First Apartment Offer- Suggestions?

Question

So, I started another thread just asking about the place I'm looking at. The long story short is this-

Unless I find something horrifically wrong, the 10 unit apartment complex I'm looking at looks like a good value. Full asking price would be fine by me. That said, I am not PRE qualified. I went and talked to a bank and they didn't think that they'd have a problem loaning me the money, but I know that the sellers have talked to a few investors who are prequalified. Aside from a single family rental I own, I'm not a big time investor (yet). So I feel a bit discouraged in writing an offer. Any suggestions? In short, I feel like the best I can do is offer their full asking price, contingent on financing, and giving myself a decent window of time to make that happen. Is there anything that I could do to make my offer more appealing? Can I just ask them that? I really don't desire to offer them more money (who would), but a little more wouldn't hurt if it meant that they'd give me the time to work with the bank.

I'm open for ideas or suggestions. I've got a lot of bank paperwork to fill out... Earnest money? Would that sweeten the deal? Again, I'm open for thoughts. I'd love to snag this place. It's the perfect sized investment for me.

James Kojo · Answer

The most important criteria to most sellers is the price. That said, the 2nd most important criteria your ability to close.

For a 10 unit, skip the letter. That will expose you as a SFR investor. If you're trying to buy the SF that mom-and-pop raised their kids and grand-kids in, then maybe it helps. The owner of the 10-unit is a fellow investor, so you need to speak his language. Talk money, time, contingencies, and ability to close.

Money: you can only offer what you're going to offer. If it's on-market with multiple offers, you'll likely have to be either the highest bidder, or something very close. Run your offers by the listing broker before you submit them. S/he may give you a hint of where you're at. You can also submit an offer with seller financing: provide a spreadsheet of monthly P&I for X years at Y interest rate, and the total payoff at the end. That works for people who are exiting land-lording that still want a steady income, or want to avoid the huge one-time tax. You can also offer higher EMD.

Time: Be aggressive about DD and financing timelines, but not beyond your ability to perform.

Contingencies: likewise, you can be aggressive, but if you really do need to land financing, then you'll have to put a financing contingency. The likelihood of someone taking your EMD is much higher in commercial REI. In very competitive situations, it's not uncommon for buyers to offer a portion of the EMD that is non-refundable from day 1 (sometimes referred to as "going hard" or "due consideration.") This is an advanced strategy for those that really know what they're doing (or really don't care about money.) If you're seriously considering doing something like that, I can talk you through the basics.

Ability to close: What's your experience and track record? What's your threshold for re-trading? Who do you have advising you and/or who's on your team? Can you provide a proof-of-funds (POF?) Who are your PM, loan-broker, legal, mentor, etc? I have a short "investor resume" that I send to all of my potential deal sources. If you think you can perform well in an interview, offer the seller a buyer's interview so s/he can vet you.

I hope that helps and good hunting!

James Kojo

Joe Edwards-Hoff · Answer

They accepted my offer.... Now I just need to get financing to stick!!! Sounds like my HELOCs are going to be close calls. If they appraise at what Zillow says (which really looks logical to me by comparing to houses in the area) then I'm in.

They accepted a 60 day closing window AND verbally sounded open to an extension if we ran into problems.

Would I be wise to try a couple other places for financing? I've only gone to 1 so far... Someone willing to do a higher LTV on the home equity loans would help. This one is standard 80%. Just got to get my 20% down put together. God is good...

Joe Edwards-Hoff · Answer

So, I've talked with the lady. I'm going to write the letter. Turns out our kids take piano lessons together. And she knows who I am because I am a local pastor and she recognizes me from my posts on Facebook that most our town sees. I really feel like the personal side of things is the only thing that will pull this through. She made it pretty clear that they'd like to sell to a local person, not a big investor. They have a few properties, but it sounds like they got them all from their dad and they just want out now. Too much for them to handle. They manage it all themselves, husband works full time and mom is someschooling 6 kids. My kind of family...

Offer goes in today. The bank told me it "might take 30 days" so I'm going to put a close date of 45 days out. And from what I read, if I am doing my best, and the bank is going a bit slow, an extension is a standard practice.

Peter M. · Answer

Something we have done twice with personal houses is write the seller a letter. Did they ever make the difference? I truly will never know but we got the places both times in multiple offer situations. Just an idea. Money is the real decider. Be careful what you write but it could be the difference if your offer is close to the next best. After you write your letter read it from the perspective of an investor who has owned this property for years. Would the letter nudge you at all other offers being the same? The #1 turn off will be lack of confidence that you can close so convince them you can. Good luck.

James Kojo · Answer

@Joe Edwards-Hoff I stand corrected! (about not writing a letter.)

Thanks for the gentle reminder that real-estate is ultimately about relationships! That's a point that is all too easy to forget. :)

Good luck!

James

Stu Basham · Answer

@Joe Edwards-Hoff best of luck with this. I'll be watching your progress and rooting for you! Keep us posted!

Henri Meli · Answer

@Joe Edwards-Hoff Looks like you found Gold there. Some of us spend years trying to find owners like that ... Good for you.

1. They have lots of MF properties

2. Managing the properties is a hassle they don't enjoy.

3. The want to sell to local investor

4. You have a common value system.

Offer to take this "hassle" off their hands. Make sure they know you are not only interested in this property, but you could also be interested in the other properties that causes them lots of pain. You want to be the first to look at others ones as well, before it is offered to someone else.

Good Luck !!!

Joe Edwards-Hoff · Answer

curious, when buying a property like this, does the income from the rental property factor into the DTI?

Joe Edwards-Hoff · Answer

Going in by myself. Its 10 studios plus a 3bed single family for 350k. They said last year they brought in 5500 per month total. About 600 cost per month in taxes and utilities. and our town has a DRY rental market. Hard to find a home to rent around here. I know that some units will need work,  but I'm a handyman so it looks like a good fit.

I will write them a letter.

Do I write them a letter AND an offer? A letter as my offer? Letter then offer? It is for sale by owner. Forgot to mention that. They bought it for 250k 2 years ago from their dad. They said that they just don't have time for it and could use the extra cash.

Henri Meli · Answer

If you feel that it would be a good deal for you, even offering more money, then go for it. I always attach a letter explaining why I'm offering what I'm offering. Make sure you are confident about your numbers. Or even better, see if an experienced investor can review the numbers with you (even for a small fee), just to have another pair of eyes look at it as well. Are you using an agent to negotiate for you? Or are you going into it by yourself?

First Apartment Offer- Suggestions?

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