First Property A Multi-unit?
Hello all,
We are ready to begin working our investment plan, and have been doing a lot of research on properties that are for sale, talking to owners, RE agents, mtg brokers. Came across would could be an interesting deal. The only thing is that this is a 6-unit building, and I've read lots of posts that new investors (this would be our first property), should stay away from multi-units like this.
Worst case scenario (full purchse price, unfavorable financing, 10% reserves) the property will cashflow at about $350/mo. Best case (85% of asking, 5% reserves, unfavorable financing), cf is about $840/mo.
I believe that the property was purchased REO by an investment partnership, the last recorded sale was for $80,000 in April, 03. Currently asking $229k - not sure how long it;s been on market. In a stable part of town, fully rented. I'm assuming the current trust that owns the building did SOME work to the property, but I think the asking price is really high. Considering a wild, low-ball offer to get the discussion started.
Anyone get started with a multi-unit (more than 4) building this way? Any advice, cautions, encouragements to be offered?
Thanks.
Awful lot of management and work for $350.00 per month. 6 units should be absolute minimum $600.00 per month allowing for 10% vacancy, 10%maint. etc... Remember when you buy, especially with a large increase in price, that taxes and insurance will jump as well. MF's do cashflow much better, but management is much more intensified. More so for the new kid on the block.
Good luck,
and be careful,
Shawn(OH)
Low balling can be a double edged sword. I've heard about one guy offering 3.5 million on an 8 million asking price - they retorted "YOU'RE CRAZY!!! - we're not going below 6 million EVER!!" See, already knocked 2 million off the price in about 15 seconds - pretty good pay.
Of course you could run into the guy with an ego problem - who is insulted by your offer and refuses to consider any subsequent dealings with you. I haven't heard about that actually happening though.....
You really need to know more about the previous transaction before calling the selling price "high". What if they bought it for 80 K and the place was a complete dump and did a full renovation?
Why do both of your scenarios list "unfavorable financing" ??
Check out the leases and the tenants if you plan to move forward. Maybe you could talk with them and see what they have to say about the place. Tenants have the best info - I rented a house once for a few years in college. After the lease expired the landlord ask me if I was interested in buying the place. He was asking FMV and not budging. I was like "this dump!! for that kind of money - with the lousy basement draining, flooding back yard, etc., etc. " - things a visiting potential buyer may not notice and that a lazy home inspector would miss - but having lived there for 2 years I knew the place better than the landlord.
I'd ask the owners if it's ok for you to speak to the tenants. Good way to raise red flags. When my old landlord ending up selling the place he insisted that we NOT be present during any showings or the home inspection..... hmmm now I wonder why???
Hope some of this helps. Best of luck on your REI adventures.
Roger
Last year, I actually had a seller tell me (through their realtor) that they were "insulted" by my offer.
I came in 10% below asking, and I actually thought I went a bit high. But I went higher than I wanted because the numbers were dynamite.
Anyway, they were supposedly so insulted they refused to even counter. Talk about emotional. So I gave up and moved on.
Three months later, the realtor calls me and says they'll accept my offer now.
By that time, I'd already found another multi, but I decided I'd play along. I told her the original offer was no longer an option.
My new offer was now 15% below asking.
She was speechless.
She paused and said excitedly, "I don't think you understand. They're accepting your offer!"
"No," I said calmly, “‘You’ don’t understand. That offer’s dead. This house has been sitting for three months and obviously I’m your only hope. I’m in the position of lowest need, therefore I have all the power. They’re in the unenviable position of highest need, so they have no power. My new offer reflects that fundamental principle."
She said she’d call the sellers and I never heard back.
Last I checked, that house was still sitting. I’m eagerly waiting for the call, telling me they’re ready to accept my last offer. If that happens, I’m definitely in.
Moral of the story: There's no place for foolish pride in business.
[addsig]
Monkfish,
I love that post
I've told a colleague of mine numerous times to put in a low ball offer when she was out looking for a house. She never did because she was worried about offending people
She ended up paying too much on a dump....
Funny how your seller became more motivated and agreed to lower the price after 3 months. I think you'll hear from them again shortly
Monkfish, your post is a lesson for all investors. This is business, not personal. Those who make it personal almost always loose. So learn some psychology and some math, and get in the game.
sda1030, some investors are difficult to deal with because they think they know everything. So they buy cheap and jack up the price to an unreasonable level. Don't let yourself be intimidated by the fact that these guys are investors. Offer a fair price but make sure to give yourself some wiggle room.
I've got a property I'm working on now. FMV is $640k. Asking price is $595k. I offered $520k. The seller countered at $540k. I countered back at $530k. Now I'm sitting here waiting for a reply from the seller, thinking that I might have made a mistake and that perhaps I should have agreed to $540k. Arrogance will kill you. Or in your case, might kill the investors.
Good luck.
_________________
Listen to the whispers and you won't have to hear the screams. - Cherokee saying[ Edited by alexlev on Date 03/01/2004 ]