What to offer for Seller Financing on Small MF (3 duplexes)

[Kurt Hines]

Hi Everyone.

I recently put in offer in on 3 duplexes being sold as Multifamily.  I got help with the costs in a previous post: https://www.biggerpockets.com/forums/432/topics/50...

I may now have the opportunity to sit down with the sellers and customize an offer that includes some function of seller financing.

The Background

The property was listed for 196k, on the market for 14 months with no activity. When I toured the property, the renters told me I was the first one to look at it in all that time.

I put the value at 85k, and offered that.  I knew it would most likely be rejected, but I wanted to do it for the practice, if nothing else. I think I will have to put around $15k into the property at purchase to take care of deferred maintenance. I would then raise rents part of the way to market rents, and as renters leave, remodel them and bring them all the way up to market.

The seller's agent came back and told my agent the seller wanted to reject my offer, but didn't want to get into a back and forth to just end up somewhere in the middle. (And I wouldn't come anywhere near the middle).  I suggested that I sit down with the seller face to face, and see if we can work out some deal that includes some or all seller financing, and if so, I could potentially offer more.

The Numbers:

Current Rents: $2442/month, no leases, everyone on verbal month to month. Most renters have been there for years, 1 moved in a few months ago.

Current Costs: Not including Mortgage or CAPEX, NOI Costs are $1809/month with 10% each for Vacancy/R&M/Management. (Many of these costs are estimated by me, the only finances from sellers are Schedule C's)

I think I can get the Rents to around $3300/mo with remodels, and costs to stay about the same. (Lower some costs, but increasing amounts for % based costs).

Bank Financing Option

I'm working with a local bank that is offering 4.5% with a 5 year ballon, on a 20 year amortization. They have said this property can be financed commercially with those terms.

The sit-down Scenario

If I get the opportunity to sit down directly with the sellers, I'd like to be able to present a win/win scenario. I know for a fact they don't want to deal with this property anymore, but they also have very unrealistic value assumptions.  They have been told by their agent that their value makes no sense.  They could get more money (still not close to $196k) if they split the duplexes up, and sold them individually to individual sellers, but I don't think they want to do that.

My goal is to minimize two things.  The cash I have to put down, and my monthly costs, especially in the beginning, when I will have to put money into the property.  I'm thinking a scenario where they get a down payment, then a low or no monthly payment for a while while I am stabilizing the property.  This might also be an opportunity to get a longer term until a balloon payment is due.

In this area, everyone is familiar with Land Contracts, and nothing else when it comes to seller financing. So if I offer something around a Note, I'll have to explain it from the ground up.

The Question

What does everyone recommend I do when talking to them, what offer to give, and how to explain and sell the offer? Are there types of offers I'm simply not thinking of?  What other ways can I give a win/win scenario?

Thanks!