MFR in complex with foreclosure comps

[Phil Damjanovic]

Hi all,

I'm a new member to BP so this post serves as both an introduction and a question. I've been reading BP for a while now and have been absorbing the wisdom but haven't created an account until now. My wife owns a SFR and a condo, but she kind of fell into those (lived there, then moved and rented it out) rather than actively invested them.

The two properties she has, have been very good to her and trouble free the last 4 years, so we are looking at buying some more income properties. We've found one that looks interesting. It's a 4plex in a complex of identical 4plexes, in a good area. It's fully rented, total rent of $2700/mo. Same tenants for the last 3 years. Asking price is $140,000 and I think it should cash flow reasonably well. It's been sitting on the market for almost 4 months.

I called the listing agent and the conversation was unusual. The agent sounded kind of apathetic about the property ("you can take a drive around the complex, you know, if you feel like it", "I have a guy putting in an offer on a similar building in the complex, I guess we'll see what kind of offer it is"). He told me that there were several foreclosures in the complex a couple of years ago where a few of these 4plexes went for 55k-60k. Nothing else has sold since. He also mentioned that a recent offer fell through because the 4plex didn't appraise (the lender's appraiser used the foreclosures as comps). We looked up the property records for the complex and it looks like almost every one of the 40 buildings in the complex is owned by RE investors.

Feel free to correct me...but I assume this explains why it's been sitting on the market for a while. Any investor that looks at it realizes that despite it being a profitable income property, if he pays somewhere around the asking price, he might be taking a big risk in the form of valuation risk...because the most recent comp sales were the foreclosures. This assumes the buyer pays cash. In the more likely event of a buyer using a lender, it won't even get to that point.

My question is to those of you who have seen a similar situation: is it worth pursuing? If it is, are there creative ways to structure a deal so that the seller gets enough that he's willing to make a deal and at the same time the buyer doesn't take on too much appraisal risk?