Should I just forget about this deal?

Question

Hi BP'ers,

Recently came across a packaged deal in PA (1x 4units + 1x 5units) where the seller is adamant about selling it as package rather than selling them individually. I am very interested in one of the building (4-units) and have more than enough funds to buy it with a conventional loan but like i mentioned, they want to sell both simultaneously to the same buyer. Not sure why or whats the reason and unfortunately my larger pool of capital is locked up in another property.

Asking Price $600K-$630KCapital available $135K

Should i just walk away from this deal? How can i proceed with this? The lenders I've talked to requires min. 25% down and 20-years loan which would impact my cashflow/month. A bit new to 5+ units, should i set up LLC for this potential deal and new LLC will really drive up the interest rates.

Appreciate any kind of guidance here! Thanks!

Mike Dymski · Answer

Make a quick offer on the 4-unit and move on if they pass or move forward if they bite.  Money talks.  If they want to sell as a package, that's understandable and you move on...they will also have your offer in their hip pocket if that plan does not pan out.

Rolland Wimberley · Answer

There are many reasons that a seller might only be interested in selling as a package deal. Perhaps he is trying to get out of the market or just selling one would make it too much of a hassle to just have a fourplex in the area to have a team there. Or maybe they are trying to 1031 exchange and need to sell both at the same time in order for the timeline to work for their bigger deal. If they are willing to tell you their reasons for packaging together, that might help in how to best come at this deal so that it works for both of you.

As for not having the money for the full 25% deposit for both properties, it there a way to make the numbers work with both together. If you had the full 25%, would the COC return be worth it? Is the deal strong enough if you brought in a partner to fund part of the deal?

You say you are newer to the multifamily deals (4-5 units). So would it be worth the experience if you trade some of the equity or share the deal? Just some thoughts on how to make it work. If the numbers dont work though, it is best to walk away instead of trying to force the deal to work and fudge the numbers. This is just a way to look at the deal from several different angles before getting to that point. Hope this helps

Troy Jones · Answer

@Forrest Hayashi No not necessarily. We offer them as low as 3.5% for up to 30 years.

Tucker Cummings · Answer

Can you network with other investors in your area to buy the one you don’t want? You could try to get an assignment fee or small finders fee. Or nothing at all just to get the deal done.

If they’re trying to sell both, it shouldn’t matter if it’s on two different pieces of paper with two different buyers

Forrest Hayashi · Answer

Honestly, great advice! i might just do this. Send them a sweeten offer on the 4 units and let them come to me if they changed their mind. Currently, the area that they are selling are in the range of 150-250K for MFR but their package is $600K+ so i know it will sit for a while.

David M. · Answer

@Forrest Hayashi

I look at it this way...  Anything other than a conforming residential loan is a "commercial loan."  So, commercial loans have different types of products, just like residential loans have different products (e.g. conventional, FHA, USDA, VA, etc.).  I believe a portfolio loan usually refers to a loan that covers multiple properties.

Hard money loans are different since they are specifcally short term, interest onlyi loans for 3,6, or 12 months or so..

Good luck.

David M. · Answer

@Forrest Hayashi

I don't have much of any ideas right now to figure out a deal here.. But, one could look at it this way:  There is no deal here for you.  You say that only the 4plex is what you want.  Well, that's not what is for sale.  Sorry, good luck.

Troy Jones · Answer

A portfolio loan would work best for a scenario like this and like you stated a lender would be needing 20% or more as a down payment depending on experience and fico. I'm curious as to why it would impact your cash flow? Is the rate you were quoted?

Nicole W. · Answer

I understand there are Portfolio loans. I never did one but you can ask about one of those.

Joshua Morgan · Answer

I'm in a similar situation, except it's me that wants to buy both (seller happy to sell one or both) but only have capital enough for 1 unit.

Seller agreed to carry back 100% of the second building as long as I purchased the other one with typical financing.

Do you have enough capital to do 75-10-15 where the seller carries back 10%? Should be able to get commercial financing under this arrangement.

Should I just forget about this deal?

Most Popular Reply