I never see foreclosed multi-family properties. I look for them on the MLS but can’t find any that the numbers make sense.
They are not that high in price, I can find a duplex for 85k that grosses $1150 a month and there is a triplex that grosses $2200 a month for 169k.
I want to cover the total monthly debt with 1/2 the gross rent. This would be possible if about 30% was cut off of the price. These properties have been listed for 6 months to 2 years.
My question is: Would it be worth my effort to make an offer on one of these properties with a number that made sense?
Has anyone ever offered 30% of the listing price? I figure that if I lowball 30 properties I may get a deal.
Yes, you can certainly make an offer WELL BELOW the asking price. As a matter of fact, I placed an offer today on a SFH REO. The bank is asking $57,900 and I offered $21,000, all cash, close in 14 days, no contingencies. The realtor for the bank already called to talk to me. I think this one has a good chance of going through. We are on the front end of an avalanche of foreclosures. The bank knows that; they know that the real estate fad is over; and they want to get rid of their properties.
I also looked at a 6 unit building today. The asking price is $170,000 and gross rents are $2,200. I made contact with the realtor who is asking the owner about owner financing and price. I will probably offer $90,000 for this one. I own another 6 unit building with gross rents of $2,270 that I paid $88,500 for. The owner bought this building a few years ago for $87,000 and claims to have put about $50,000 into it. They paid too much for a building that needed so much work, but that’s not my problem. This is a new listing and I’m sure that I won’t get this building right away. But I want the owners to know that they could unload their problems. If they don’t get much action on the property, my offer is likely to weigh on them and they may capitulate.
No I don’t. I have know of a few mortgage brokers that offer investment specific mortgages with no money down but the interest rate is around 8%. I will try a bank first but if that does not work I will take the 8% and eventually refi through a local bank for a better rate and to establish a relationship with them.
You may need to do more research on your MLS. My analysis in my market is that the banks will reduce their asking price every 15-30 days. They do that by about 3-4%. I’ve examined the sale records of agents that just seem to deal with foreclosure and they on average sell for 5-8% off the asking price. I think it might depend where you are in their cycle of discounting. If you’re close the end of the month or whatever their cycle is, making an offer that’s two cycles away is more like one cycle away and they’re probably more likely to accept it. Some properties do seem to just sell pretty close to asking price though as I think sometimes they get it right and have it priced to sell. Not all banks do that though, I just noticed certain banks have that as a pattern. In terms of dollars, the usual discount was about 10-20k and the most I saw was close to 50k, but that was on a property over 400k. That was basically the high volume brokers, not all banks follow the same protocol. One bank has held onto a property and hasn’t really dropped their price in over a year.
Not too many good foreclosures around here. Just saw one for the first time a week ago and went to check it out. Listed for $450k, 4 unit, 2br, rents maybe $1000-$1100 at best, bedrooms are small and they all need a little work, probably 25-40k worth depending on how nice you go. It’ll comp out at around $490-500k, after a week, the broker said he already had two offers on it, one a lowball, the other one is in the ballpark so it’ll probably go within a week. With those kinds of numbers fixed expenses like taxes, insurance, and utilities account for 20% of expenses.
It is my understanding that the value of a multi-family property is based on its current income performance, expenses, vacancy rate, etc. Unlike SFH that are basically comped on what homebuyers are willing to pay to live in a certain home or area.
That is not to say that a seller will see it that way. But, as you probably know what someone asks for a property and what they will potentially take for a property are two different things. But your numbers have to work when you are looking at buying income property. This is true for all RE buys, but especially for income properties. It just does not make any sense to buy with negative cash flow. I live in CA, where finding properties that cash flow is just short of impossible (I know nothing is impossible but sometimes it seems like it). This does not stop me from making offers that make financial sense.
My point here is that you need make your offers based on the numbers. The numbers don’t lie and if you always make that your criteria you can substantially reduce your risk and increase your profit.