How to structure a contract deal for a 1.6m property 21units

Question

Ok here’s the deal, 21 units, 1.6m, owners have had for 30 years, wanting to retire.

I have read all kinds of articles and post regarding how somebody else has accomplished this type of deal,Cant remember all the fine details, I’m sure there a bunch of articles, post and maybe even a audio version or two on BP how this has been accomplished.

But now is the time to take all that info and bring it together to make the perfect or close to perfect offer to convince the sellers that selling on contract is the best way to go, especially on the capital gains said of things.

Are there some members of the BP community that could help and guide me to accomplish this task?

Respectfully

Mike

P.S This is the biggest deal to date.

Swat Khan · Answer

1. Did you get the last 12 month rent roll and profit and loss statements? Without these documents it's nearly impossible to determine the value and upside of the property.

2. Right off the bat, the objective is to qualify the deal, build rapport with seller, and determine if the seller is motivated (Ask: why selling? What are your specific needs to close this deal?).

3. You will need the following to qualify the deal:

• NOI: $xx
• Occupancy: xx%
• 12 mo Gross expenses: $xx
• Owner or tenant paid utilities?: xx
• Unit mix: 
• 1 bd: x
• 2 bd: x
• 3 bd: x
• Average rent per unit: 
• Local market rent per sft: xx
• Total rentable sq ft of property: xx 
• Flat roof or pitched?: 
• How much deferred maintenance per unit (ex. $3000/unit)
• Who manages the property? 
• How many section 8 tenants does it have?

Most investors have a spreadsheet for this, but this is the best way I can relay it on this forum.

4. It seems like a high price per unit -- $75K+ per unit for a build that is at least 30 years old / 1980 built. We don't have all the numbers though, so the rents must be very high.

5. The idea is similar to Warren Buffett's philosophy of buying out good assets that are mis-managed. You would then come in and stabilize the property through your construction/property management prowess to produce upside in cash flow and equity. Also, the mismanaged would allow you to get some concessions from seller in the form of a seller carry note, repair credit, etc.

Just my $0.02 cents.

Good luck! Always make sure you are marketing so you can skip the bad deals fast and move onto the next deal. It's a numbers game so never fall in love with any property.

Mike Campbell · Answer

Mr Khan;

Some answer to you questions

Owner pays utilities?: only on laundry room

Unit mix:

2 – 4 bed 975

3 – 3 bed 850

12-2 bed 750

4-2 bed furnished 750

Average rent per unit:

Local market rent per sft: good question

Total rentable sq ft of property: good question

Flat roof or pitched?:  pitched

How much deferred maintenance per unit (ex. $3000/unit) old but seems maintained

Who manages the property? owners

How many section 8 tenants does it have? none

Asking price 1.6m

Actual income using 10% vacancy rate

Rent schedule

2, 4 bed @ 975  = 1950

3, 3 beds @ 850 = 2550

12, 2 beds @  = 9000

4, 2 beds, furn  = 3000

Laundry   = 300

16,800.00 x 12 = yr 201,600 gross  Actual income 191,917 x 10% = 19,191.70 – 191,917 = 172,725.30

Expenses

Management   1680 yr 20,000 I added this, current owners manage

Taxes   1633 yr 32,199.02

Insurance   1351  yr 16,212

Utilities  Gas  laundry  80  yr 960

Elect  ‘’ ‘’   30  yr 136

water  “ “  20  yr 240

sewer  “ “  6  yr 72

Maintenance turn over  300 mo  yr 3600

Repairs

HVAC  150 mo  = yr 1800

Plumb   50 mo   = yr  600

Elect  100 mo   = yr 1200

Reserves   300   =  yr 3600

Bank  50  = yr  600

Legal  25  = yr  300

Accountant   100 =   = yr  5700

Total expenses   86,994.02 – 191,917.00 = 85,731.28 x .012 = 1,028.775.36

NOI before mortgage  85,731.28 – 57,748.44( mortgage estimated) = 27,983.28