OfflineI have a multi-unit property where it is free and clear and owned by an elderly man. All 3 units are rented out for a nice cash flow. I wish to pursue the property and since the mortgage is paid off I know there are many options where I can take "control" of the property. I am planning to ask him if he would agreed to seller finance. Aside from that what are other options? Specifically, what would you do in this situation?
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tell him exactly your intentions, that you're interested in purchasing his property. But before you do, make sure you've done your due dili in regards to his property value, taxes, future make up of neighborhood, etc.
Take in mind he might not be hurting, so be prepared to not be able to get a deep discount. The best thing to do is ask him how much he wants for it. Then base your pitch around that. Hold off your offer until the second or third time you speak, so that you can "research more before you make a fair offer"
He's an older dude so he may know more than he's letting on thats why you put the ball in his court; he probably has been getting lowball after lowball offer and is expecting the same from you, so show him some respect in your presentation; trust me it goes a long way.
Addressing him as 'Sir' in the beginning never hurt either. He might be willing to work with you. Hit him up wit the seller financing but know exactly your terms instead the proverbial "um,.....um,......well um,...."
Hope this helps.
Speak to him, but before you do, make sure you do your due diligence, as noted above, including contacting a Realtor from whom you want to get fresh MLS comps. You don’t want Zestimates – you want real comps. Tell your Realtor you want a comparative market analysis (CMA) – the same thing you’d get from a Realtor trying to list your house for sale. This includes 3 sold comps and 3 selling comps. Big difference in obtaining a CMA using the MLS’s comps rather than getting them from other places. If you’re not using MLS comps, then you are in for a big and not nice surprise.
I’d bring this CMA over to him to show AFTER you’ve obtained his bottom price to use as a negotiating tool. Of course, if his bottom price is lower than the CMA average, no need to show this to him.
Then, if his property is really paid off, use your friendly HML (hard money lender) to buy, and you can get up to 65% of ARV (after repair value) from the HML, including money for rehab (new paint, carpeting, etc. for existing tenants). (I know HMLs that will go to 75% of ARV.)
Since he’s already got tenants in place, you can use some of the monthly rent to pay the interest-only payments to the HML for say up to 3-6 months. You need an exit to get out of the HML loan as quickly as possible, so then you go to Bank A with a profit/loss income statement. The bank should be happy to refinance this property for a decent interest rate (even if your credit isn’t great) because it will use the property as collateral and you’ve already got income coming in from existing tenants!
It’s not hard at all to find reputable HMLs with decent interest rates (Dean’s latest book says use a HML even if up to 14% because it’s better than missing a deal, but I’ve got some HMLs that charge less than that.)
This is all assuming he doesn’t want to do a seller finance. He’s older and probably wants to liquidate his assets rather than get roped into a seller finance. Don’t be scared to use HMLs for temporary Band-Aids. PM me if you need name of a good HML.
Don’t let fear, or “newbie”ness get in your way. Do your homework, deal with a Realtor to get comps, act and sound professional with this seller, and he could really cut you a deal if you tell him you can close in 3 weeks! You don’t need a Realtor to buy from him – Dean’s site has lots of purchase and sale agreements, and if you don’t use a Realtor, that will save him money and that would make him look more favorably on you as a potential buyer
Good luck and keep us posted!
This is the ultimate opportunity. You want to talk to him for a while and find out what his motivation is, what his situation is, what kind of cash he really needs out of the property. Let him do MOST of the talking, he will reveal to you exactly what's going on. Never ASSUME anything!
In the meantime, go in to talk with him having already done your due diligence and research everything about the property well, including the work that needs to be done, the CAP rate, NOI, cash flow, the internal rate of return, and your gross rent multiplier for a set of different prices. Also know what works needs to be done.
The first thing to ask him is if he will consider 'creative financing'. If he says yes, you're playing ball. Find out what he's asking, and then discuss comps with him, and find out what he plans to do if he can't sell it. Your goal is to get it with as little cash as possible.
If a buyer is in a position that they want their asking price or close to it, that's fine. You can work around that. After knowing how much cash he needs out, You can say, Mr. Smith, I'll give you what you're asking on this property. I will pay you your full asking price of $100,000. I will give you money in your pocket for the next 100 months for $1000. [a # that will be doable with the amount of rent coming in considering taxes, insurance, maintenance and management costs]. If he needs money up front, say 10K, you can get a loan if needed for the 10K, and tell him you'll give him 100K, 10K in cash and 90K at 1000 per month for 90 months. If he asks about interest, you can add a couple of months of payment to it, say 97 payments. Now, being an elderly man, he will may mention that he may not be around that long, in which you can let him know that whomever is in his estate will reap the benefits of the monthly income. Also, set it up so that there is no foreclosure process in case of default over X # of days. Put a deed in escrow that is automatically filed in the case of non payment (you will NOT let this happen!) If work needs to be done, you can use that as part of your negotiating.
What you don't want to do is mention interest rates. And if you do, do simple interest, not amortization. Even if you give him the full price, do you know why its still a good deal? 100% of your payments are going towards principal, not interest. You're paying it off in 100 months (only 8-9 years depending upon how many months of interest you decide to pay him) and you're paying a total of $100K. If you were to go out an finance 100K through a regular bank, you'd have a 15 year loan (and pay a total of $161,800 at 7%) or a 30 year loan (and pay a total of $239.5K at 7%.
The way you present the offer is key, so practice it beforehand. Have the offer you want most (that fits his needs and wants) and I present it first. Some people don't do it that way, I prefer to. Have 3 different offers of what would be acceptable to you ready. And, don't mention 'interest rate'. If interest comes up, use an amount of money or a number of extra months payment. Build a relationship with him and build trust before making any offers. If you're new to this, show him your passion and desire and how you are fired up about real estate. I've heard so many times seasoned real estate investors giving someone a chance and opportunity because of their desire and passion to make it work! WIsh you the best!
It is CERTAIN we will SUCCEED!
PS: LIke Elix said, be honest! Always let your sellers know you need to make a profit because you are doing this to make a living.