Assembling Lots for Multi-Unit Dev - Negotiating Pitfalls w Owner

[Account Closed]

I'm working on piecing together 3 lots with 3 different owners in a hot neighborhood in Denver. Each lot has an existing SFR on it. Zoning is higher density, so the more dirt I get, the more units I can build. I've got the largest lot locked down and I can put 4 units on it, so I dont *need* the additional lots, but having them included will make this project a lot more attractive.

The owner of the adjacent property to the one I have under contract expressed an interest in selling because they are moving next month and had planned to keep their home as a rental. Their asking price is reasonable.

I have not spoken with the 3rd owner yet, who's property sits adjacent to the first neighbor. I've been told his potential asking price, and it is $75k more than I am willing to pay.

My question is this: what are some things I need to consider when negotiating with multiple owners on the same block? If they start speaking with each other it could potentially blow up the deals. Do I include an NDA in the purchase agreement? What are some approaches or tactics that I can use to help navigate this situation more smoothly? 

To be clear, I don't need the other two lots to make this development project work and I have let the first neighbor know this.

[Travis Sperr]

Make sure you are locked up on the 1st parcel and negotiate accordingly on the other parcels. You can be very clear on what you are looking to accomplish - getting all three properties - but you are a developer and have to maintain a profit so your offer price is set accordingly. 

What I see a lot of is offer a price to close quickly - then offer a higher price to be under contract until you can obtain permits - in Denver on 5+ units is about 5 months right now with the right team. This significantly lowers your risk in the transaction so it makes sense to pay a tad more. In some neighborhoods the value of the 2nd or 3rd property is more valuable to you than anyone else because it might be too small to buy for another investor unless they also assemble the lot on the other side.

[Travis Sperr]

Make sure you are locked up on the 1st parcel and negotiate accordingly on the other parcels. You can be very clear on what you are looking to accomplish - getting all three properties - but you are a developer and have to maintain a profit so your offer price is set accordingly. 

What I see a lot of is offer a price to close quickly - then offer a higher price to be under contract until you can obtain permits - in Denver on 5+ units is about 5 months right now with the right team. This significantly lowers your risk in the transaction so it makes sense to pay a tad more. In some neighborhoods the value of the 2nd or 3rd property is more valuable to you than anyone else because it might be too small to buy for another investor unless they also assemble the lot on the other side.

[Kelly Sennholz]

I understand the problem. People talk. Not sure you can stop it. But many people do not understand the issues involved and, talking them down, $50,000 additional may be a reasonable price considering the additional units you can build. Great job. 

[Account Closed]

That makes sense, Travis. An extended close on the adjacent lot works better for the seller anyway.

[Matt M.]

Have a trusted associate reach out to them as the buyer if you are worried about them talking. Then let him/her transfer the deal over. 

I would be weary of speaking about development, because then they might think their property is worth a lot more. Like this seller in Rino;)

RiNo holdout on planned Catalyst block wants $750k for 1,319sf home

[Nick L.]

I agree with the other comments. Also, you could add a contingency in house #2's contract that states you will only buy it if you can get #3 under contract for less than $xxx. That incentivizes #2's owner not to talk to #3. If the price of #3 does go above $xxx and you still want it, you can always waive the contingency.

[Kelly Sennholz]

Great ideas, all.

[Scott Brafford]

I like Nick's contingency idea.  You could also offer them a small bonus so they are your advocate in a weird way.  

Question - Is the #3 parcel notably bigger than #2? If not, and it's obvious you don't need it to make your project work, then #2 telling them they sold for $X ($75k less than what #3 is thinking) then that might sober them up as well.

[Account Closed]

@Scott Brafford - both #2 and #3 are the same size (3700 SF). The parcel I have under contract is the large one (6700 SF), and I discovered yesterday that I can build 6 units on it.

Thanks for the suggestions everyone!.

[Jesse Rolla]

@Account Closed I'd be impressed if you could 6 units on 6700sf lot.  Assuming it's a standard 125' depth that only leaves 53' for your width.  The biggest issue I see here is how to park the units. Perhaps you're loading off an alley, can't really tell without knowing the lot.   We do a lot in the area and be glad to give you my 2 cents if interested. 

[Account Closed]

@Jesse Rolla - the lot is 148' deep with side alley access. 26th and Clay - you know the property.

[Jesse Rolla]

I know the area. Something to think about - at 148' depth it makes the lot width sub 50' which is the minimum lot width to develop in most building forms. Not sure if that was on radar for you. Do you have a workaround for that?