8 Unit apartment complex - What I need to know going in.

[Nicholas Armstrong]

Hello everyone!

I have a potential deal in the pipeline. A local investor is selling his 8 unit complex that he has had for over a decade. I have mentioned seller financing to him and he is interested in talking about it more. We will be meeting for lunch next week and I just want to make sure I have all the information needed before sitting down with him.

• This is actually two 4 unit complexes on the same lot so would this be considered a commercial deal? 
• What's my best bet in convincing the seller he should finance the deal?
• What are some questions that I should ask the seller during our meeting?
• What are some creative ways to structure this deal without completely liquidating my capital?
• Any pointers for my first multi-unit deal?

Any help would be greatly appreciated. Thanks!

[Jeff Kehl]

@Nicholas Armstrong You've already got some good answers to your questions but I'll add a few things. 

The most important thing is to find out as much as possible about the seller, why he is selling and what his future plans are. Helping him to get what he needs while you help yourself is your best bet.

Is he needing cash for another investment? If so he probably doesn't want to finance the whole thing. Is he retiring to the good life on a beach? If so a secure 5-6% return might look pretty good. 

How much of a tax hit is he looking at if he sells outright? Ask what he paid or better yet look it up on the county records. He'll have depreciated that for 10 years so subtract about a third and that is his basis. He will pay capital gains on the difference between what you pay and his basis. If he sells to you on contract he can spread that tax liability out. 

Why do you want owner finance? Is it because you've heard it's a good thing to do or because you have a specific reason? It's a little strange but these days commercial financing can sometimes be more cost effective than what an owner would do unless they're willing to accept a really low interest rate.

The situation I see a lot recently is a retiring baby boomer with plenty of equity. They want a chunk of cash to buy a beach house or something but they also like to hold a smallish note for extra income. I do commercial financing for 80% of the price 4-5% interest and then ask them to hold a second note for 10-20% with 5-10 year terms.

This let's me conserve my down payment capital for other deals, and gives them a chunk of cash and some income. Just make sure it cash flows ok with both of the payments. 

One additional benefit, I have had luck contacting them after a year or 2 and asking if they'd like to settle the note for a discount. I've done this 3 times and every time they say yes. I think it's a psychology thing. They just have mentally moved on and are ready to close out the note because it's their last reminder of the property.