Commercial Multiplex Opportunity, Any creative financing options available?

[Samson Kay]

In my travels these past few weeks during my journey as a new real estate investor I happen to be presented with an opportunity to buy a 5-unit Town house style multiplex. The seller is a client of one of my contractors and my contractor tells me, that the seller is motivated (just suffered from a stroke, and has some other health issues) and is looking to get out of the real estate game.

I haven't met the seller yet, but I have been by his property, and it has HUGE potential. It is a 5 unit (3BR-1BATH) town house all adjacent to each other with a garage per unit and additional parking. The area is decent. I see this a a buy an hold for a few years and potential condo conversion.

The asking price is 650K. Gross operating income is 90K annually which is a cap rate around 13%. Comparative cap rates in this area is around 10%.

The owner owns the property free and clear, but it seems like he doesn't want to deal with commisions for a listing agent and would rather sell to another investor. I'm sure he may also take issue with capital gains when he goes to sell.

So I'm trying to schedule a meeting with the seller if we can talk about it. I wanted to see any of YOU BPer's had any insight on how you would approach the seller, and if you had any ideas on creative financing. Like seller financing etc.

Also I need some coaching on how to negotiate the price down, Although I like this property, Comparable multis in this area are going for 4-500K. Which is more in the range that I am thinking.

Thanks in advance!

[Tom Goans]

My first red flag:

Originally posted by Samson Kay:

has HUGE potential.

Dollar signs can cloud judgment. Personally, I do not judge a property or its potential based upon what others are or have done ... that is unless I owned the others. The reason, may actions are unique. I may be more aggressive at seeking success than the other owners and managers.

I am not a “comps” person. Never have been in my almost 50 years in the business. I do include the consideration when developing marketing plans or seeking ways to outperform.

I feel it is important for you to learn everything there is to know about the seller. Go way beyond the stated reason for wanting to sell. For example, if it is such a great cash flow and does not require much attention to be a great cash flow, then why would the seller want to sell? There may be more than the health issues.

Consider this, what will the seller do with the money?

This question alone can open many doors of opportunities or expose skeletons in closets. This single question can be a critical consideration.

One door of opportunity is the seller providing financing. The other, the seller may be willing to consider a lease with option to buy. This gives you the opportunity to give the property a test drive before the major financial commitment. Does the seller want to pass on to heirs (grandchildren, etc.) a cash flow - one that can provide for higher education?

The opportunities are almost limitless. Good questions expose opportunities and motives. Once you have a great understanding of the seller, then you have a better idea of how to make an offer that is a win for everybody.