this to springboard a wholesaling/flipping business, wanting to exit quickly for cash, keep long term for cashflow? All depending on your goals, would influence what type of deal would be best for you.

Go to your local REI and talk to people there about your deal. People usually love talking deals, so might have some local knowledge to help you out. You might even find a money partner to make the deal work better.

First deal is always the most stressful, but if you're living in it, very hard to "mess it up", so I wouldn't sweat it too much. My first deal was a live in foreclosure condo, and while it was a home run, if I knew now back then, it would have been a grand slam. But the things I learned from that first deal were invaluable and incentivized me to keep doing deals in the future, and that by far was most valuable to me. Just focus on your end goal, and if it makes sense, do the deal.