Need help in deal structuring - Posted by tommy_FL

Posted by Tommy_FL on November 22, 2000 at 23:06:49:

Jim,

I appreciate immensely your advise. Rents are more or less $785 for 2/1, $600 for 1/1. Each triplex is made of one 2 bdrm and two 1 bdrm. Good potential of increasing the rents ($800-$825 for the 2/1, $650-$675 for the 1/1) as neighborhood continues to improve. All units are leased now. One tenant’s been there for 17 years according to seller. He bought first one in 1996 for $124K and 2nd one in 1998 for $119K. Asking $135K for each now. Can be sold together or seperately. Thought of offering him $260K for both with him paying closing costs. What do you think? Have never done a L/O before but open to it. Thanks.

Need help in deal structuring - Posted by tommy_FL

Posted by tommy_FL on November 22, 2000 at 08:52:08:

FSBO seller has 2 triplexes, asking $135K each, fully leased with gross income of $4k/month…Went to see them, they are spic and span, nothing to upgrade, perfect, nice, clean…etc. Seller’s motivation: has 2 young kids to take care of and moved out of area (although not too far). He bought these properties only 4 years ago for $124K, did lots of upgrades: central A/C, tile thru out, paint…etc. Comps are $145K-$165K. I live in same neighborhood and it’s hot. It’s South Florida and less than 3 miles from the beach. He also said he’s willing to negociate, nice guy. Obviously not too much equity. How can I structure the deal for a win-win situation? I have cash and job and good credit and this would be my 4th deal. I really don’t see any profit for him. Taxes are around $5K/yr for both. Any insights, thanks

Re: Need help in deal structuring Don’t loose him. - Posted by Anthony

Posted by Anthony on November 22, 2000 at 11:16:37:

Sound like you got a deal I would like to have.
Some people just don’t want the presure or responsibility of owning. It sounds like he burnout himself by making so many upgrades however, talk to him and offer him to pay for his cost of the deal.
Offer to pay for his moving expenses.
If I read you right you should also do a detail search for hiden problems just in case.
GOOD JOB Tommy!

Re: Need help in deal structuring Don’t loose him. - Posted by tommy_FL

Posted by tommy_FL on November 22, 2000 at 11:52:24:

Anthony,

Thanks for your reply. I am going to meet with him again this Sunday when I expect to ask him more specific questions about his needs. My point is that I am trying to understand why he is walking away from a good property (because of 2 young daughters?). Everything has been done. He has already moved out to his new house in the other city. Being an REI, I always buy at bargain price in good neighborhood, with almost NMD and always have seller pay the closing costs. I really don’t know what to do to create a win-win situation. I am the first potential buyer, FSBO sign is only a week old. I know it’s going to move fast. Thanks.

Re: Need help in deal structuring Don’t loose him. - Posted by Jim IL

Posted by Jim IL on November 22, 2000 at 19:55:33:

Tommy,
First, forget about “Why” this seller wants to get out of a good property.
You may never understand, or know what it is like to be in his shoes.
The key is to find out “What” his needs are, and then try to fulfill them while making a profit.
Maybe he just does not like landlording?
Who knows?
Bottom line, talk more to him and listen to what he has to say.
He may say, "I like the cash flow, but cannot handle the management of the property right now."
Bingo!
You can now solve his “Problem”.
Structure a deal where he gets some advantages and so do you.
Without more numbers it is hard to tell you what exactly to do, but a few ideas do come to mind.
Perhaps a L/O on both?
Set a good price and a nice low monthly payment.
If the seller says something like, "I just want to get my money back out."
Ask him what that amount is?
If it is small enough, and there is equity now to support it, then write the price as "Mortgage balance at time of close plus $x,xxxx."
Then, your price goes down as you pay him and he pays the loan down.
I’d also want to know what the rents are per unit, and what market rents are for units like this?
Can you increase it?
Are there leases in place?
How long?
Security deposits?
What small improvements can you do to increase the cash flow on this deal?

Lots of Questions to ask and get answers to.

Post more after you meet with him and I’m sure you will get more responses.

Good luck,
Jim IL