Negotiating This Offer
We have an offer out on a 9 unit building, that will serve the college student housing market.
The property is a new construction, literally two blocks down from the main campus. There is a housing crisis at this school due to the fact that there are more students than dorms available. So I feel that occupancy and vacancy should not be too much of an issue, once (if) we obtain the property. This property would be a great housing alternative.
The only dilemma is construction is about 98% complete and this is the end of the semester. Students will be leaving this week and returning early January for the spring semester. Tenants need to be lined up ASAP.
We just made an offer to the seller, and he accepted all of our terms except this one:
"Seller to have five rooms or more leased at $425.00 per room at the time of closing or the seller pays the rent of five leased rooms till May 30, 2004"
We have thought about restructuring this term, but not sure how. One thought was to reduce the date from May to March.
But we do feel that because by the time we obtain financing and go through the closing process..students will be returning back to campus and found other housing...that would leave us to carry the cost, if that term is taken out of the contract. We feel that the seller should take the responsibility of finding tenants while we are going through closing.
Need some feedback.
Thanks!
Here in Austin I had some student housing. All the students do not pack up and disappear for a month. You may not lease all but should be able to lease 5 of them. Get an ad in the school paper asap and give a free microwave to each tenant or something nice. Maybe a free months rent with 12 month lease. I would be more worried about the summer. For sure you need consessions then and a lower summer rate.
I would try the March deal first amd see what the seller does. He must be showing them as they near completion and have some preleased or some good prospects especially if there is a shortage of living accommodations.
Good LUCK and HAPPY HOLIDAYS
Hope this helps some
Ted Jr
My major concern would be summer months. You might also have parents co-sign on the leases.
I would also consider including language that would set parameters for creditworthiness of the leases you end up with.
When are you due to close? If you feel that the students will be back you could change the clause to read that you have the right to locate and place tenants during escrow. You could have the rents the new tenants pay straight into escrow, payable to you upon closing, or the seller if you don't close.
This way you get to monitor the quality of the tenants, and it is in your interest to get people in there. If you leave it to the seller he could put anyone in, he doesn't care.
Or could you even remove that clause in return for a reduction in price?
Get permission to market the property and get tenants into the property and under contract. Once you have permission, do so agressivly.
Rather than getting $450 per vacancy (which gives you little motivation to solicit tenants) change it to $300 or so. You still have a buffer, but the seller can see that it's in your best interest to look for students so that you get an extra $150 per student. Add a clause that he will only be required to pay as long as they are vacant (no double payments).
Finally, if the market is as bad as you say, then you shouldn't have any problem.
Do you simply lack confidence in your ability to rent them and lack proper knowledge of the market???
I don't think you'll have a problem if your market description is correct.