how low is a low ball offer?

Question

I am wanting to purchase a 4 unit building. I have found one that I am interested in that is for sale by an owner agent but not listed on the MLS. The asking price is 199,900. The owner paid $140,000 in 2010. This is an older builing (30 yrs old) in a new area so it's hard to get an accurate comp because all of the other building for sale are 25 years newer, but those have sold for $178. I was thinking of offering $160. If you were you seller would to you consider that a low ball offer?

Ed L. · Answer

I'd offer 120 and make sure I wasn't within spitting distance..... I lose alot of bids, but I'd rather pick up 3 good deals per year instead of 30 marginal ones...

Bill Gulley · Answer

Look at it this way, a low ball offer may only be low due to the asking price being too high! That's not low from that asking price, if that's what you are willing to do, go for it! Good luck...

Jake Kucheck · Answer

It's a multi-unit, right? Have they provided current rent info, verified with existing leases? That rental/expense info will tell both of you the price, so what they paid for it and what they want to sell it for now are both irrelevant.

Will Barnard · Answer

Bill makes a great point, one i would have made had he not. My advice to you: Stop worrying about hurting someone's feelings, this is business, make your offer based on the financials, forget everything else. Secondly, when list prices are reasonable, I have found that motivated sellers will enetrtain offers within 80% of their ask price. That number can obviously fluctuate betweendifferent sellers, but in my experience, things can get done at that level. Your offer is just that, 80% of ask, so start writing your offer! (So long as the numbers make sense at that figure)

Ned Carey · Answer

Along the lines of what Bill Gulley and Will Barnard said: Never base you offer on what you think the seller may accept, base it on what makes it a good deal for you. You have no control what the seller will accept. You have total control over what you offer. Well of course they have it's over priced. Going by either the 50% expense rule or, the rents should be 2% of the purchase price rule, it is a weak if not bad deal. Quick math 26,400 annual income 13,200 50% expenses 13,200 Net operating income worth: $132,000 @ 10 cap $165,000 @ 8 cap

Will Barnard · Answer

And by the 2% rule, the offer would be $110k. 1.75% rule it would be $125,700 1.5% rule it would be $146,600

Joel Owens · Answer

Another factor is all the apartment buildings for sale.Maybe you could land a partner and purchase all buildings for a discount.You could then re-purpose the land and possibly sell to a developer. New carpet and tile means squat.Carpet is cheap and so is tile.The roof,kind of pipe running to the main at the street,age of kitchen,bath,roof,mechanicals,water not separately metered,etc. Those are the ones that can eat you alive. "The rents are $550 per month. They are 100% occupied." What are market rents TODAY?? Sometimes I find more experienced landlords haven't raised rents in sometimes 5 to 10 years!! They have low debt service and rather spending money turning units and having that market rent on top they keep rent the same to make the tenants not want to ever leave. They just do not want the headache to get that extra little return.What they value after doing that for years is TIME instead. Not all are like that but I find many are.

Jessica B. · Answer

There are a lot of different things to consider, and no hard and fast rule on how low is "too low". Well, other than them telling you that they don't know where you got that number from and hanging up. That can just as easily be them living in a dream world though. How long has it been on the market? What type of condition is it in? Does it have anything that makes it substantially better than the other multi-units that have sold? What does the monthly income look like currently? What is it if it's full? How does this compare to the other units that were sold? How desperate is the owner to sell it? The best thing to consider is your numbers. If the numbers don't work at the price, then no matter how good of a "deal" it is, you're still losing.

Will Barnard · Answer

Sound advice, something you should always do. Lots of info can be gained from dong this, not otherwise disclosed from sellers.

Just Don · Answer

you said roof is original,,,,maybe,,,On this old of building better not be. Have you or your trusted roofer crawled up for a look. Ground views are worthless. IF by chance this is a flat roof, built up, it could become a nightmare. High maintenance and replacement per year. Heating and AC same way. add to this ALL the plumbing,,,,is it copper, galvanized iron,cpvc,cast drains????Or lead drains first? Have you looked at this building when its raining??? Drainage working,bad puddles in bad places?downspouts functioning? If they bought and trying to sell this soon after,,,something doesnt smell right. BEWARE of buying their problems. Talk to some tenants, they will know and tell you hidden problems