I was thinking the same thing about the B/A not being objective. Thanks.
I posted the info in another thread, but here it is again:
ok… here is the deal…
The building is in a small college town. The gross population has been declining since 1995, but the city has recently established a re-vitalization commission and they are actively recussitating the downtown. And there is a growing resort at a lake about 10 miles away. (And there is a Home Depot in the town, so it can’t be THAT bad!) The rents and the FMV of SFHs in the area are both way below what I’m used to. The current owner has owned this and 3-4 other rental properties for about 10 years and self managed. But his real buisness has really taken off and he has placed all the properties on the market. Building is 1920s, 12,000SF, 12-units, 3-story all brick, very good condition, all units above average condition for area. All have individual E & G meters, gas furnaces, and HWH. Newer rubber flat roof. Average of all 12 unit’s rent about 35-40% below current local average because for past few years the owner apparently has just done the properties as a hobby.
Asking price: $300,000
Current gross rcpts: $44, 850
Cash flow before taxes: $3060/mo
The plan would be to get the building and raise the rents to MV which would result in gross of $60,000. We’ve been told the current leases provide for an immediate bump. We’d hold the building for 3-4 years and sell it for 1031 exchange to bigger building. Been told that local appreciation rate for building is about 3%, but this one is nicer than most, so maybe a little higher. Local annual rent app of 5% is norm.
Current owner is motivated to get out of the building. He has successful business and probably doesn’t need the cash immediately.
We would like for him to carry 100% financing for the entire 3-4 years with no interest until balloon payment at the end or maybe interest only. Or maybe hold the note for 2 years with little or no payments to give us time to rehab the MV and refi to cash him out. In 2 years we could increase the FMV of the building about 50%.
We have nothing significant for a downpayment, but could probably srounge 5-10% up if we absolutely had to, but we really don’t want to for a few reasons.
Can you guys give us specific offers and terms to propose to the owner? The owner is a pretty sharp guy. He would understand creativity.