Need help with creative structuring for my LOI on a 16-unit

[Nicole (Dunlap) Pendergrass]

Hi All,

I am currently writing an LOI on a 16 unit apt building but need some ideas on creatively structuring the deal. I want to give the seller about 3 offer options and he can pick the one that fits his needs best. Any input from people really good with numbers would be great!

Background:

Only 10 months worth of income and expenses are avail bc the owner just purchased the building at that point and didn't have previous year's info. So I averaged the monthly income and expenses and x12. There is no debt service - it's free and clear. The owner has managing the property himself for a while, but recently hired a property management company w/in the last few months. Vacancy has been really all over the place those 10 months, but last I heard there were 3 units vacant (18.75% vacancy) that the PM was working on filling. The avg vacancy for the past 10 months is 26%.

Financials

Gross Rental Income: $84,000

Operating Expenses (including extra I've added for cushion): $56, 000

Asking: $250,000

But at that price, I would be in the negative at 26% vacant (assuming traditional bank financing at 20% down - which no bank will finance a negative building anyways). Even if I got the property fully occupied and averaged 10% vacancy for cushion, I would only cashflow about $400 p/month. Also, even with no debt service, the building currently only cashflows $500-$550 p/month at 26% vacancy. I keep harping on the vacancy because I know it would be smart for me to purchase based on the past year's performance (even if I know it's bc the owner didn't know how to manage!) and not just the last month or two.

The owner is very motivated and I'm looking for a way to structure multiple offers where I can:

1) take over control the building with maybe them being an equity partner ( giving them a % of the monthly cashflow and % of back end sales),

2) maybe put an initial purchase price of something small upfront like $80k (is it reasonable to think I can bank finance the $80k w/20% down? If not I am prepared to raise the $80k) and then they get the balance of whatever purchase price we agree on in a year or two? I'm assuming once I establish a history of the property performing I could refi to pay them their equity... does anyone know how much history a bank likes to see?

3) also considered forming an entity where we are both members and have them refi for the purchase price, give them their equity and then removing them from the entity

I asked about seller financing as another option and they are willing with about 50% down... but that is too much. Of course if I could convince them to get me into the deal with no real money down that would be great (no need to beat me up about "no money down" deals, I know they're rare).

Sorry I know this ended up being looooong and all over the place, but if you can understand what I'm trying to say please comment :-)