Deal-breaker upleg situation - Posted by Seung Lee

Posted by phil fernandez on October 10, 2003 at 18:08:48:


Deal-breaker upleg situation - Posted by Seung Lee

Posted by Seung Lee on October 03, 2003 at 15:38:57:

I have a seller who can’t find an upleg for his property which I want to buy. He’s not a motivated seller and it actually belongs to his mom. I’m offering him a very good price for it but if he can’t find an upleg, I don’t think he will sell. I am trying to come up with a creative solution for this.

The property is worth about $1.2 mil, the loan on it is about $550k, and he will come out with about $650k. What are his options other than purchasing a new property? Can he purchase REIT shares or are they considered personal property? Any help would be appreciated.

Re: Deal-breaker upleg situation - Posted by tony

Posted by tony on October 04, 2003 at 11:39:34:

I’ve heard from MANY experts (on this forum and elsewhere) to NEVER, NEVER negotiate with an unmotivated seller!

You may as well approach the nearest concrete wall… and hit your head against it…30 times!

Idea -for Motivated Buyer - Posted by Frank Chin

Posted by Frank Chin on October 04, 2003 at 07:29:55:


If the seller is agreeable to your price, wants to exchange into something else he likes better, why don’t you find out what that is.

It this case, you don’t need the more cumbersome non-simultaneous 1031 exchange thru an intermediary, and the time limit it entails.

What you need is an agreement with him that you go and find that property, and he’ll agree to exchange it with you, via a “two way” exchange.

Example: He wants to upleg to a small apartment complex, but too busy to go searching.

So you have an agreement with him to go and find the apartment, place it under contract, and proceed to a closing, where the apartment you placed under contract is exchanged for his property.

The advantage here is both of you can take all the time you want to complete this.

This process is done in cases where a developer wants to buy up older units, and the sellers are happy where they are. But the price offered can be attractive enough that the seller may want to take the money if they can find something else to put it into. But the seller may not be able to move on it quickly enough for the buyer’s time table, because of family, business or health reasons.

The thing you’ll have to be careful here is you’ll have to craft the process in a way where you’re not perceived as a broker. Then, why not cover the services of one if the transaction is lucrative enough for both of you.

Frank Chin

Re: Deal-breaker upleg situation - Posted by ray@lcorn

Posted by ray@lcorn on October 03, 2003 at 23:23:09:


REIT shares are securities, and as such are specifically prohibited as qualifying property under Sect. 1031.

I’m not sure of the objective here. You say he is not motivated, but can we assume that for the right kind of deal he could be persuaded to sell? If so, then what are his desires? Hands-off investment? Cash in pocket rather than property, but without incurring taxes?

You can meet both of those objectives with a NNN single-tenant property if structured to either refi the upleg prior to exchange, or exchange then refi. No management, cash in pocket, no tax incurred. (In exchanging parlance, the relinquished property is known as the upleg, the replacement as the downleg.)

More details regarding the seller’s objective could make a Tenant-in-Common interest a possibility as well.


My experience with Unmotivated Sellers - Posted by Frank Chin

Posted by Frank Chin on October 05, 2003 at 06:43:11:


I heard this theory many times myself. I guess most professionals stay away from the sterotypical “unmotivated seller”.

Fortunately for me, when I started, I didn’t know any of this, and I bought my first several properties form the most “unmotivated” sellers you can find.

I was the MOST PATIENT buyer.

One property I bought was mispriced by a RE broker. The FMV was supposed to be 220K. It was advertised in the paper for 185K. The broker told me to do a driveby, and arrange for an inspection of the inside. I drove by, excellent neighborhood, outside looked great, and I submitted an offer for 180K.

The mispricing arose after NY State prohibited all brokers from pricing commissions at a straight 6%. So brokers started quoting to sellers how much they can “net”, and quoted buyers a different FMV price. Apparently, the RE office got confused, and placed the “net” price in the paper instead. I found this all out afterwards.

Anyway, we submitted our offer expecting not to hear anything, by followed up weekly, for FOUR MONTHS, to have an inspection. Every week, we were told that the owners, a gay couple, had an active social life, is hardly home, but insisted on being there during the inspection.

We thought some investor or broker got the inside track.

Finally, we got a frantic call from the realtor, and asked if we can come by immediately for an inspection, and if we can offer around 185K. We countered at around 182K. The realtor said “OK, OK, my commission is going to be only 1K, and we were hoping for 20K to 30K.”

So what happened??

We found out the listing agreement was going to expire in a few days. The realtor also mentioned great interest by “investors”, but all walked away believing the seller was “unmotivated”. We were the only ones calling weekly to follow up.

Funny thing was, at a “sitdown” contract signing, we complained about a leaky roof, and the seller rudely said it was not his problem. We were putting our coats on to walk out the door, when the realtor called us back and asked if we can offer 180K with the leaky roof. We said “OK, but what about your commission”??

The realtor laughed and said “W’ll take what I can get. We made a mess out of this one, and we want to get it over with and forget about it”.

We knew at the time that it’ll take $1,500 to fix the roof as we had a roofer take a look after the isnpection.

So now every time I hear about walking away from “unmotivated” seller, I would thing about this and other deals where I was the only one left with the “unmotivated” seller after everyone walked away.

In fact, when I bought the property, the market was very hot here in NYC, and sellers were offered full price.

Frank Chin

Re: Idea -for Motivated Buyer - Posted by Seung Lee

Posted by Seung Lee on October 07, 2003 at 17:08:13:

That’s the arrangement that I have but it’s near impossible to find what the owner is looking for. I’m hopeful that I will be able to find it and that I’ll make money off that one as well. I just passed the CA broker’s test last week. If anyone knows of any good properties in San Diego, CA in the $1.5-2.0 mil range, please contact me.

Re: Deal-breaker upleg situation - Posted by Seung Lee

Posted by Seung Lee on October 04, 2003 at 12:15:03:

Thanks for the good posts. I will hopefully talk more with the seller next week and I will try to answer your questions.