First Ever Property Viewing with Potential Seller - What to do?

[Marc Dela Cruz]

Hello BP, I sent out some direct mail last week and got a call from a potential seller. I'm visiting the 18-unit property tomorrow and meeting with the seller. He bought the property in 2014, 100% vacant and with a lot of deferred maintenance. Now, all the units are completely rehabbed and are in excellent condition. The unit mix are two 2bed-1bth and 16 1bd-1bth. Here's the thing: since the owner rehabbed the entire property, 11 units are vacant and only 39% occupied. Current Income is $183k, proforma with all the units occupied and at market rent is $420k. Also, according to the seller, since it's practically brand new, he has no operating expense info to send me, only the recent rent roll and claims the building will be full soon. The seller asking price is $333K per unit. Which is about 6 million dollars. I sent him proof of funds but it's only 12-14% of the down payment needed for a 6 mil loan. Owner is open to creative financing, and there's a current mortgage and no other liens on the property. Seller motivation is to get closer to its core investing area. So here's my question... what questions should I ask tomorrow? What should I look for? Is this a good deal? This is in the Bay Area with 4, 5, 6 cap rates.

[Account Closed]

@Account Closed, maybe it doesn't matter to you, but it matters to me. I'd like to know how much the seller paid and how much the seller still owes on it. In fact, I'd look up where the seller lives and what other assets the seller owns and how much the seller owes on those assets. I want to know what kind of financial position the seller is in. I'd like to know as much as possible so I know who I'm negotiating with.

Marc,

Upon a closer look, I was being too generous. $420k gross income once fully stabilized is 14.3 GRM. At 6 cap, the seller is using 14% expenses. LOL! Basically, one has to net $360k/$6M seller's wishing price to get a 6 cap. This doesn't even factor in the amount of money you're dumping into this project to get the other 11 units up and running. I standby my comment that the seller is looking for a sucker. I'm afraid you're a little out of your league dealing with this seller.

If it's in the South Bay, the seller must have good connection to get that pricing in 2014 as distressed assets were trading for $125k/door at that time. Jus for kick, I'd ask the seller what s/he is smoking. Seems like some good stuff. I would love to have some. ;)

With that much information, I can find out who owns it if I wanted to. It's a small community in this space. 

It's a learning curve for you. Have fun with the process and learn from it. Just don't be a sucker.