My fathers good friend and my real estate mentor is "retiring" to his newly built home in Florida. He wants some cash to play around in Florida real estate and most of it is tied up building his new home. He's had a nice duplex in an "A" neighborhood listed on the MLS for 178 days. It is about to expire and he hasn't gotten an offer of which he wants to accept. The Duplex is paid off and rents for 1400/1600 and 115 for the garage. He is not interested in seller financing as he wants 395,000 for the duplex now. I've seen inside and it's nice. It's also rented with 1 long term tenant and her friend. The guy hasn't done evictions in a LONG while.
My question to the community is how can I help my mentor get what he wants ( a reasonable amount of cash for the property, say 375k) and also negotiate strong terms in my favor. Once it is off MLS, what bargaining chips does this give me? He is not interested in seller financing as I already asked him. Also, since it's paid off he is making over 2k/month on this house as the taxes and maintanence aren't too bad. Could I have some ideas for creative financing/negotiating here. He likes me, but won't just give me thousands of dollars for essentially free...
How did you propose the Seller financing? If you are able to put say 20%-30% down, and pay him 5-8% Interest, that could be a much stronger and persuasive offer, especially since he is "tied" up. You can further ask to include a balloon after one year, to try to further motivate him. Since its been on the market for a while, it could be overpriced, so you may have to run the numbers and try to negotiate the amount down. If that doesn't work, it may not be in your interest to pursue it, as it won't work in your favor if you acquire it. The deal comes from the purchasing price you can attain. Since he doesn't have a mortgage, he can easily get a line of credit on the home to finance his future pursuits.
This looks pretty tight to me. You have $3115/month in rent, at $375K that's about a 0.8% rent/cost, which isn't very good. For me, it's just hard to make things cash flow well at that price point. Furthermore, if it was on the market for six months and didn't sell at $395K, at most it's probably worth about $375K. And I wouldn't recommend buying a deal without equity unless it came with great terms, which it doesn't sound like he's willing to offer.
The main advantage you have now in negotiating is 1) He wouldn't have to pay a commission, so you can use that to argue down the price and 2) He may be a little motivated after all the time it didn't sell. But personally, I think you would have to come down quite a bit to make this offer make sense.
This isn't a good deal at all.... You'd be overpaying for it. There's a reason it's been sitting for 178 days on the MLS. I wouldn't pay more than $200k-$225k for it. If the area is too expensive as a whole then I'd look elsewhere. But the downpayment you'd need could be better applied for 2 smaller rentals that would cashflow much better
Thank you for the response Andrew.
I approached him about the seller financing option simply by asking if it is something he would be interested in. He replied that he is not since he believes he can do better in his new Florida Market with the immediate say 370k that he could have from selling the duplex. He's been a cash buyer for a while now so I don't believe he is interested in refinancing any of his properties and accruing interest charges.
I believe you are correct that the duplex is currently overpriced, but it would sell quickly at say 360k. I guess my question is, after the listing expires does that give me any added leverage, besides the fact that he may not relist it and I could still negotiate with him openly? What should I do when the property fails to sell at the 180 day mark? currently I have 20k Cash and a 100k HELOC at -.4% prime.
The longer it sits on the market, the more "motivated" he will become to sell if he would like to pursue the Florida Market. I wouldn't say the duplex can sell quickly since, he still hasn't sold it. Based on your calcs what do you value the property at? I agree with everyone's standpoint as well...at rents annually of about $36k and purchasing at $375k it is not a good deal, because you barely have any cushion for risk, and if you have a loan, you will be negative cash flowing. If he doesn't budge still, you should probably walk away, as it is not worth it.
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