Fair market value price

[Gary Gristick]

I recently contacted a 4-unit owner about his intetest in selling his rental property. this is an off market deal. below is what i got in response. any advice on what steps/actions on how to tackle this? “I was not planning to sell but I would consider a fair market value offer.”

[Hadar Orkibi]

@Gary Gristick you raised a VERY valid point here. 

The respond that you got from the owner is common.

First to be a successful investor you need to know your market and know what things are selling for and what they appraise for. 

Now, saying that, what things appraise for in small MFR is not what you would want to pay. The reason is that its appraised by the units/ per door. 

So 2 bed apartment will rent for say $575pm and will appraise at say $55k.  This is very low return. near 1.2%. Depending on your market, you should achieve better returns then that if you buy right. 

I keep track on what things are selling in my market and quote that to sellers when talking to them. 

always try to see what their price expectations first, if you cant get an answer you can say something along the lines i mention bellow. But you start with asking questions to see what is the sellers Opinion on HIS property.

Are your units rent ready? what condition is the roof? how old are the Heating and Air?

any vacancies?  see what he say and if they say that the roof is old and the units have some deferred maintenance its good start.

"we are buying between 25k-30k per door, a complex in 123 Main St just sold few weeks ago for $33k per door, although it needed some work it was in reasonable, rent ready condition."  

STOP and listen how they react.

"We will need to visit the property and walk though the unit so we can establish an offer price, of course it needs to work for both parties, and you need to be happy about the price. when would be a good time? "

If they didn't reject you by then you know you have room to move forward. 

I hope that helps, i know first hand how difficult it is to "know what to say", but practice is the only way. 

Last week i had an investor I kind of mentor listen in to a conversation i had with a seller, the seller "shot down" on us first time. but the follow up call went much better. 

Always ask the person you call if it "is it a Bad time to talk?" if they say Yes you reschedule, if they say no or "i have few minutes" then you are good to go!

Good luck!