Working with Realtors …GRRR - What do you think? - Posted by Frank Chin
Posted by Frank Chin on February 22, 2001 at 08:21:50:
I’m currently working with Realtors in my area on several deals, and I must admit, I’m very frustrated.
DEAL NUMBER ONE:
Property: Six small stores with two apartments on top.
Asking Price: 599K
Condition: Total Wreck. Only one store rented as restaurant. Others vacant with floors caved in, and joists exposed apparently from leaking roof. Apartments need gut rehab. Need electric, plumbing. Permit filed for fixing floor joists in 1992 - still open.
Rehab Cost: According to Realtor, owner says it can be done for 80K to 100K. I think it’ll cost more.
Deal Structure: Owner needs someone to rehab- 100K, pay him 200K cash, and he’ll finance the rest. Total of at least 300K needed. Told broker I have 260K to invest via 1031 exchange.
Neighborhood: About 5 other vacant stores within a block radius. Neighborhood a bit run down, but looks like its turning around. New coop building down the street.
Analysis: Realtor claims potential Rent Roll of 104K annually. I beleive more realistic at 80K if that. Can be profitable if purchased at the right price, 525K including 100K rehab.
Proposal: Have owner triple net lease to me during rehab, and I’ll purchase underlying fee position within a year. This way, I put in 100k for rehab and perhaps 50K more for owner for time being. I can lease out parts as rehab is completed. Pay 150K more next year.
Realtor’s Response: Owner needs 200K now. But he’ll let you do the rehab during the contract period.
My Problem: I want more control of the property with a 100K rehab investment. I can’t collect rent unless I have a master lease. If he needs 300K - at least he can work with me.
Realtors Response: Owner is an old man and my proposal is too complicated to understand. He can explain why he needs 200K to me over a cup of coffee.
I think I understand the problem - I’m not forking over 300K.
DEAL NUMBER TWO:
Property: Four stores in older section of town. Fully rented. Rent Roll = 75K
Asking Price: 400K
Condition: Tired looking. Others fixed up store fronts down the street. Town requires parking lot in vacant lot at the back yard, full of debris. Town told me they been fighting with this guy about parking, and believes he doesn’t want to bother with it. Restaurant operating without a permit since there’s no on site parking. Costs 35K to cleanup and do the lot.
Analysis: Also Needs 35k to 50K of cosmetic work to be competitve besides 35K lot. Beleive can be profitable at 300K price. 325K tops. That’ll give me a Cap Rate over 10%.
Deal structure: Owner financing offered. Told realtor I have 260K to invest via 1031 exchange. Have 10K to tie up deal, option to purchase, pending closing of my property in April
Broker Response: “Oh - we need 10% deposit to tie down the property. Don’t you have 40K somewhere?”
Should I just give these guys a written offer, with the deal structure, and then sit back and wait, take it or leave it. Or should I even be wasting my time with them.
Or should I call back in a month and see if its still for sale at a lower price?