Dealing with a not so motivated seller - 16 unit apartment complex

[Serge S.]

I have a 16 unit complex that I have been working to obtain for over a year now. It was a USDA foreclosure in late 2012 with a live local auction and I was bidding against one guy. It reached my price and cash limit at the time and sold to him for the mid $200s. I've been watching it since. Last month I drove by and spoke to the handyman doing the work and found out a lot of info. The buyer turned out to be a very inexperienced investor and is way over his head. He has done everything wrong from using interior grade paint on the outside (hot pink) to inappropriate plumbing, flooring and other repairs. He has no money to finish the job or infrastructure to rent to that class of tenant. He has 3 units rented (to terrible tenants) and has put some cash into appliances, plumbing, etc.

I reached the owner and told him that I'm interested and he said he is definitely interested in selling. He said he has no idea what its worth but "wants" $480k because thats what he has into it plus a small profit as "he can't lose money."

Hard to say what its worth as its a very unique property. I'm very interested as it has a great unit mix (4, 3 and 2 bd) and all separate utilities including water which is really rare out here. So ... back of the envelope average rent will be $600 for a $9,600 gross scheduled. 50% rule it should net close to $5k but still needs around $80k in work. Thus, I offered him $400k which I think is still too high and he has been unresponsive. Every time we talk it goes nowhere as he somehow thinks he can hold and pull off renting the units. I'm positive he will fail and has no such chance. I've offered him cash and a combo of cash and other cash flowing property.

How would you approach such a situation to get this kind of seller to realize its in his best interest to move on??

[Don Konipol]

You can't teach dumb! Wait to the property is in foreclosure and buy it at foreclosure sale. If he has lien on property buy the lien and be in position to foreclose when he defaults.

Here's a crazy strategy I once used successfully. Continue to make bi weekly offers, at a continually decreasing price. Tell the owner that as he continues to hold this property and does sub par repairs, leases it to bad tenants, or sits vacant, the property value is decreasing. If after a while he wants nothing more to do with you send him lower and lower offers by mail.

In 1998 I was interested in a certain automobile repair facility, as I had a tenant lined up. I offered the owner $225K, he wanted $800K. The next week I offered $210K. As he went deeper and deeper in the red, as the demand notices from creditors lined up, as the lawsuits were filed, I offered lower each week. His answer was to bury his head in the sand and hold out for $800K.

After about 4 months, I was down to $125K. He called me all exhausted and said he would sell for $145K. I immediately offered $115K, he immediately accepted!

Took a while to clear title and close - I actually bought it for $122K when all said and done.

BTW, I put tenant in at 3000 per month gross rent, and sold it to tenant 6 months later at $300K.