Portfolio of rental properties for sale help and suggestions

[Arian Mustafa]

A deal has come across my desk that I am hoping to get some advice from the BP community. Older gentleman who has for decades owned and accumulated class A properties, all in the same town north of Boston. I have lived in this town in the past and am very familiar with it. Excellent area, great schools, and desirable for renters who are willing to pay more to live in an upper class zip code.
This owner and his family have accumulated 60 units, a total of 14 properties. He is looking at around $16-18mil price point but is open to reasonable offers. 100% rented, all rents up to date, and pretty close to market rents, with some room for increases.

So far I have tried to stay in my sweet spot of 3-fam and 4-fam properties. However for something like this deal to come around, this type of portfolio does not come around often. So naturally I want to at least explore the idea and see what I would need to do to make it work.
Main issue obviously for me is that I do not have the 25/30% down payment for a commercial loan. Thats not happening. For anyone who has gone through this path before or has knowledge, I would love to hear some ideas of how to approach this seller. Would love to pitch this seller a seller financing option. I am willing and open to listening to any and all suggestions.

Also how does one analyze this type of portfolio? Without knowing the property condition for each of these buildings, how do you go about analyzing and seeing what a realistic purchase offer should be based on current rent rolls, rent ledger, location, condition, potential renovations needed, and potential rent increases.

[Brad S.]

Quote from @Arian Mustafa:

Got it. What I was trying to explain was that we typically evaluate a deal first - look up values, locations, financials, evaluate seller motivation, etc. Including the owner/property mgr's estimate of condition and blend that with our own assumptions. Then we negotiate on price and terms based on the provided information and our assumptions. Then we would due our full DD (walk the units, etc) to verify everything and further negotiate if things were not as they were presented. But, I understand that's not what you were asking, and walking the properties, as your doing, shows your serious and also shows they're somewhat motivated and should help with the rapport.

But, you evaluate the sfr's the same as you would the other deals you have done. And the 5+ units find out what a typical range for cap rate is for the area, as well as typical expense ratios, maintenance, etc. Ask local commercial realtors for that info. Many times you may be able to pinpoint opportunity with the Subject's current expenses, by finding ways to make them more efficient, thereby increasing cashflow and value.

It sounds like this would be a potential candidate for syndication, unless you can find someone/people/group to partner on it. In my market, there is a lot of money on the sidelines looking for deals with good returns, and good operators, so you may find that in your market also and find enough for a sizeable downpayment from them.

You could also find a lender that will do a blanket mortgage, where they would aggregate all the properties under 1 loan, then you just need to again, find the investors to put up the portion of the downpayment you need and offer them equity and/or return.

Seller finance - As you mentioned, you can offer a fair deal that makes sense to you and the seller, explaining how you will take over responsibility of everything (management, etc), and you can give $ (fill in blank) down and pay him the rest of the downpayment in installments from the cashflow on the property and then refinance him out of it later. This is where it makes sense to know their motivation. If they are just ready to retire and they self-manage now and they are tired of the headaches, etc, then you emphasize how you are willing to take on all the headaches, etc, and pay him in installments at some agreed upon rate and terms. Also, they may have a tax advantage to sell this way, not having the whole gain all in one tax year.

Once you buy with seller financing, maybe you can add value to a couple of the properties and sell those for a profit, using the profits to pay him the rest of the downpayment, allowing you to get a loan for the rest. There are multiple creative possibilities.

Good Luck