Thoughts on an offer for a property…

[Justin Bush]

Hey all…I have a 25 unit property for sale and have received an LOI with some seller carry terms. The buyer intends to get enough conventional debt that we could pay our mortgage off as well as closing costs and have a little to put in our pocket. And in addition we would carry a second note at 6% over 30 years with a 5 year ballon, the gravy portion. With what the property has cash flowed since owning plus the extra left over after closing we would get our initial investment out plus maybe $50k. From what my broker is telling me these arrangements are becoming very common with what's going on with interest rates. When I look at the deal from his side, and what his debt service will be, the property will still cash flow very well so I feel our second is secure. Thoughts?

[Henry Clark]

Random thoughts. 

1.  Doesn't sound like a very good deal if your only getting $50,000 including rent revenue to date.  I’m probably not reading correctly

2.  MFH is hot.  Would have expected you to get a cash deal.  How long has this been listed?  How was it listed?  No reply needed.

3.  Make them do a non refundable deposit.  Don't like pulling off the market subject to their financing. They should already have their financing in order. 

4.  Don’t like taking a second position behind a bank.  Require them to give a personal guarantee.

5.  Require them to carry $x,xxx,xxx insurance with you as a listed additional insured.  Your to receive a copy each year  

6.  Put in penalties into the contract with performance failure.  $10,000 per year if they don’t list you as additional insured. This allows you to buy insurance since you have an interest.  $xx,xxx per year late fee on the debt payment.  

7.  On the loan portion will you have to pay sales commission?  If so have them pick up the tab in lieu of them paying bank loan fees.  
8.  Get a waiver from them on the purchase of the property or make the terms “as is”.  Since your tied to them, you don't want them coming back to you if any issues arise and wanting to renegotiate.  

Above are just bargaining or discussion points. Whether the deal is good or not, can’t tell without all of the numbers.  Good luck on the deal.