What Should I Offer?

[Robert Burns]

I'm working on a wholesaling deal and trying to determine a good offer.

Overview:
- Multiunit property (1) 2 br/1ba house (3) garage apts
- All leased for 1 year total rent/mo = $2650
- Owner pays utilities = $700/mo.
- No good comps for this type property
- Asking $130K
- Owe $54K on mortgage
- Sellers very motivated to eliminate some debt

One of my investor partners is recommending we offer $55k. I'm not sure if that's a good offer in that it seems low.

Should I offer it anyway even though I am almost sure they will reject it in that it is barely over the outstanding mortgage?

Based on the property and it's positive cash flow, what is a good offer?

I need to close the deal this weekend. Any suggestions would be greatly appreciated.

[Brian Levredge]

The property is going to be well north of 50% expenses with those owner paid utilities. If that can't be changed over to the tenants then i don't see why a low offer isn't unrealistic. It isn't mentioned if there is deferred maintenance or capital improvements that would also need to be factored in to the equation. The taxes also seem on the higher side as well. If your partner is going to use a management company then you are talking about north of 15% of the gross between management and lease up costs. When you factor in all the true expenses including a maintenance reserves, you are probably looking at expenses being somewhere in the 65%-70% range.

If we go with 65% then your NOI is $927.50, or $11,130 annually. On a 100k purchase that's an 11% ROI and that sucks. I can respect the seller wanting to make some money on this and he certainly is entitled to that, but the purchase HAS to make sense for your buyer as well.

Just don't burn any bridges. A not so motivated seller may become more motivated later on and he may consider what now seems like a lowball offer.