Meeting about a 24-plex, 100% owner financed. thoughts?

Question

Hello friends,

So I took a chance and mailed out 2(yes, only 2)  letters to two different apartment complex owners. I had some free time  and used the google machine to find their home addresses. Three days  after mailing the letter, I got a text first thing today from one of the  apartment owners who wants to meet on Saturday. I am beyond excited. I  clearly stated in the letter that we(my wife and i) are interested in  the property, but would need owner financing for a couple of years  before we could afford to refi and pay him off in full. It was a total  shot in the dark, but he is interested.

So, we bought a 4 plex  last year, with conventional, 20% down financing. That is the only deal  we have done. I know that we can handle a 24 unit, especially with the  right PM company. Since we haven’t ever bought such a large building,  what would you recommend asking for? Rent roll, last few years of tax  returns/ expense reports. What questions would you ask. I have already  written down quite a few things that I want to talk about, but I am  trying to make sure I have all by bases covered.

I would  appreciate any recommendations on what to ask during this meeting. I am  not a big “salesman” type of guy, so I am not really sure how to  approach the seller financing conversation. I am just a good ole boy.  Hopefully the seller is the same!

thank you!

Marko Cvetkovic · Answer

If It was me, its the 1st meeting so just try and listen to what the seller is wanting. Obvious they are interested to sell, but questions I would ask is to get to know them. Why are they selling? Is there a price they had in mind? Are they open to financing?    Good luck

Jay Hinrichs · Answer

@Karen Thomas  my experience dictates that a no money down deal on multi happens for only a few reasons.

1. ghetto property  just want to unload on the next victim

2. wants to sell for far more than its worth give you the management headaches and be prepared to take it back if you falter.

If you picked this one to mail to then you must think its not a ghetto dog with unmanageable tenants then my next thought would be the price will be far more than its really worth to a cash buyer. Or buyer that can get a loan and cash him or her out.

John Thedford · Answer

You need to do a complete financial evaluation. A good book on this is "what every investor needs to know about cash flow" by Galinelli. I would also suggest getting an appraisal by a qualified appraiser with experience in this type of property and your market. Also consider getting a good quality inspector. You also want to get a P&L for the last 4 years and I would ask for a copy of their tax return relating to this property. You don't want someone understating expense or overstating income to come up with "market value".

Alec Siebert · Answer

I don't have any advice either, but just as a brainstorm I was thinking that if they owner finance at a crazy rate I would maybe counter offer with something like having them help or fully pay for any capital expenses that come up during their financing.  Still, thinking about it capital expenses are sometimes relative where they would try to repair something that you would rather replace.

There is an article that I just read on bp.com about due diligence on buying and retaining rent property, which included getting their insurance to see if the property is in a flood plain. Also, make sure the expense report is a twelve month break down so you can see when their heavy expense months are.

Good 'ol boys are usually straight shooters and that is either appreciated greatly by the seller, but they might think they can just roll over you.  Either way, you want draw your own line in the sand that you don't cross because you don't want major frustrations later.

Michael Wentzel · Answer

@Karen Thomas

Great job sending a couple letters. Regardless of what happens, sitting down with the owners will be a huge learning experience for you. Get an idea of what they are thinking and why they are looking to sell. It seems unlikely that the first deal you pursue would go through to the end, but the opportunity to learn for free is great.

We are also looking to acquire our first multi-family with over 4 units this year. I have a friend with tons of experience in commercial deals and he has been helpful in talking me through the process. I would try to find someone like this in your local market who has done some commercial deals and is willing to share experience with you. I would also speak with a couple commercial brokers, as they could help you learn the process and analyze this property.

Mike

Joe Paoletta · Answer

id get 2-3 years Schedule E's for the property. see all leases. Call city/county for violations. Ask a cop about the complexes reputation. Check county clerk of courts for pending evictions. Check County auditor, see if they are current on their taxes. If it goes to the next step, insist on estoppel letters sent by you to all current tenants, to verify lease terms.  Then, pretend you are a bank, load the property with 5% vacancy, 5% mgt, 5% reserves and 5% other on top of current expenses and see if it'll make debt service. If not, your wasting your time.

Remember, every property goes up for sale eventually. Don't get stuck with an albatross.

Mike Hanneman · Answer

Well you are going to have to ask for the terms, price, loan terms, etc... Next you need to get all the info you can get on this property from him, income, expenses, etc... I would ask how he was screening tenants too. Then kind of go from there.

Chris V. · Answer

I agree with Marco; I'd just hear what they have in mind etc. Get as much info as possible. Ask if the are currently negotiating with any other buyers. If you think it sounds like a good deal you will want to bring in the professionals though, because from everything that I have heard these apartment complexes have a lot more ins and out than your regular old triplex or fourplex. There are few bigger pockets podcasts that deal with buying commercial property and one of those was detailed enough to give you some pretty good idea of what you are getting into. I would definitely listen to those first. On those podcasts they also suggest some books specific to this topic I think

Good luck and let us know how it went!

Nick Kutschke · Answer

please keep us updated in regards to this property. Wanting to make something happen as well in this caliber of market. @Karen Thomas

Gary Dale McKee · Answer

I don't have any useful knowledge to help you but I do have some questions about your 4-plex acquisition.  I am waiting on a call to go look at a 4-plex myself and would love any advice you'd be willing to give.  This will be my first deal and don't wanna make any big boo boos.

Meeting about a 24-plex, 100% owner financed. thoughts?

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