First time need help/opinions on offer

General Real Estate Investing
1

OK, so here’s the situation:
2 story multi-unit with 3200sf retail (used to be bar/rest.) on ground fl
10 apartment units upstairs (4-2bd, 6-1bd) 1 is vacant
ALSO includes 2-bay auto repair shop with sizeable parking lot on adjoining lot (Total for both lots is .61 acres)

I just got the financials on the property and it goes like this:
Asking $685k includes both properties
INCOME:
Apartments: 2bd $575/mth
2bd $425/mth
2x 2bd $300/mth (owners brother and friend)
All 2bd should be rented for $600/mth (FM in area)
5x 1bd $450/mth
Repair Shop: $1,200/mth (includes 2bays, and 12 pkg spaces)
Could be $1,800 (Tenant looked at moving and couldn’t find<$2,250)
Bar/Rest: Vacant - should bring in $1,800/mth
EXPENSES:
Taxes $18,178 (assessed at $475k)
Insur. $5,000
Utils $4,800 (Water/Sewer/Elec.Heat)

Haven’t found out if there’s existing mortgage(s) on the property yet. Will find out later today.
Listing agent informed me that the owner ‘was’ interested in discussing seller financing, but he’s not too sure about that anymore as the guy wants to ‘get out’ and move to Florida.

Looking for advice on what to offer, how to structure a deal.

Thanks in advance,
New Guy

2

The property is owned free and clear.

New Guy

3

no advice or help from the gurus?

I’m meeting with the realtor Friday and am going to ask the owner to finance $550k and pay the closing costs. I’d be willing to go to $600k - 0% financing for 20 years, and no payments til Jan 2006. This will give me the opportunity to either increase the rents on the 2br apt’s or get new tenants. I should also be able to get in a tenant for the bar/restaurant by then.

I’m going to mention that I’ll take the place ‘as is’ because the owner was about to start fixing up the bar/restaurant to bring in a new tenant.

Am I on the right track with this?
Thanks to all who read and reply

4

please keep us posted. have no idea why that seller would do it, but would love to hear your outcome.

5

You want opinions, so here goes.

The only bad offer is the one not presented. That said, you’ll probably be laughed at with that offer. There are two prime things that you want in a deal. One is a low price. The other is great terms. Your goal is to get one or the other. It takes a very knowledgeable and experienced negotiator to actually get both.

You’re trying to get the seller to cut his price by 15-20%, finance it for 20 years, no interest, and not make a payment for 3-4 months on it. Let me ask you, if you were the seller, would you do that? Why would you do that?

Let’s throw out some numbers here.

As it’s rented now, you have $5050 coming in every month, plus a possible $1800 from the bar ($6850). Total cost per your figures per month is about $2335.

First, it’s extemely doubtful that your offer will be accepted as it stands. However, make it a cash offer (it’s all cash to the seller, just get financing) and it stands a chance.

$600,000 @ 8% interest for 20yrs (a tough length to get for new commerical) = about $5020/month.

Now, take this offer in mind.

Purchase price of $700K, owner financing 0% for 20years = about $2920/month. If it’s still a problem, offer a 5 year balloon payment.

Now, which one is more attractive to both the seller and buyer?

Quick recap:
Low price/standard financing = about $7355 in monthly costs, a possible $6850 in monthly income, or a negative of $505 a month.

High price/owner financing = about 5285 in monthly costs, a possible $6850 in monthly income, or a positive of $1565 a month. And that’s before you increase the rents.

Is a five year balloon good? Yes, it’s much more likely that the owner will agree to finance if he is assured that it’ll be paid off in five years. Besides, he made an extra $25 grand on the deal.

Is it good for the buyer? Yes, if the owner agrees to a low or no interest financing, then in five years, a $700K debt drops to about $525K which is even lower than your initial lowball offer. Also in five years, the rents and value should have increased enough so that it would be no problem to finance with a strong positive cashflow.

Just my thoughts.

Raj

6

Let’s here how this thing turned out!

Raj