Buying Retail

[Steve Bruza]

I live in Nashville, Tennessee and currently have seven rental properties including two duplexes. They provide a nice monthly rental income, but I have never purchased using the 70% rule. My approach has been to focus more on the monthly expense and mortgage rather than the sale price. My Cap Rates have ranged from 12-20%, but I always look for a 2:1 income to expense ratio (including PITI). I do like to renovate my properties to bring them up to date. I feel this brings in a better tenant and higher rent. I do yearly leases and most of my tenants renew.

After becoming a member of BP, I have begun to question what I am doing.  I enjoy using the calculators and reading about the many strategies other investors use.  I am a "buy and hold" investor, but I do see the cash flow advantage of flipping.

So here is my question, I have an opportunity to purchase the other side of a zero lot line property of which I already own one side.  The seller is motivated, but our market right now is insane.  The seller knows what he can get.  He hasn't hired an agent yet and is willing to discuss the sale with me.  If he is intent on getting 80-90-100% of the market value, is that a bad thing?  It doesn't need much work (if any) and I know what I can get for rent.  I have the down payment for a loan if it goes that way.  A cash purchase would just about break the bank.  Am I not thinking like an investor?  What am I missing with this line of thought?  I appreciate any input.

[Josh Braun]

Welcome to the site @Steve Bruza.  I hear good things about the Lebanon rental market.  If the seller knows what he can get then it sounds like you won't be able to get much lower unless you come up with a creative scenario that allows him to win.  If he owns the property free and clear think about seller financing options. 

Whenever I evaluate my buy and holds, I'm willing to flex on the 70% rule if it is in my farm area.  For some specific neighborhoods I'm willing to go up to 85% of market value if the numbers work.  This is because I'm willing to pay a premium to hold in areas I know are solid and where I have a good exit strategy should something happen.

Regarding down payments, I always prefer the least amount down possible.  This way you can leverage your capital to increase your overall portfolio and number of deals going.  I'd see if he would give you his bottom number first.  Tell him you will make it easy on him and he doesn't have to go through the hassle of getting it listed, worrying about someones financing going through, being nit-picked on things that need to be fixed, ect.  Then see if you can get a seller financed option lined up within his bottom price and your expected buying price.  Good luck and let us know how it turns out!