Does seller want to sell?

Question

Trying to house hack our first property. We put an offer in on a 4 unit property that is FSBO. Seller countered at $5k less than asking price (asking price is 430k). We countered with 425 with 3% back and he was unwilling to budge. His property is poorly advertised with an ad on craigslist that doesn't even pop up if searching for multifamily. I cannot find it anywhere else. I am wondering if he actually wants to sell it. I don't think he's had any other offers and think our offer was pretty good. What gives and what would you do? The cash flow is negatives for the first two years if we were to pay all of the closing costs out of pocket. Is anyone willing to look over my numbers? I am a little confused on a few things. I have been using the bp calculator. It's in an up and coming neighborhood and I really think the time to buy is now.

Daniel Raposo · Answer

@Nicole Carey

I think based on your answers above the property still works even at his 3% higher purchase price. I think for the house hacking approach the first goal should be to have your tenants paying for your expenses so you're able to live there for "free" So if you'll be making enough money from rent to pay your regular bills like the mortgage, taxes, insurance, utilities, etc. and can put the excess money and your own monthly "rent" contribution aside for cap ex and other maintenance you'll be in good shape. This way, once you have found your next property you can move on, have a nice reserve account and rent out your old unit to get some cash flow. Good luck!

Nicole Carey · Answer

The rental units would cover our mortgage payments and some of the utilities so we would be living for "free" right off the bat, unless of course capital expenditure disaster happens, then we would be paying. I was thinking we would save the 10% for cap ex, or 1K per month while living there.

Nicole Carey · Answer

@Daniel Raposo Thanks for your input! The numbers above are with very conservative rental estimates on all 4 units (including the one we would be living in) I thought it would make the most sense to run the numbers as if we were renting out all units. All of the expenses that I had put into the calculator are correct as the seller sent us copies of his bills. There is a potential to cash flow more, as the tenants do not pay for heat, which is another reason the rents he is getting are under market value. This calculation above is also using 10% for cap ex and 10% for maintenance. The property doesn't NEED much that we can tell other than an egress window which i've calculated for under repairs, although something could come up if we get to inspection). We could also potentially cash flow more down the line if we replace the boiler and separate the heating so that becomes an expense of the tenants. Also there is currently free laundry that could be converted to coin op.

All of this being said, I'd greatly appreciate any further input.

Daniel Raposo · Answer

Hi @Nicole Carey

I think the 3% carry back is a pretty small margin that wouldn't make too much of a difference in making the property cash flow or a huge difference in equity if you are going to hold onto the property long term. You are only talking about $12,750 at a $425k sale price. That amount on a mortgage is going to make only a small difference in your monthly payment (maybe somewhere around $60 or so) and in the long run will only make a small dent in your equity if you hold onto it for a long time.

The question to be asking yourself is if you are comfortable with the monthly expense while you are living there and will it cash flow once you move out and put a tenant in there. I'm not sure if the calculations you did above were based on a tenant paying rent or you living there rent free, etc. If you really want to know your cash flow you should look at the actual rents and try to get answers on actual expenses from the owner and see if it will cash flow with your mortgage payment, don't just use the 50% rule.

Nicole Carey · Answer

@Upen Patel Thanks. We do have a realtor who uses a flat fee system. Her cut would be $3,500. He did agree to pay her that.

I'll attach the screenshots from my calculations. I did low rental estimates.

Is a negative number bad?

Here is with 50% rule:

Here is another screen shot.

Nicole Carey · Answer

He did leave it open ended and said he would let us know if anything changes. Do you think best to wait a bit or to try to counter (if we can swing it. not sure we can)

James Wise · Answer

Sounds like the seller wants to sell but not at the price you offered. Only one way to find out what price he will take.