Apartment with No Tenants?

Question

Hey all,

I've got a 20 unit apartment I'm looking at 2 blocks from a major university. The listing was pretty vague, but I've dug around and gotten some of the background information on the property. I've come to the conclusion that it was basically an apartment flip. The owners purchased it, rehabbed it, and are now selling it. From what I can tell, everything looks good, if you overlook the fact that there are currently no tenants in the building.

Is this an automatic deal breaker? The building is a FSBO, and they're offering owner financing, so I imagine there is some flexibility in terms of actual payment schedules.

Thoughts?

Account Closed · Answer

ehh, youd be surprised. more common then you think when your getting into apartments that size. especially with seller financing. You gotta remember for some people that is a steady stream of income so why cut it short by 10 years. I would recommend asking the seller what they are looking for, that is your starting point. I try to play seller financing as a larger benefit to them then it is to me. Show the 10's (or 100's) of thousands of dollars the bank will receive on the financing instead of them.Especially if the seller is close to retirement, thats where you can really play this card. if they own it outright (likely the case if their offering seller financing) then try ask them what they want the money for? If their retiring their not gonna stick it in the stock market with DOW 18000 if their smart. If they put it in a CD or bond or interest bearing savings account which is the most likely option for someone retiring then their gonna get chicken scratch for a return, likely 2% or less. Under the right circumstances you would be willing to let them finance the note and pay them more then their 2%. They now can get a secured (by the property), safer investment then the stock market (fixed rate), higher return then a bond or cd upwards of 4% or 5%, best yet they can get it for 20 or 30 years depending on what they are looking for, now thats a solid stream of income for them! obviously after a certain amount of time being interest free of course. This would likely net them much more their asking price while getting more favorable tax treatment. And if you (the buyer) default on the loan to them, they get to keep the fat down payment and the property! Remind them, otherwise they are gonna have a tough time with any buyer because banks dont like high vacancy, and they Hate complete vacancy. Tell them even getting it occupied wont help in many cases banks want historical rent rolls to see if rents are increasing or decreasing on the asset. Look at it that way and I would say they need you.... If their not looking for that income stream..... well then my argument doesnt work very good :)

Account Closed · Answer

I would explore if I were you. if they are willing to do seller finance thats awsome, there are many things you can come up with. get a mortgage calculator out and start with looking at how cheap you can get it and still get them possibly close to their asking price with the interest (which would of been paid to a bank) now going to them. look at a typical 100k, 30yr fixed 5% loan, the ending amount is over Double the 100k purchase price. That huge extra chunk of money can go to a bank or in the sellers pocket. So if the seller were willing to offer... say 5 or so years without interest on a 30 year note which wont start until you hit 50% occupancy, after you negotiate a purchase price, that could be a huge benefit. Im not saying your deal has any merit or not, just saying when you see seller financing on a property that actually is a deal..... get creative

Dustin Smith · Answer

Account Closed after that argument I wish I had an apartment to sell with owner financing! Nice spin on things!

Dustin Smith · Answer

Account Closed that's basically what I'm looking for, is ideas of how to play the potential seller financing to make the lack of immediate revenue a possibility. A 30 year is not common in commercial financing though. 20 years is standard.

Michell P. · Answer

It depends on how much money you have in reserves to hold it - and how easy it'll be to fill it. I believe it's on the recent bigger pockets podcast where the guest said he likes to put up a craigslist ad with the hypothetical unit information + pricing and see how many interested parties respond within a week. If you hear crickets, could be why they're selling instead of filling. And in this scenario make sure you do a ton of due diligence.