how should you educate a seller when their price is too high?

[Mason V.]

I should have asked this before Thursday but, oh well, I’ll ask it now!

This past week I found a potential duplex in a decent part of town. I asked the listing agent for rent, costs, remaining loan, etc. she returned all the information I needed along with the home inspection done by the previously interested buyer.

That inspection is where things went downhill fast. Just from reading that document I am surprised the place has not been condemned. There are foundation issues, roof issues, plumbing and electrical issues, all of which apparently have not yet made it unlivable. This was the first home inspection I’ve seen so maybe all are infused with such doom and gloom for the property.

After reading the inspection I ran the numbers on the two legal units. There is a illegal studio sitting on the roof that had been rented out, including to section 8ers, supposedly. Being illegal its numbers were not factored in. anyhow, after running the numbers through the biggerpockets rental calculator I realized the property does not work at the price. I actually ran it at 20% down, 50% down, FHA's 3.5% down, 0% down via hard money+ 6 month refinance, 100% down and FHA 3.5% at a price of $115k. the second FHA calculation is where the property would begin cash flowing at $15 a month for the entire property. As for the other calculations, only the 50% down and 100% down produced any cash flow.

Sense I knew I could not acquire the property, and knowing it had been on the market for well over a year, I told the listing agent that I was backing out of the $150k price. In addition to backing out I emailed her the numbers I ran as well as other factors that I felt the seller should consider. Supposedly the listing agent has tried to get the price lowered, but apparently they seller will not budge even though the remaining loan is supposedly around $70k. (I have trust issues and tend to use "supposedly" or "they claim" a lot.)

Below is the actual email I sent…

From the numbers Ive ran the seller needs to find a buyer/investor who can make a down payment of at least 50% or more for the current $149,900.00 price to work. The following are examples of 4 conventional financing options, a basic creative financing option and what the price needs to be for a FHA loan to work.

To make it clear I am not making an offer, I just think the seller should see these. I would have liked to try the FHA or the refinanced hard money but they both end up with horribly negative cash flow at $150k and FHA barely cash flows at $115k. Obviously, if the new owner raises the rents the numbers will improve. However, having not gained my first property yet, I have no idea what a reasonable increase would in order to run the numbers.

Additionally, none of these take the studio into account. I am personally not willing to take the risk of the city having a fit over it without talking to a lawyer first. 

Finally, none of these examples take into account the potential work needing to be done on the property which, from the sounds of it, could be very costly.

I am interested in the property, I just cant do the price of $150,000. So until they lower the price enough, I wish them luck...

So did I educate the seller correctly or could I have done it better? Should I have not even wasted my time?