Working with Realtors ..GRRR - What do you think? - Posted by Frank Chin

Posted by Frank Chin on February 23, 2001 at 01:32:07:

Thanks for the good advice.

I did not offer a price to either seller. They did not even agree with my deal structure, ie, “the triple net lease” for deal one or the “purchase option” for deal two.

You confirmed to me that investors “are not standing in line” for these two deals and I will make a low-ball offer after checking back in a few weeks to see if the sellers sound interested.

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.


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.


Property: Four stores in older section of town. Fully rented. Rent Roll = 75K

Asking Price: 400K

NOI: 45K

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?

Re: Working with Realtors…GRRR - Posted by Ed Garcia

Posted by Ed Garcia on February 22, 2001 at 11:35:51:



Many times when working a deal you have to work it backwards. You work your numbers, and by the way when working your numbers be a “Devils Advocate”, always figure worst case scenario, and make your offer accordingly. As you become more experienced, instincts based on experience, will come to play.

Pencil out your best deal for you, and then make a low-ball offer. If he doesn’t say no, you know you’ve offered too much. Chances are he’ll reject your offer, opening the door for negotiation. First time offers usually don’t exist unless you’ve paid too much.

Make your low-ball offer and then move on. Remember you need a Motivated seller when doing a deal, especially one like this one, where you’re trying to make chicken salad out of chicken s–t. At this time this is not a deal. You’re trying to make one out of it. What ever you do, don’t be intimidated or influenced by your broker who is just commission driven.

If your offer is not entertained move on and then check back from time to time for follow up. If this were a hot deal I would work the deal differently, but I promise you that investors are not going to stand in line to do this deal. Were talking about Risk/Reward. In going through the risk, time and effort it’s going to take for this deal, you’ll need a good reward. Right now the numbers aren’t there.


Restaurants always have a high mortality rate, so unless you’re stealing the property, consider TI’s (tenant improvements) for conversion to accommodate another tenant other than a restaurant. A 10 Cap is too low for this type of property unless it’s in a prime location or had respectable tenants which is not the case with a restaurant with out permits . What I said about the broker above applies to this deal as well; I assumed you used the same broker to find both deals.

You’ve got money to work with and I’m sure you have good credit, you can do better than what both of these deals have to offer. If you want to entertain working these deals then you had better put some profit in them.

Ed Garcia

It’s your neck. - Posted by Jim Locker

Posted by Jim Locker on February 22, 2001 at 10:02:22:

It’s your neck. Looks like a pretty tight noose.

the numbers on both properties positively suck. The one that is mostly vacant might be attractive if you could pick it up for 50-60K outright, but for what they are asking you are facing a skinning.

The other one, which is occupied, is also too expensive considering the indicated condition and code problems. You should find out about that restaurant. Running without a license means that it will likely close very abruptly at some point.

Re: Working with Realtors …GRRR - - Posted by phil fernandez

Posted by phil fernandez on February 22, 2001 at 08:37:35:

Red flags come up when there are numerous vacant storefronts all around this property. It’s pretty obvious to me that there is a reason for all the vacancies not the least being in a run down area.

Another red flag. Restaurants by nauture are a here today gone tomorrow type of business. I’ve talked to restauranteurs and they tell me one in ten survives at the five year mark. Many don’t last two years.

Red flag #3. The realtor sounds like he is using highlyinflated numbers and possibly best case scenario inflated numbers. Don’t bite. YOU ARE BUYING ON PERFORMANCE, NOT ON POTENTIAL. Also the realtor is looking for a fast clean deal for himself so your creative offer will fall on deaf ears.

These deals have the makings of putting you in bankruptcy very quickly. Run don’t walk from these deals.