Help me structure creative-finance Offer Structure for 6-plex

[Andrew Kniffin]

All:

I'd like your help in structuring a creative solution to buy a 6-plex that is physically in good shape, though financially it's a mess.  

Here are the details:

• "Ask" price is $299K, though Seller's Agent has suggested to me that deal may be attainable at $250K. 
• Will be a Short Sale.
• Owner is in default on his loan to local bank: balance owed as of July 2014 = $254K.  Additionally, there are ~$14K additional in interest since July, and another $14K in late fees.  TOTAL DUE TO BANK would be $282K.  
• Mortgage with local bank expired in July.  Bank refused to extend/roll over.  It had been a 7 year note at 6.25%.  
• During Summer 2014, local bank accepted an offer where they'd net $210K after all commissions, fees, etc. That deal fell through. 
• Total delinquent taxes to County is ~$21,000.  
• Annual Revenue Generated is ~ $56K.  At $250K purchase, that would be close to "2% rule".
• Building is in good physical shape.  I ave already done a walkthrough.
• Market brochure advertises NOI of $42K, though that is high. I'm assuming net NOI of $27K, after reserves vacancies, property mgr, etc.

ISSUE:  How do you structure a deal that would satisfy the Short-Selling Bank, the County (backtaxes), and the Owner, while still being financially viable for Buyer? (Sidebar: does the owner matter - he would not get anything regardless.)

Would very much appreciate everyone's input here.  I want to be courageous, but not rash, in pursuing this one.  

[Mitch Coluzzi]

To the county taxes: it is unlikely you will be able to negotiate them.  Taxes take precedent over mortgage.  That said, typically the bank will pay up the taxes so they can further pursue foreclosure (they have a better chance to negotiate a reduction, but even that is unlikely).

Why did the 2014 offer fall through? Did they uncovered something in their due diligence that you should identify?  Did they just realized they were vastly overpaying?  Did it appraise abnormally low?

As to the numbers; just make sure you are factoring accurately.  Is this a conversion 6-plex or a true-build.  Do you have other multifamily units in this area?  If not.. you'll want to find someone who does to compare costs and understand tenant demand / expectations.  If you cannot fill the building with tenants "what-if" cash-flow is unusable.

Keep in mind... the seller could not make his payments for one reason or another.  Is it just gross mismanagement?  This is the easy answer, often people jump to this out of ignorance to the real factors...  Perhaps there something fundamentally wrong with the property?

Not trying to discourage you, just trying to make sure you consider beyond face value.