Seeking Feedback on Potential Deal

[Freddie Taylor]

I founda two-family conversion home that I plan on eventually placing an offer on, but I first wanted to hear some feedback from the members of BP.

DISCLAIMER: For the unscrupulous folks out there who plan on using this post for ulterior motives (i.e. trying to undercut me, and get the property for themselves)…I have the right of first refusal for this property, and contacting the current owner will only oust you as a “not-so ethical” RE investor; so I would recommend not going that route.

Here are the details for the honest/ethical REI's: The property is located at 1346 Christie Street in the City of Davenport, County of Scott, State of Iowa; which is also my hometown; and it's also the RE market that I am most familiar with. The current owner purchased the property via contract in 2000 for $281,000. However, the contract included other properties, so the purchase price is not solely reflective of the abovementioned property. The property is currently assessed at $38,070, and it assessed for $36,470 in 2014. I realize that these assessment values aren't necessarily the equivalent of the fair market value of the property, but I need to at least get an idea of what the property is worth.It was also very challenging to pull accurate sales comps on the property, because of the unique situation of the property (very small 3 BR unit/very small 1 BR unit). The 3 BR unit rents out for $375, but easily could get $400, and the 1 BR unit rents out for $250. That's $625 per month in total rent received, with the potential for $650 per month. The good news is that the tenant of the 1 BR unit has been there for 19 years, and has no plans of going anywhere soon (the good lord willing); plus he's willing to barter his handyman skills and pickup truck in exchange for reductions in rent.

Any halfway decent REI has probably already figured out that this property is located in the ‘hood, based on the numbers listed above; but that was one of the things that was appealing about this deal to me…the low investment costs associated with this piece of property, as well as the ability to possibly cashflow an amount equal to the house payment (including principal, interest, taxes and ins). I believe that there's still money to be made on this property, even though it is situated in the ghetto. In fact, some would argue that there's potential for higher cash flow margins in lower income neighborhoods. I'm curious to hear a sidebar discussion on this topic as well.

The current owner of the property is a co-worker of mine, and she is also one of my real estate mentors, which is how I acquired the right of first refusal. She is approximately 55 years old, and she is simply tired of the property managementheadache; but she’s not desperate for a dollar, and won’t just give me the property for next to nothing. She has stated that she needed to do some research in the Recorder’s and Assessor’s databases, before she could determine an actual asking price. She was thinking somewhere around $30,000, but that was without her doing any research. I know that she’s not hurting for money, plus she’s extremely busy, so I printed out that information, and gave it to her on Thursday (4/2) to help expedite the process.

The reason for me posting this situation on here is to hear the feedback (both positive and negative) regarding this potential deal. One of my questions is how long should I wait before I follow up with her? Does the relationship that I have with her affect the way in which we execute the deal; in other words, how does a transaction that is not arms-length affect the process? Could this deal still be considered as an arms-length transaction? If she doesn’t provide an asking price, how should I go about officially submitting an offer to her, and when? I want a great deal, but I also don’t want to offend somebody that I look up to, so how low of an asking price should I present to her? I’m sure I have more questions concerning this deal that I just can’t think of right now, but I will post them up as a discussion ensues.

If you’ve made it thus far through my post, I want to first say thank-you for taking the time to read my it. I reiterate that I appreciate all feedback, and I look forward to reading all of your responses.

Thanks again,

Freddie