Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
Just wanted to post the outcome of my successful 3 offer approach. I offered $175k all cash, $185K with 10% down and the balance for 2 years at 3% and $195K with 0% down for 5 years (30 year am at 5%) and they took the 0% down. I just closed and now own a 1,000 sqft 2 bed 1 bath with Central HVAC on a large lot with a two car garage in the Villa Park neighborhood here in Denver. I just closed a $200K home with a little less than $1,200 (title and title company costs) out of my pocket. Now the dirty little secret is I spend about $3k per month in direct mail marketing and have done so for the past year so it isn't exactly free :). I'm sure I could list it and sell it for more than I owe on it too. It needs cleaning, and I will probably replace some of the carpet flooring with hardwoods and paint before I rent it but I'm sure I could rent as is. It was remodeled about 8 years ago too. Sweet!
Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
10y
@Bill S., congrats on the deals! I like the multiple offer approach. I have used it, but not successfully yet. I think that it shows the true value of a cash offer vs. a "no money down" offer - where you don't have to utilize your own financial assets to close the deal - a la' @Ben Leybovich and @Aaron Mazzrillo. I wanted to share this with @Arlen Choualso.
Sometimes it is worth it to pull the money out of another property and put all cash down to get a discount. And sometimes it's great to let third parties/sellers finance your entire (or vast majority) of your deal, and keep all your cash and assets for the next go 'round.. And hopefully the cash deals reflect what's being brought to the table!!
Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
10y
@Bill S.sweet deal! I love the flexibility in your offer strategy.
@J. Martinand I have been talking about this type of scenario for the past few days. I am closing on a deal tomorrow where I offered my version of option 1 and 2 of your strategy: $678k all cash (100% leveraged against other property I own) and a revised purchase price with a down and seller financing. It did not occur to me to try option 3, I will have to try it next time. In the end the sellers wanted the cash instead of a higher price + interest.
My deal is an off market 6 unit multifamily in the Fruitvale district of Oakland. 9900 sqft lot with a 4238 sqft building all 1/1's. Current gross rents are $66k/year, but after banked rents are implemented I will be over 1% in the SF Bay Area.
@Bill S.sweet deal! I love the flexibility in your offer strategy.
@J. Martinand I have been talking about this type of scenario for the past few days. I am closing on a deal tomorrow where I offered my version of option 1 and 2 of your strategy: $678k all cash (100% leveraged against other property I own) and a revised purchase price with a down and seller financing. It did not occur to me to try option 3, I will have to try it next time. In the end the sellers wanted the cash instead of a higher price + interest.
My deal is an off market 6 unit multifamily in the Fruitvale district of Oakland. 9900 sqft lot with a 4238 sqft building all 1/1's. Current gross rents are $66k/year, but after banked rents are implemented I will be over 1% in the SF Bay Area.
Congrats on the sweet deal!
Arlen
I think of the following folks, or mix/combination of folks/structures, who can potentially provide all the money I need for a deal, in loose order of most to least ideal. At the end of the day, if you can get someone to subordinate the 1st lien position, I believe it is much easier to fill out the capital stack without using your own cash, assets, or financial resources.
1) Seller Carryback 2) Outside financier (so you don't have to use your own capital or assets) 3) Bank 4) Equity Partner
I would say the most common full no-downpayment deal (no cash or assets used on part of buyer) is with the bank in 1st lien position with a 60-75% LTV and the seller with a 35-40% carryback (100% combined loan to value) to make up the rest of the purchase price, using the security deposits and/or pro-rated rent to pay most closing costs..
Or you plug that seller carryback hold with some outside money, third lien/hybrid investor, or if necessary, bring in an equity partner, and split profit, without any money in. Ideally, we'd like to maintain complete control of the deal - so we're leaning towards debt, rather than equity investment from others.
But if someone (seller, outside party) is willing to subordinate and carry a junior lien, there is a significantly great ability to fill out the rest of the "capital stack" with a bank loan. There is no shortage of banks willing to accept a 2nd or 3rd behind their position, as long as they have a good 1st lien LTV, and the subject/guarantor financial look reasonable.
Congrats again Bill, especially out in Denver! And congrats Arlen also! As you know, I'm a little skeptical about buying at this part of the cycle, but after going over the numbers with you the other night, it looks good. Congrats! I'm stoked for you Arlen :) Keep that money a' movin'! ;)
Rental Property Investor · Chicago, IL · Member since 2015 · 31 posts · 10 votes
10y
@Michaela G. Congratulations on that deal! My folks live in Kennesaw up I-75. Mind asking, where about in Atlanta are you finding such prices, and what is the ARV on that property? Are you planning to rent it or rehab/sell?
@Michaela G. Congratulations on that deal! My folks live in Kennesaw up I-75. Mind asking, where about in Atlanta are you finding such prices, and what is the ARV on that property? Are you planning to rent it or rehab/sell?
I buy in the Pittsburgh neighborhood. But it's not an area I'd recommend to anyone that isn't familiar with it or it can become very difficult.
Yonkers, NY · Member since 2015 · 3 posts · 3 votes
10y
Congrats on a job well done.
In your mind what would be a best way to offer a no down deal that would be good for single or multiple apartment building that would be way better than cash?Bill
Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
10y
@Glasford Barnaby Jr. for offers on multis it really is driven by the numbers. You have to structure your offer so that any way it goes you will be happy and that a reasonable person might accept either of the three. It takes knowing the market and understanding the seller's motivations as best you can. On a different property of similar value my numbers might look different depending on the work it needed, the seller's motivations. I would say that owner carry is a hard sell if they don't own the property free and clear. The owner carry becomes a wrap or subject to deal which IMO are much harder for the average seller to swallow.
Flipper/Rehabber · San Francisco · Member since 2014 · 124 posts · 49 votes
10y
@Bill S.Congrats! The 3 offer strategy is solid. Question for you that maybe is a bit outside the box... Do you ever or have you thought about deliberately presenting "dominated" offers? It's the idea that you steer a seller through providing an option that is clearly dominated by the others. The selected offer tends to change based whether on not the dominated option was presented or not (even though it's never picked!)
Dan Ariely has a TED talk titled "Are we in control of our own decisions on presenting "dominated" options ", and their effect on influencing decisions (applicable part starts at 11:05 min). Interesting concept but I've never practiced it. If you have time to spare, I'd love to hear some thoughts on this idea practiced in Real Estate.
Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
10y
@Christopher Morinthat is awesome. I read one of Dan's online articles. My head is spinning. I love it. I will be learning more about this. I have to think in my three offer scenario, the ugly brother is the one that requires the down payment with a lower price. Given that understanding, I think I might not try and space them so "evenly" next time out.
Clairton, PA · Member since 2016 · 20 posts · 7 votes
10y
Congrats Bill! Can you expand a bit on the details on how you structured your offers? You say you offered 185k with 10% down ($18,500) and the balance for 2 years at 3%. I'm confused on the "and the balance for 2 years at 3%" part. Are you paying off the principle in 2 years with 3% interest?
And for the 195k with 0% down. Are you paying off the principle in 5 years with a 30 year mortgage at 5%?
I'm very new to REI and just trying to get a feel for how people structure offers. Thanks in advance for the clarification!