Making an offer that works for all

[Scott Sewell]

Hey BP Nation! Hello from Alaska!
We need some help in determining an offer. We’re looking at this as a buy and hold/segway into new development. We’re interested in a property that has serious possibility for current (or near future) income as well as future potential. It’s a large lot zoned multifamily (current zoning would allow 7 units, new zoning will take effect 2014 and allow 9, and this zoning allows multiple structures on one lot) and a well built old house that could be rehabbed into a four-plex. Strategy being: Rehab the existing, generate income and track record, then proceed with new development.
The property was for sale last year. It started out at the city assessed value of $225,000, and after a few months and no offers was dropped to $160,000 (still to high for our purposes) and it went off the market a few months later. The owners own it outright and we believe it will be back on the market soon, and we’d like to get it under contract before that happens.
We're estimating it will take (+/-) $175,000 and 4-6 months to renovate/ reconstruct it into 4 units but, our numbers indicate that even at at purchase price of $140,000 it should still throw off a 20% ROI (@BrandonTurner, we wish we could buy 5 units at your prices) and have an essentially new building.
Old, run down four-plex’s in this area go for $350-425K.
We could pay cash for this but, as we’re looking at a serious project (for us) and all the variables that come into play, would prefer to use as little of that as possible. If we made a cash offer we wouldn’t want to pay more than $110K to make sure we have contingency funds. We’re getting ready to contact the owner and make a pitch, so.....
Our questions are these:
How would you approach this owner/structure the offer?
(Obviously the $110K cash offer would come first, that could work very well for us
but seeing as they let it go of the market at $160K we’re not sure they will go for
that.)
Would you approach them about owner financing? If so, how would you make it
appealing?
How would you arrange the financing to carry through the project at minimal risk/
expense/maximum benefit to you?
@KarenMargrave: Any thoughts?

[Brandon Turner]

Hey Scott Sewell - I think I'd agree with what Jon Klaus and Karen Margrave said. Is that cashflow you expect using the 50% rule? Do you know for sure those numbers will be accurate? That would be my biggest hang up.

I'm a fan of offering two offers - So if it were me, I'd tell them:

I'd like to buy this. I can pay $110,000 Cash, or $140,000 with seller financing.

This way, they aren't deciding as much "yes or no" as they are "which one." Not sure it will work, but that's how my mind works!