What's your take on this owner/seller?

Question

I'm talking to a homeowner that is trying to sell a SF rental without an agent.  The numbers show decent positive cashflow even when I'm generous with  vacancies, repair/maintenance, insurance and taxes.  Its an easy property to rent in a stellar location near hip downtown.  Needs some work, but nothing that has to happen immediately.

They bought when the market was hot, and of course now its not.  I'm told they just don't want it anymore, and can't seem to figure out why they are selling.

Its a landlocked lot with a driveway easement, but everything seems to be in order with how its recorded.  I'm not concerned with that issue, as long as everything checks out.  New roof, crappy detached garage, but again, the location is primo and it rents very easily.  The current tenant is moving out and while I was there to look at it, potential renters were swarming and panting.

Their asking price is high (surprise) but they didn't hesitate to mention it was a starting point.  My question:  why do you think they are selling?  It rents fast as hotcakes, great location, cute, private, and higher than average rent with tenants covering all utilities.

I know there's a snag, just haven't found it yet.  Its very small, so that's one reason it might not sell fast as an appealing owner-occupied purchase.  There's not much room to grow.

I'm curious what take other more experienced investors might have.  My past investments have been of a very different variety--multi-unit with me living in one or formerly owner-occupied turned rental, so I'm just getting into purchasing straight rentals and looking forward to it.

Brian Burke · Answer

It may sound odd to those of us on BP, but not everyone wants to be a real estate investor.  Maybe they just found that it's not for them.  Maybe they have equity trapped in the property and want to deploy that cash somewhere else (like buying a larger primary residence, pay off debt, remodel their kitchen).  Maybe they saw the value drop and just want to cut their losses and eliminate market exposure.  Or, perhaps they have had one problem after another with tenants and are just fed up.  There are so many reasons why people do what they do.  I guess that's why they say that one person's trash is another person's treasure.

Brian Burke · Answer

Nothing eats up more profits, or creates more work, than turnover.

Steve Babiak · Answer

What you did, it's called the "take away" where in negotiations you say you are going to take away your "business" from them and take your business elsewhere.  See this link, and you can find it discussed further in the comments there:

http://news.yahoo.com/surprising-negotiation-tactic-works-161751554.html

Page Huyette · Answer

Another development:  I'd nearly written this deal off as dead, since they rejected my offer and didn't counter.  I politely emailed them last week and thanked them fore their time, stating I assumed they weren't interested in negotiating further since I hadn't heard back from them.

Also let them know I'm planning on buying several properties in the area over the next couple of years and that they are welcome to contact me if their situation changes.

Heard back right away that they hadn't had a chance to talk about the counter due to travel, and would be in touch.  At this point I am ready to walk away from the property, as it seems they may not truly be serious about selling, and are just shilling for an overpriced offer.  But, I've found it very interesting that if I phrase my responses just right, they still stay in the game.

I've learned a lot from this transaction, regardless of how it ends up, and I'm truly grateful the experience.  Not to mention that its been great fun.   I'm already putting this in the "inactive" file and digging around for a better deal.

Joel Owens · Answer

It's all about how bad the seller wants to sell and how much pain they will agree to for that to be accomplished.

Unless they have tax implications and would like the income stream many will just want the quick regular loan or cash sale. If I finance you I have to worry you will run the property worse than I did and decrease the value and then I will take it back with an even bigger problem.

This is where a big down payment comes in play with owner finance. This way I can mitigate foreclosure and default costs if you do not do well as the new owner.

The problem is many who want owner finance as a buyer want little to nothing down. The owner finance still might work with a large payment down if they do not have perfect credit and can't get a regular loan but have lot's of cash to play with.

Luis Castillo · Answer

Page, their reason for selling may be as simple as being fed up with tenants. If they happen to have had back to back slow paying or non paying tenants, that may have been their last straw.

More importantly, make sure your numbers work and manage your property like a professional. Choose good tenants, maintain your property and enforce your rules and 
regulations.

Good luck with your deal!

Jon Klaus · Answer

Patient, persistent negotiating has a way of paying off.  Let the game come to you, and don't become a motivated buyer.  Good job, Page.

Page Huyette · Answer

New update:  I was shown the door when I suggested owner financing, and provided a low offer without.  But...I backed it up by saying I could possibly offer a higher purchase price if they carried the mortgage.  Surprise!  They said they'd consider it.

Even though I'm back in the negotiating saddle, I still may walk away as its not showing enough cash flow for my comfort level, and I'm a risk-taker.

Just goes to show you, if you stick to your numbers you may very well get what you want.  I'm new to this type of negotiating, and boy, it can be addictive!

Page Huyette · Answer

Update:  Rather than make a formal offer, I let them know the numbers weren't working based on what they were asking, so they came back asking what I wanted to offer.  I came in exactly where I want to be, which was waaaaay lower than what they wanted.  I also mentioned a higher sales price might work if they'd carry the mortgage, even though they'd already stated they weren't interested in doing that.  Reason I did this--when I said I couldn't make the deal work based on their price, the response was lightning fast, indicating a strong desire to work a deal.

I'm now ready to walk away, but if they come back  willing to finance I may be able to make it work as an investment.  Otherwise, on to the next.

Bill Gulley · Answer

Page, I'd assume they want the money for something else, if you can't peg the motivation you'll be able to after you make an offer lower than that starting point.

What's your take on this owner/seller?

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