We are looking at a multi-family house that realistically has 4 apartments. He has rented it per bedroom in the past, so he thinks it has 7. The house is really in fairly poor condition in a fairly nice area not far from a college. The current owner is considered a slum lord, and he is has done nothing with it in a long time, and complains about being harassed by the city regarding the condition of the property. All the flooring, doors, windows, front porch, bathrooms, kitchens, rear stairs and deck need to be replaced. It needs painted inside and out and some of the wood work and siding on the outside needs to be replaced. It was built in 1905 and some of the floors are sloping. The property may be worth $225,000 based on other single family comps if it were in good shape. The rent is likely to be approximately $500-$600 per apartment. He is offering (no realtor involved) it for $300,000 because he thinks it only needs a “little paint.” Since we do all the work ourselves, I think a reasonable offer would be around $70,000 although I haven’t run detailed numbers yet. We haven’t made an offer yet, but is this just going to be a waste of time given his price seems extremely overpriced? He has been a landlord for a long time and decided to get out of the business. However, the house has been on the market for a long time, so I question how motivated he really is.
Can’t hurt to make the offer and see what his reaction is. Maybe he’ll be put off at first but as time goes on and he gets no other offers he’ll call you back.
Have you gone through the property to look at it? How do you know all those things need to be replaced?
If he is asking $300K and your offer is $70K, why bother even making it? Not to say your assessment is wrong, but if he is so far removed from reality, the offer will not be greeted warmly, to say the least.
At his invitation, I walked around the outside, and walked through one apartment. The items that I mentioned aren’t close to borderline questionable, they are garbage. The more I think about it, the more this could be a money pit. I couldn’t look at the roof or heating system, so they probably need replaced as well. The utilities are not separated and I almost have to assume the house is poorly insulated.
Sometimes the sellers don’t realize that the property is not worth what they think its worth. I had a customer recently who asked me to pre-qualify buyers for two duplexes that he owns. I said sure no problem. What are the sales prices? He said $275,000 a piece. Well I had an appraiser friend of mine do a quick CMA and come to find out these properties are worth $212,000 MAX. Well I contacted the seller to let him know that it was a waste of his time to do a contract for 275k when the loans were going to die once the appraisals came back and he was upset with me for being the guy who burst his bubble. Like it was my fault he had just lost 126K.
I guess it could be worth a shot…but aren’t there more reasonably priced sellers out there?
You want to find someone that is motivated to sell whether it be a bank or an individual.
It’s not worth spending much time with someone that is not realistic.
If the city is after him for code violations, there is a good chance you will not get a certificate of occupancy until you bring the property up to the city code standard. Make sure you factor in the cost of code compliance into your purchse price.
code compliance is huge. forget the illegal apartments…for now. :biggrin
i don’t care what anybody says - youv’e got to start somewhere - the biggest s holes are tough, but once you’ve got them and you’re at least 50% right on your projections - you’ve made a good decision!!
to make an omelette - YOU’VE GOTTA CRACK SOME EGGS MAN.
go for it!