Posted by JHyre in Ohio on March 19, 1999 at 08:16:01:
Hi Paris,
Actually, there has been no bilateral negotiation yet. I called and asked a few broad questions and showed mild interest. He just talked after that and came down to 100k on his lonesome. I have named no numbers and made no promises. I did tell him I’d drive by and call him if I was interested. I figure on letting him twist for a bit. I have a list of due dilligence questions- verification of rents formost on the list- to ask once I’ve seen the houses. I will probably use some variant of Lonnie’s bird dog technique to make the most of any flaws.
Any errors in the above approach? Any better way to maintain control? Thanks for the post!
Posted by JHyre in Ohio on March 19, 1999 at 06:50:36:
Have several promising leads, with more on the way. One has me interested, to wit:
Small city 1/2 hour from here is composed of about 40,000 blue collar workers and low income types, split about evenly between the two. 60+ year old Gentleman in a teensey little burg about 30 Min from there is selling his real estate assets, which include 3 SFHs and 1 double in city. Comps indicate FMV of about $158,000. Price if purchased separately = $146,000. Talking to him, he said he let them go for $100,000 cash if purchased as one. Says monthly rents = $1,800 (22% GROSS annual return). BUT the three houses are empty “to facilitate sale”. Uh-huh. Said he had one sold for $46k but applicant lost his job, so it fell through. Don’t know how long they’ve been up for sale.
Doing due dilligence Sunday morning- will check 'em out, talk to neighbors about rental levels, etc. Also want Schedule E to veryify rentals. My impression AND reliable anectdotal evidence indicate that he is motivated. If his story checks out, I can get 10% down financing at 15y for 9% interest (PITI= roughly $1k/month). I will of course offer< $100,000. Gotta gauge the offer- hogs get fat, pigs get slaughtered.
If this works, I intend to L/O all of 'em ASAP. Should get flooded with calls in that area- not too much creativity in financing there. Owner will not L/O or carry- he wants CASH which is why he hasn’t sold all yet (He started with 8 properties).
You’re moving too slow for my taste. Sunday? How many calls is the guy going to get between now and then?
To me the rental value would be irrelevant to this deal. I would be primarily interested in verifying the value of the property and the cost of the repairs (if any). I would let those 2 numbers drive what I offered and my exit?.not the rental value. Here’s what I mean. What if you find out the rental value is $1200, not $1800? Does this make this a bad deal? Not at all. $158K in property for $100K is still a good deal. It just may not be good to hold as a rental.
I wouldn’t waste any time worrying about his Schedule E. In all these years I’ve never asked for a schedule E. Why? First, it’s probably not accurate. Expenses will be overstated and income will be understated. While it might be possible to use this as a tool, it’s just as possible that the guy may resist giving you his schedule E. You can figure out what the rent should be (if that’s an important criteria)?and you can figure out the expenses. You can determine whether the houses require some fix-up, or whether they’ve been neglected. What happens while he’s figuring out whether he wants to give you his Schedule E, or searching for it, someone else makes an offer?
Step one is to show up?.and I mean quick. Verify the value by driving the comps. Now meet with the guy, look the place over for repairs. Make your offer based on this. Include a contingency. You can check out everything else to your heart’s content during your due diligence period.
By the way, I’d have an exit strategy figured for the cash I have in the deal. I hate leaving cash in deals. It’s a good way to run out of money.
Sounds like you’re on your way. It seems to me from your post that the seller is slightly controlling the situation so far. I am sure that there is an underlying stratagy for negotating in there that I am missing.
I think you can make this one into a great deal by driving the price in the direction that works best for you. After all, he has already lost,by breaking rule no. 1. “He who names a number first loses”
Posted by JHyre in Ohio on March 19, 1999 at 12:06:33:
Jim,
As always, your advice is most appreciated. I’ll call the guy and get a time ASAP without sounding hurried. Good point re rental values. I thought to verify as a back-up in case I had to hold, but if I HAVE to hold something is way wrong. Already sproke with a lender who will get me out of my 10% down at 12% rate after 1st closes. I will resort to that if the L/O premiums are not quickly forthcoming to cash me out.