How should I offer on these Tri plexes?

Real Estate Deal Analysis & Advice
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How should I offer on these Tri plexes?

Steven J.
Urbana, IL · Member since 2012 · 1k+ posts · 425 votes

I've just come across two triplexes from a very motivated seller. He's looking to sell as-is and only needs to pay off his mortgage amounts left over on the properties. Not all units are currently rented due to what sound like medium sized issues (plumbing issue in one and a possible mold one in another).

He owes 62k on one that appraised last at 90 and owes 74 on one that appraised last at 82k. Provided repairs are made promptly and units are rented shortly there after these properties perform very well with numbers. I ran the numbers with 100% financing and each property still cash flows at or just above $300.

What are some of the offers I could approach this seller with? My ideas so far...

1. Cash offer for each property at the mortgage value of each

2. Sub-2 financing to continue making his payments. Problem here is he's somewhat hesitant of his credit on the line, as he should be, and I'm not sure how to manage the risk of DOS clause

3. HML on the properties 65% with seller carry back on the remaining 35%. Let the properties season and re-fi into a traditional loan at which point repairs will have been made

4. Move in and acquire FHA financing. Not sure how to get past the disrepairs with FHA's strict guidelines.

5. Partner-up(this is my favorite) so I can share the risk and reward of the properties. Ideally, with someone in the area.

6. Equity partnership - I don't really understand this...

7. Same as #3 but with a traditional bank. Just not sure how to show the bank I have skin in the game. Most banks dont do the seller carry back. Is this where I use transactional funding?

8. OPEN TO IDEAS?!

I'd love to hear thoughts, opinions, guidance, inquiries, etc.

Thank you!

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Matt Devincenzo
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
12y

For #4 do an FHA 203K loan to get into the property and get it rehabbed. That only gets you one of the tri's but maybe if you can get him cashed out on one he'd be more willing to get creative on the other.

How much cash do you have for these deals? You will need something, even if he let you do sub2 or a wrap on both and your plan was to refi next year once they're repaired, where is the repair money coming from?

Edit: Just thought of another possibility. So assuming you have money for repairs, you could discuss a master lease option. The idea here would be you get a master lease which gives you the ability to sub lease the units, obviously this needs to be at a rate less than market rental rate. Your option would be for say 18-24 months from now, giving you time to get repairs done and work on getting the property performing and the units filled. Then you exercise your option and purchase the properties

This might be a little more difficult with more moving parts, but it is a possibility.

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  • Account Closed
    SFR Investor · Chicago, IL · Member since 2014 · 34 posts · 6 votes
    12y

    @Steven J. Can you ask the seller to carry the note for a year while you get the place fixed and get it rented. You can use the money coming in from rented units towards the repairs. This way no money comes out of your pocket.

    Once the place is fully fixed, you can move into one of the units and do a FHA loan.

    0Reply
  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    12y

    For #4 do an FHA 203K loan to get into the property and get it rehabbed. That only gets you one of the tri's but maybe if you can get him cashed out on one he'd be more willing to get creative on the other.

    How much cash do you have for these deals? You will need something, even if he let you do sub2 or a wrap on both and your plan was to refi next year once they're repaired, where is the repair money coming from?

    Edit: Just thought of another possibility. So assuming you have money for repairs, you could discuss a master lease option. The idea here would be you get a master lease which gives you the ability to sub lease the units, obviously this needs to be at a rate less than market rental rate. Your option would be for say 18-24 months from now, giving you time to get repairs done and work on getting the property performing and the units filled. Then you exercise your option and purchase the properties

    This might be a little more difficult with more moving parts, but it is a possibility.

    1Reply
  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y

    I like MLOs...

    1. lease and option for low NOI.

    2. get private money for repairs with no interest for a while (moratorium)

    3. fully rent at higher rents (higher NOI), wait 12 months

    4. either buy LO and resell or

    - assign the deal for a fee.

    0Reply
  • Steven J.
    OP
    Urbana, IL · Member since 2012 · 1k+ posts · 425 votes
    12y

    @Account Closed I would absolutely love to have a seller carry back. I think there may be a good chance of that or something similar happening. It certainly would be a plus to get the extra time added on for repairs without making payments on the carry back.

    @Matt Devincenzo and @Brian Gibbons YES! The way you guys lay this out puts the different puzzle pieces together in a favorable way. In other words, I think I know the different puzzle pieces I just don't know how to assemble them yet. What you suggest is very helpful.

    Brian, I'm a bit unsure on the NOI part. Why do I want a low NOI? And would I indeed want to sell in the end or is this just one exit strategy you may use?

    Thanks guys!

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  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y

    We all learn. I am happy to help! See http://realdata.com/blog/understanding-net-operating-income-noi/

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