Buying Out-of-State Multi-Family Property

[Ian Bautista]

Good morning BPers!

I currently live in the Los Angeles area and am looking to invest in multi-family properties out of state due to the high prices in LA. My best friend lives in Florida and we've decided to partner up and buy some properties out there. He mentioned our plan to one of his really good friends who happens to be a real estate investor himself (I've met him many times and seems like a stand-up guy) and his friend offered up a fourplex in his portfolio that he's looking to sell, but hasn't listed yet. He's says it's worth about $285K and rent is $2900/mo. Running the numbers gives us just over $500 in cash flow each month and a 10% CoC ROI.

Numbers look ok, but not great due to the price.  The problem I'm running into is coming up with a reasonable offer for the quad.  After looking at the tax assessor's website, I see that the owner bought the property in 2014 for $110K (although he did say he totally upgraded the place after buying it).  Also an investment company bought three quads in the same complex for $593K in July 2017.  

I'm wondering if the owner is basing the price on the current rent, because I can't really see any comps that justify a $285K price.  I'm hesitant to talk with a local realtor, because I don't want them contacting the owner and trying to get involved in this off-market deal.  Also, I need to be a little delicate in how I approach a lower price since my best friend and him are pretty close.  Any advice on how to come up with a good purchasing price and not blow up the deal?  Thanks in advance for the help!

-Ian

[Aaron K.]

This seems off to me, it doesn't pass the smell test.  If he did a full rehab on the units and others in the same complex go for $593k is he really that good a friend to sell something almost $300k below market value?

[Ian Bautista]

@Aaron K. So the $593K was for 3 quads in total.  Therefore, each quad was sold for almost $200K each.  That was last July.  However, I don't know what the conditions of those units were.

[Aaron K.]

@Ian Bautista so he is assuming that this property appreciated 30% over the last year.  Did it?  Why does he want to sell if it is such a great deal?  I would see what you can get on the open market before just buying something on a "friend's" word.

[Ian Bautista]

@Account Closed I would have said the same thing, however, he is selling to one of his good friends as well (my best friend and I are going into this deal 50/50).  There is a listing for 4 duplexes with same type of 2/1 units (8 units total) asking $520K less than a mile away.  If you were doing a per unit price comparison, it would price the quad at around $260K.  But there are no pictures to judge the inside condition and its been sitting on the market for 2.5 months.

[Aaron K.]

@Ian Bautista you just said that a cheaper property has sat on the market for 2.5 months less than a mile away.  Granted it has no pictures but red flags are popping up for me all over.

[Ian Bautista]

@Aaron K.  I agree with you on the red flags.  A friend of a friend of a friend has put me in touch with a local realtor there that she promises will be low key :)  We'll see what price they come up with using comps.  

[Sunny Shakhawala]

@Ian Bautista Pay for an appraisal. Go from there.