I recently bought a 4-unit apt building and rehabbed it. Purchase price was 160k (New Hampshire) Property was bank owned and I got 100% financing on it based on the as-is value of 200k. It needed very little rehab, about 3k, mostly paint and carpet. Now the tax assesed value is 252k and I recently had a bpo done and it came in at 230k. There are 2 and 3 units in the area being listed for 225k and 240k respectively, so I thought I would be safe listing it for sale at 221k. I borrowed hard money to get the property and am into the house now for about 180k due to points and closing costs. Could I get some feedback from those of you out there that have been doing this for a while? I’d like to sell it quickly but there doesn’t seem to be alot of action on it yet. It has only been listed for about 1 month. I had someone interested in buying it but they wanted to get 100% financing on it also but the numbers just don’t work for that price.
Does anyone know of another way I can structure the purchase so I get out of the building within 30-60 days? Thanks for your help.
Your going to need to have 7 to 9% for realtor fees and closing cost's, so offer the property as a 80 / 10 / 10 and look for a buyer with ability to put 10% down and pick up a new 80% first on the property with you carrying 10%. You probable are thinking you don't want to do that as you would like all cash, except this really helps the buyer, and you can re-sell your note and deed of trust 6 months to a year from now for cash and this could really encourage a buyer if you set it up to carry paper. ($22,100 2nd TD @ 6% Interest only for 3 years (Preferable) and 5 years (If you have to) $110.50 Month interest only.)
(You could get 7%, or 8% or something different, your just looking for the rate to be better than what they could get on the public market.)
If you find an “Owner Occupied” buyer they can probable get a FHA loan with 3% down.
Have you rented the units yet? If not I would recommend you rent 3 units right away on one year lease’s for the best rents you can get!
I would have listed it for about $226k plus as with 10% down you would have covered all your hard cost’s!
At $221k you will end up leaving about $2k in cash in your note, just have to season it and you will get it back!
If you had asked $230k you could have offered an additional incentive to pay 3% towards buyers closing cost’s!!! Plus you gain an extra couple thousand?
Are you saying there are duplexes and triplexes for sale at $225k and $240k respectfully. Must be bigger units?
Its the same as in any business. If people aren’t willing to buy your product at the advertised price then it is likely priced too high for the market. The BPO is just that, an opinion. Keep in mind that the tax credit, which has propped up prices, has expired so potential buyers will be figuring that into their offers.
Self financing options, as in the other post, could help a bit in getting a better price although I’d be leery about holding any risk at this point. You better off lowering the price by 10k than holding a 20k note on a 2nd lean that could easily be wiped out in any downturn in prices or a foreclosure. Renting 3 of the apartments is a good idea. It could help you hold out for a bit longer in the summer selling season and would make the property more valuable to potential owners. However keep records that you completely checked out the tenants.
Thank you both for your replies. I would actually be fine holding some paper because I know that worst case scenario I could either sell the note or wait until the borrower refinances. I have not yet listed it so I may try for a higher price and offer incentive for a borrower to come into it with 10% down or have some type of seller incentive. That way I know I can get most of my cash and if I hold paper I’ll consider it extra if they actually pay it off. At the least if I can payoff the hard money loan I’ll sleep easier at night and then I can go onto the next deal and consider the first deal a very good lesson learned on what not to do the next time. I’m also wondering if there is a better way to market the property? Craigslist seems to be saturated with realtors anyway so I really don’t see a benefit there and am working on my buyers lists…any other options that have worked for you in the past? Thanks again for your help.