Somebody just asked me that same question today. Please pardon the terrible writing…I’m in a hurry…
BTW, it’s nice to have “first poster” who has a command of the English language… :biggrin
To partially answer your question badly…
It depends on what you’re trying to accomplish. Bargain hunters are not likely to search for 5 CAPS in pretty neighborhoods, for example.
Looking for high leverage, low leverage, value added, money-parking, pride of ownership, or what? Each objective requires a different seller/property profile/type.
Motivated sellers offer all kinds of opportunities. I just missed (this is another “fish got away” story), a 200-plus project that was 30% vacant, partially renovated, divorce situation, and sub2 deal. It was high leverage to buy and offered a high upside potential, but required lots of cash after purchase to realize the upside.
Each deal is different. It’s practically impossible to identify a motivated seller until you start asking for concessions. You might have clues, and an agent might give you inside information about the seller’s motivation level, but until you’ve shoved an offer under the seller’s nose, you really don’t know how motivated the seller actually is.
Meantime, I’ve found that many, many sellers will seriously consider seller financing 90% of a deal if asked. That usually means the seller isn’t paying an agent. If an agent is involved, there are probably just as many sellers who would finance 80%.
Well, just for giggles, if a seller is willing to finance 80%, might they be willing to finance 30%? If they are willing to finance 30% (on a second), might we find 70% financing elsewhere, if the property is half-way performing?
Of course the worse the property is performing, the more likely that either extreme in financing will be necessary or possible; between 100% seller financing, to none.
Meantime, regarding motivated seller…
I look for vacancy problems first.
Zero vacancy and a waiting list usually means there is an upside in rents. Often sellers brag about this, knowing full well that the average investor recognizes the value in the deal when the rents can be raised significantly. I know the rents are low if the occupancy is at 100%
Then there is poor occupancy. This represents an obvious value added opportunity, too, depending on why the vacancy factor exists. Often time the management is simply incompetent to keep the building at 95% occupancy. However, it’s up to us to determine if this is a cheap management fix, or is going to require a bunch of cash to solve.
If there is a vacancy problem, and lots of cash is required after the purchase to realize the upside potential, then I want to know how flexible the seller is in getting paid. I am willing to pay more if the seller is willing to walk away with less at closing. I don’t mind partnering with a seller, if there’s something still in it for me.
The next thing (probably the first thing) I look for is whether the property is listed or not. Of course if I’m mailing to the owners of income property in my farm, and the seller calls me, he’s ready to deal w/o the agent. And I’ve got no responsibility to include an agent in my deal, just because the seller’s signed up with an agent.
Many times, the seller is frustrated with the agent, and is looking for an alternative. I’ve also had sellers tell me that unless their agent was involved in the deal, they wouldn’t sell to me. Well, that’s fine depending on how creative I’m forced to be to make the deal work. Agents on small deals can get in the way.
So, occupancy is the first clue for me. After that it’s a matter of studying the current income and expense levels, applying my assumptions to what should be happening, and then making offers to see if the seller is flexible to make the deal work for me.
So, analyze the numbers and then make the offers. Making the offers will smoke out the motivated sellers.
It’s sort of like Nancy Pelosi telling us, “we’ll know what’s in the bill, after we pass it.” We’ll know how motivated the seller is after we make our first offer.
Hope this helps, and isn’t too verbose…