Negotiating Good Equity On An Average Real Estate Deal
Hello everyone. My name is Aram. Thanks to the incredible amount of information and positive sentiments about real estate investing on this site, I have decided to dabble in the real estate business myself. I am working on my first deal, a condo being marketed as a FSBO. It's market value according to the owner is $140K, and comps in the area range from $135-$150K. As I do not have the funds myself, I am "birddogging" for another investor. He told me he needs about 20K in equity to make this a good deal. After visiting the condo last night and NOT dropping an offer, the owner (a naval officer) immediately called me back and saying he really needed to get rid of it because he was relocating to Florida for military duty. He said he would sell it for $126K (he had originally offered it for $131K). I am assuming this qualifies him as a motivated seller since he dropped $5K without me making an offer. However he wants to get his down payment back and cover closing costs. I checked his property at the county recorder and saw that the mortgage was for $111,150. So I'm assuming he put around 10K down. My question is how do I make this into a profitable deal, and still help him out. Are there any creative solutions? I need the condo at around $120K to get my commission.
Thanks again,
Aram
You talked about what he wants (down payment + equity) but not what he needs. Maybe he doesn't need anything
If that's the case. Why not Lease option it from him yourself and not bother with the investor.
Start with low money and long terms. Say 126K and 3 years. Then based on his reaction, modify one or the other; go up in price, or bring the terms down.
Quote:
On 2003-10-30 09:29, mcl8190 wrote:
You talked about what he wants (down payment + equity) but not what he needs. Maybe he doesn't need anything
If that's the case. Why not Lease option it from him yourself and not bother with the investor.
Start with low money and long terms. Say 126K and 3 years. Then based on his reaction, modify one or the other; go up in price, or bring the terms down.
mcl8190,
Please explain how an l/o would be profitable. I tried doing a subject-to to get the house under contract but he flat out refused. He said he doesn't want the mortgage note in his name anymore (basically he wants nothing to do with the condo). I would be open to any suggestions showing me how to take the condo w/o having to get a loan or a refi, or in other words, how to assume control of the house with minimum investment. Also, what he NEEDS is just to get rid of the house. I'm assuming what he WANTS is to cover closing costs and his initial down payment.
Thanks again,
Aram
mcl8190,
What I meant to say by showing me "how an l/o would be profitable" is not to explain an l/o, but how to make it sound agreable to the seller. Also, is the l/o better than a subject-to and if so how?
Thanks,
Aram
This goes back to his needs.
If what he "needs" is to be rid of the property and not carry a mortgage, then he is not as motivated as you would want. This may change as time goes by and his moving date comes closer.
By offering him the lease/option, you are removing all the hassles from his ownership of the condo. Does he want to end up moving to FL and still paying mortgage, taxes, Utilities, Condo fees?
You are going to give him a way out of all this, and you will be nice enough to allow him to write off the depreciation on the condo as well as the taxes for the duration of the lease option. (That's money in the bank).
At the point of sale, he will get back his money, you're just asking him to wait on it.
Make the offer, see what he says. He may tell you to go fly a kite. Then you will know his motivation. But, don't be surprised if he calls back in a month or two begging for the deal.
And no a Lease/option is not better than a sub-to, but it's a second step bargaining tool to use. Some people don't like signing over a deed without money, and the miss out on the tax deductions. You then come back with this and it becomes more of a little now, more later proposition
I will try your suggestion and update this thread to let you know what happened.
I really appreciate the advice.
Thanks again,
Aram
Make a two-pronged offer. Straight cash $120,000 or a l/o at 126,000 with maybe an extra hundred each month to him if the difference in in his note and the area rents is enough. That way your l/o looks better because not only will he get what he's asking but he's got an extra $100 a month to supplement his measely army pay.
Quote:
On 2003-10-30 14:31, boyd4444 wrote:
Make a two-pronged offer. Straight cash $120,000 or a l/o at 126,000 with maybe an extra hundred each month to him if the difference in in his note and the area rents is enough. That way your l/o looks better because not only will he get what he's asking but he's got an extra $100 a month to supplement his measely army pay.
boyd4444,
My plan was to offer him $115,000 cash or a $123,000 l/o. That way IMO we will negotiate up to the actual desired price. Is this too low an offer in your opinion or just good bargaining?
Thanks,
Aram
Some people start low and bargain up. I have found that if I make it a take it or leave it situation, most motivated sellers will end up taking the deal one way or the other before you walk out the door. It eliminates the time and hassle of going back and forth. If they don't take it right away, make sure you do a follow up call every week to remind them the offer is still on the table and they could be rid of the headache right away by taking the deal.
boyd4444, mcl8190, and others,
My investor backed out of the deal, because he said even though the equity was there, he didn't want to take a loss paying the monthly payments until the condo was sold. Should I go the l/o route, or should I try to refi the mortgage? I think I should do the l/o thing since I am a college student who works part-time, which means I most likely won't qualify for a mortgage. If I went the l/o route, the numbers would look like this:
$126K is the purchase price
$140K is current retail value, although some have sold for $150
I would ask for a nonrefundable down payment of $3000*
I need about $1500 to break even, so I would charge $1600 a month, and a $100 from each month would go towards the overall purchase price
The l/o would last 2 years
There would be a contigency clause to have them move out if I sold the house before the 2 years was up.
*Of course, I would refund their down payment if I sold the house before the 2 years was up.
Let me know your opinions,
Aram
PS: I will also post this in the l/o section to see what they think.