Posted by Jim IL. on January 26, 1999 at 15:32:06:
David,
I am new to this business, so take what I say for what it may or may not be worth. But, here are my thoughts.
I would have a couple of questions first. Concerning the tenants, are they leased? And if so, for how long. You may have to honor the current leases, and this will stop you from raising the rent or removing the tenants.
Also, what is the FMV of the duplexes?
Are there others in the area to compare?
And,
As always, make an offer, and make it low. This will at least create an open negotiation. (although, so I hear, sometimes not.)
So, far, I’ve subscribed to the “make offers, and make them often” principle.
I always offer less than I’m willing to pay, this way, if they say “yes” I am ahead of the game, and if not, then I can see where the seller sits with his price.
I recently offered approx. $15k less than an asking price which was already a good deal, and low and behold, the seller countered with an offer that was only $3k more than my offer. I am getting a good deal, and only because I asked.
hope this helps,
Jim
I have an opportunity to purchae 2 duplexes that are side by side. The seller is asking $68,500 for each. Each side rents out for $400.00 except one where an elderly lady has been there forever for $300.00. I am thinking that I should be given a discount for purchasing the 2 instead of just one. How much is the norm? The realtor seems to think that the seller will take back a second. I can get an up to 80% loan from the bank. I have another friend at a different bank who can loan me the other 20% unsecured and amortize for 10 years. Should I offer the seller less if I pay all cash to him and if so how much? I think the rents are a little below market. They are nice brick maybe, 10 or 15 years old. I think that the rent could be raised to $450 at least. I would appreciate any input as to what I should do.
Thanks,
David, GA
To fully analyze this deal you need more detailed information regarding not only this particular property but your rental market. You need information regarding the operating expenses, market vacancy rate, and insurance costs.
to answer your question regarding a discount to purchase both absolutley I would expect discount. And for an all cash new loan deal I would expect a discount versus a seller carryback.
lets assume though for the momment that this deal is in my backyard and that i am providing the utilities to the tenants and the rents are as they are here’s how this deal would look:
at the asking price I would not waste my time with it.
the range that would be an acceptable purchase price would be between 70K and 90K for both properties new loan at 90%LTV.
Any upside potential from rent increases would not be a factor in my purchase price analysis but simply viewed more profit for me down the road during the holding period and as increased value when i sold it.