What questions to ask the seller

Question

I've got an opportunity to purchase a SFR in midtown Indianapolis area from a neighbor who is looking to sell it.  The neighbor owns a local PM company and has been managing it for several years.  He and his wife are looking to buy a bigger rental property and need the cash so he's offering to sell it.  The property has been consistently rented for the past two years and the tenants just signed a renewal for another 12 months.  The property rents for $750 a month with tenant paying all utilities.

His wife is a realtor and is willing to sell it off MLS for $50,000.  I haven't had another realtor pull the comps to determine if that is a good price or not, but I will do so.  I've got my financing lined up and ready to go so I'm in a good position to buy it.

I'm looking for the BP community to help me through this process by telling me what questions I should ask of the seller to make sure I'm not stepping into a terrible deal.  If you were in my shoes, what questions would you ask the seller?

Account Closed · Answer

@Cory Deeter

Welcome to BP. All the advice given here is right on. You should implement all of it. I will add one more thing when looking at the property. From what you explained and the price point I would be will to bet the house is built in early 1900's. Which means there is a basement. Check the foundation, walls and floor.  Take note: don't be fearful should you see water. Most basements will get some kind of water in them from time to time. This shouldn't be a reason not to buy. You will know if the basement does get water because the laundry units, furnace, and water heater will all raised up off the ground.

Just for my own curiousity what neighborhood is this property located?

Cory Deeter · Answer

We worked with another realtor to determine comps and it seems like the asking price is in line with what the market is paying.  The Cash ROI is coming out to be 9.75% based on actuals (and includes a CapEx reserve as well as a maintenance/repair reserve).

• Tenants have good payment history, 
• basement was recently waterproofed, 
• roof is less than 10 years old, 
• windows are 10 years old, 
• water heater is 4 years old,
• furnace is 10 years old,   
• painted inside and out last year

He agreed to let us do a formal inspection by a professional if we make an offer.

We're hoping to drive by it this weekend and determine if we'd like to make the offer.  Thank you to everyone who weighed in on this.

Stay tuned!

Peter Vekselman · Answer

@Cory Deeter from the initial cash flow numbers this does not sound like an outstanding cash flow deal.  I would say you can do better in terms of ROI.

Get a feel of what is possible in your market in terms of ROI.  Call a few random agents and tell them what you are looking at in terms of numbers and see if they can possibly find you better deals.

Also, get on a few larger wholesalers lists and see what is available out there.

Bottom line you have to know your market and see what is considered realistic and what is not.

Once you learn it and understand it you will be able to make quality decisions.

In terms of other due diligence,  since you are buying for long term cash flow  would always get home inspected by professional inspector.

Hope that help.....PM me if you need more help.

Peter

Luka Milicevic · Answer

run the comps

Verify the rents

Inherited tenants are almost always bad

Check age of roof and HVAC system

Check condition of property.

If the owner refuses to allow you to do any sort of inspection you should know that's a major red flag. If they don't know the age of the roof or HVAC get an inspector to see what condition they are in

Larry Fried · Answer

@Cory Deeter

In addition to getting the comps, you want to look at what the maintenance records have been, what the vacancy has been, whether the tenant has always paid on time, what sort of work/rehab was done on it, and whether the area/neighborhood is one you want to be invested in.

Finally don't agree to any price until have viewed the property and possibly talked with the tenant.  Make the offer contingent on a full inspection.

Erin Donlan · Answer

Hi @Cory Deeter, I think you've got a lot of the basics covered, but I'd definitely want to run the comps on the area to make sure you're not overpaying. I'm a realtor, so I'm happy to do that for you if you want to send me the address.

You'll also want to know the age of the mechanicals (roof, HVAC, water heater) and if they've done any upgrades to the plumbing or electrical. I'd request a walk through the house as well. Check all the windows and make sure that they're in good order (no broken seals) and have screens. Paying for an inspection is also not a bad idea so you can uncover anything that might be easily visible to the eye.

Hope that helps!

What questions to ask the seller

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