Can you come up with a strategy to make this deal work?

Question

Hello All,

I found a vacant four family in Connecticut. I mailed the owner in Manhattan. He contacted me. We discussed the property. I went to view it. It has been vacant for at least a year and a half. The radiators are busted. There is mold. Paint is peeling and other problems are there that you would expect for a house that has been left vacant for a long period of time.

This is the first time I have talked to a seller directly and I am not much of a negotiator. In the past, I just write an offer that works for me and then if they don't like it, I walk away.

This guy wants the appraised value of the house from 2013 which is 250k. Other four family properties in the area of sold in the 180k range. This is in a better spot and the units are bigger, but it is certainly not in 250k condition.

The seller also thinks it can rent for $1000 for each unit. I am currently getting $750 but could probably get $800 for units of similar size and quality.

I asked if he would be interested in seller financing and he said yes.

How would you make this work?

Philip Williams · Answer

First stop apologizing, are you interested in being the sellers friend or in finding a great deal? In highly distressed properties like this one, I have said the following more times than I can count. This property is a major problem and a huge project, it is going to take lots of time and energy and stress. For x price I am willing to make it my problem, I will not pay any more blah blah. Honestly it's mainly just the truth not a negotiating tactic. From what I have read above nothing about this sounds like a great deal, offer him what you think it is worth to you and instead of fretting about it keep looking for a great deal. While you are worried about this mediocre deal because he is willing to finance you may be missing a home run around the corner!

Mat O'Grady · Answer

@Philip Williams

I agree, I just wanted to make sure I wasn't missing a way to make it a good deal. I was looking to see if anyone on here had some idea I didn't think of.

@Tobias Stoll

There is a judgement against the house for the water liens, but it didn't sound like they were going to foreclose. I will look into it. He didn't pay the water bill when there were people there and then they keep adding to the bills with interest.

Tobias Stoll · Answer

if there are unpaid waterbills just wait for forclosure,  but if it has been empty for years how can there be waterbills??

Mat O'Grady · Answer

Good morning All,

I explained to him that the only comp I could find was 175k and that from gathering estimates for the work that needed to be completed it was roughly a 100k rehab, I offered him 100k cash to buy the property. He sounded insulted by it. He kept saying the appraisal is 311k and it can bring in 48k a year. I apologized to him and told him that with the amount of work that needs to be completed I couldn't pay the 250k he wanted. He then said he thought I was a real estate investor and that I had done my research. I apologized again and told him that I would help coordinate contractors to fix it and if he gets the building up and running that I would be interested in purchasing the property for the 250k.

After speaking with the building inspector, I found out it has been vacant for a few years and they were the town was the ones who boarded it up. Also, there is a judgment against the property for $16k for unpaid water bills.

I am hoping that by apologizing to him and offering to help him get the property going, he will maybe call back in a few months and want to take the offer.

Any thoughts on how I could have done this differently or how to proceed?

Thanks!

Karen Margrave · Answer

The devil is in the details. Seller financing means nothing, if the terms aren't favorable to you. What specifically are the terms? He's asking a higher price for the property than it's worth, has rental projections that are over the market, and the house has mold which could be costly to deal with.

I'd say get more details on the financing, get an inspection on the property, and after you have that you will be in a better position to make a decision.

Dave Passey · Answer

@Mat O'Grady
Find out what makes him think it is worth so much more than the market value. Then show the comps and do the cost breakdown and ask “How am I supposed to pay above the market value for the property when it needs $X of work?” then shut up.

He will either have an answer for why you should pay more than the market price which will let you know to move on to the next deal, or he will help you solve the problem of he price being too high.

Find out more about the property being condemned because if he is going to lose it all together then you can certainly use that as a bargaining chip. But more than all of that, find out what is motivating him to sell. Does he even care if he loses the property and gets nothing? Right now he has a property that is just costing him money every year and bringing him nothing.

Additionally, buy the book called Never Split the Difference: Negotiating As If Your Life Depended On It by Chris Voss. This book will make you into a master negotiator if you work at applying the principles. You are negotiating every single day of your life whether you know it or not, so you might as well become good at it.

Mat O'Grady · Answer

@Dennis M.

I agree, but I think there is room to negotiate, but I am not sure how to approach it without offending him or cutting off negotiations.

Mat O'Grady · Answer

@Jackson Pontsler

Good point. I forgot to mention that the house is condemned, but I haven't gotten the full story yet from the building official. I am suppose to call back today to get more information.

The problem is he owns the house free and clear and thinks it is worth more than it is.

I will try the comp approach you mentioned and see what happens. The last bit of conversation I had was that he would do seller financing but he would want $100k down. I told him I would get back to him in a couple of days, but doing 100k down is not going to give me enough money to rehab.

Jackson Pontsler · Answer

What I do when it comes to negociating.  T

ake the lowest comp in the area, - (retail cost repairs) - resonable profit = purchase price

provide a list of repairs and what those costs are.

Show him the lowest comp and how nice it is.

Then when it comes to financing this is where you can increase your offer slightly if its owner financing because he can provide cheaper financing than a bank and he will ultimately make more because he is getting interest on a loan.

When he asks "why do you get a profi"t you mention that you are taking on the risk of fixing up the property.  If you find another skeleton it will cut into your profit.  The house has been vacant for a year and a half who knows what else you find (cracked foundation, drugs, look up police acitivity in the area) but if the house gets worse and is condemed by the city for being a hazard to the community he will get basically nothing for it.

Can you come up with a strategy to make this deal work?

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