Best Approach to Offer Buying From Your Landlord?

Question

I'm considering offering to buy our rental from our landlord because she's about to raise our rent higher again, which we can't afford.  It's a dump, so there's room to fix it up for equity, too.

Dear Landlords:  Any advice on the best approach for this? It needs a lot of work, so I would of course ask for a discounted price, but I've been concerned it will offend her, or plant the idea to list publicly on the MLS and put us out of a place to live (since there's plenty of people who can overbid us these days).  Thoughts?

Account Closed · Answer

Holly, the problem I see, is that prices are skyrocketing in the SF Bay Area.  And it's so insane right around SF, that people are moving farther out.  Plus, the commuter train is expected to be in place soon from Santa Rosa to SF, and it will get even crazier in your area.

You'd have to look at things from your landlord's point of view.  She has a property that is guaranteed to make her money every month, with a line of people wanting to buy it or rent it, even if it's not in pristine condition.  She's in the driver's seat in this market.

Now, if I were you, the strategy I'd take, is telling her that you've realized that it would be less expensive to buy than rent, and before you start looking at other properties, you wanted to ask her if she'd be willing to sell to you.

What that says is that 1) she may lose her long-term tenant, and 2) that if she sells to you instead of losing you as a renter, she won't have to do any upgrades.  No doubt she knows she'll have to upgrade to get higher rent, or top dollar if she's thinking about selling.

When I was in a position like you (I'm assuming you don't have a huge down payment or are able to get conventional financing?), I made the owner an offer that was too sweet to pass up.  I offered full asking price, but with a small downpayment.   And a higher than market interest rate.

Because remember, she is in a seller's market.  She won't have a hard time selling that unit right now, or renting it at a higher amount to someone else.  So, because of this market, you won't likely be successful at getting the place at a discounted price.

Try pretending you are her when you are thinking of your approach.  Why would she accept your offer?

And, I'd put my offer in writing, so she can think about it.  If you ask her in person, she may just say no before having a chance to really consider it, and then she may not feel she can change her mind after she says no.

But, I was successful buying a condo and some land on owner contracts, even though I didn't have much down and I had bad credit.  The reason I was able to buy them with owner contracts, was because I gave them their asking price and a great interest rate.  And, they both owned their properties outright, so there wasn't a bank involved.

I wish you the best of luck.  If you can't buy from her, look into FHA financing.  My daughter bought two homes with FHA financing, and all you need is 3.5% down, and they will even wrap the closing costs into the mortgage.  They also aren't as picky about credit scores as conventional banks.  Or at least that was the story a few years ago.  There are a lot of folk here on BP who could advise you about financing.

Michael Delpier · Answer

Holly I. Good advice from everyone so far.

As an owner of rentals in the SF bay area, I know they are at a premium. But I always have an "first right of refusal" for the tenant if I were to sell. But if a tenant wanted to buy, I would listen.

What I would expect is a fair price. But a fair price can mean many things. Some benefits you can offer the owner are, (1) a no commission sale (save 4-6%), (2) work with their 1031 (meaning close may be longer so they can identify their property to buy), or (3) no need to find a buyer or rehab (meaning can be painless and could sell faster).

You would need to find out what they want, and what is important to them to make your total offer appealing.

For example, If my tenant gave me an offer 10% off fair market value but would do it without commissions and work around my 1031, I would take it. But that is me. (keep in mind my properties are in San Mateo and have been fully rehab'ed)

No offence but Rohnert Park in not exactly the SF bay area to me. I am sure the owner knows this and what that does to the sales price, and lead or lag of the ups and downs of the market.

Before you approach the owner, go house shopping in your area. Know what you are buying, and if you are actually offering a deal or are delusional. This does not mean look at one or 2 houses. It would mean look at 50 and actually put your mindset as you would actually buy some of them. What are the true rehab costs? What is the price spread between the fully rehab'ed place and the dump? You just might surprise yourself, and you may even find a better deal.

Now if the owner lives in or very near the Rohnert Park, uses the rents as retirement income, and doesn't look at the market very much, buying this is going to be difficult, if not impossible.

Mike Hanneman · Answer

Just start bringing up the idea, or planting the seed. Ask her if she has ever thought about selling. Or better yet see if she'll do an owner carry and then she still gets the monthly income without having to be a landlord. If you don't make payments she gets the place back.

I wouldn't bring up how the place is a dump, or at least not until you are negoiating price.

I also would'nt say you want to buy because she is raising rent, bring up you are a family and this would get you on the right track. Be honest, polite and talk to her like you would to someone you are wanting a favor from, because that is what she'd be doing for you. She is making money off you so why should she sell? You need to convince her without making her mad or uneasy.

Dave Foster · Answer

Holly I.,  Ask if she'd be willing to sell in such a way that she tells you what price she's thinking before you give her an offer.  If you do this you can counter with your own wishes in such a way that you don't run the risk of offending her with a throw out low ball.  If her first number is low then that's great for you.  If her first number is high you can consider how to negotiate terms and other considerations to meet her needs/desires.

Account Closed · Answer

Also, she's probably not "motivated" to sell because we are very good tenants, never any issues from us, been here over 10 years, and have kept it cleaner and nicer than when we moved in.  In other words, we're not the ones who made it a dump...it already was falling apart.

Best Approach to Offer Buying From Your Landlord?

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