How do I negotiate this duplex without scaring seller away

Question

Hey BP, Ive finally found a small multifamily here in the Hampton Roads area Virginia. It's a small duplex built in 1953 that is in very good shape. I plan utilizing my VA loan and owner occupying for the required year.

My problem is that I'm not sure what to offer. I want my second unit to cover the mortgage. I know that the section 8 max for this type of unit will be $1,200.

In order to get my payment at $1,200 or lower without putting a l down payment I know I have to get thay purchase price down. We are gping to ask the seller to pay my closing costs. I don't want to make an offer too low that will scare him away.

Asking price: $224,900

Interest Rate: I have a few lenders battling it out but I've gotten quoted as low as 3.5% with no origination fee. At this rate and asking price my payment would be around $1,400 give or take.

Repair Costs:$0 so far. A turnkey propertt as of right now. The inspections may give me some more negotiation leverage

Owner Expenses: The water is the only thing not metered seperately. There are separate water heaters but the cold water isn't seperate between the two units. I thought about splitting the water in half every month but there's got to be a better way. Adding a meter with the city will be too costly.

Sorry, I tried not to make this post too long. Thanks in advance for any input.

Shaka Farrier · Answer

Thanks for you insight @Steve Vaughan

I do have some saved money to put down. I mentioned a downpayment to my agent who advised me that it wouldn't be necessary. I wouldn't see those funds back until year two and I should keep it as a nest egg.

She also suggested that we offer $220,000 because we were already asking for closing costs. We were going to ask the price be lowered or that the ownet paid to seperate the water but it costs a bit more than expected and I don't really want to start putting holes and digging if it isn't completely necessary.

Steve Vaughan · Answer

Yep - on a well priced asset, I shoot for 92% of asking.  Like @William Randolph suggests, start (the dance;) a little lower.

I don't get too caught up in "this deal has to be no money down AND let me live there for free." If it's a decent opportunity rarely found in your market, I'd be willing to pay a little to live somewhere like @Stephen  Akindona points out

When I do nothing but swing for the fences, I strike out a lot. Nothing wrong with a double! If you had a little to put down, this would let your net housing cost be zero for sure.  Picture how this will affect your wealth picture 10 or 20 years down the road @Shaka Farrier!

William Randolph · Answer

@Shaka, congrats on the find. As for a duplex the income numbers will only really mater to you. It will be appraised with the local single family stock of the neighborhood because the mortgage industry sees anything under 5 units similar to a SFR. In regard to your question, the marketplace will dictate the price. I would not be too concerned with offending the seller. In the HR market the cool down period is just beginning and it will be cold, for sellers, by Halloween and frozen by Thanksgiving. Great time for buyers though!!! I wouldn't do anything ludicrous like offer $.50 on the dollar but an initial offer at 10 to 12% off list plus CC is a good place to start the dance. When you look at the stats this year the average for sales prices as compared to list prices is 96%. Only an average 4% reduction. Sellers had the upper hand this  year during the summer buying season But the time of the year is on your side now. Good luck!!

Stephen Akindona · Answer

As an investor we have to learn to not get emotionally attached to properties, you have set your parameters, so offer what you need you to hit your parameters. In the same breath I will also say you have got to seek to create win-win situations, you can't be the only one winning in a deal it won't work. For your specific situation, living for free is great but living for $100, or $200 bucks a month ain't bad either. Something a mentor of mine told me is, the deal of a lifetime comes around once a month! I have found that to be accurate, just when I think I have found the greatest deal of my career another comes through. If want you want is to live for free, offer that and if it is rejected wait for the next one. Just my two cents!

Shaka Farrier · Answer

Thanks for the input Ms. Goodman. The roof looks less than 5 years old. I'd say now more than 3 to be honest. The hot water heaters look new and so do the hvacs. The plumber said that things looked good from what he saw under the house and inside as well.

What would you consider to be a small downpayment and why would you consider owner financing with a low down payment to be the better option? The VA is 0 down at (as of right now) 3.5% interest. We are also requesting seller pay all closing costs

Barbara G. · Answer

If section 8 pays $1,200   I would  figure my rent at $1,200 and and look at the property as having a  $2,400 income.   So it looks like $224,000 is not  a  big bargain.   It does give a little more then 1% of the 2% rule.   If the Seller offers financing with no money down or a small amount down  the property would be worth a little more,

Your property is 63 years old so unless things have been updated you are going to have higher then usual cappex and maintanence replacements.  As in what year was the roof replaced?

Thomas Lillevold · Answer

I've been in your situation before....communication is the key.   If you are in contact with the seller or if your real estate agent is in contact with the seller.   Tell them you are not trying to insult them you just have a number that you cannot go beyond on the price...dont get emotional about it like so many others on here have said. let your calculator make the price you have to get it at.   I always try to find things that I plan to do to the place and I include that in the discussion with the seller.   Its not personal...its business.   I always tell them, this is my offer, I am not trying to upset anyone, and you wont upset me if you say no.

Like I said before, I am always upset with myself if my first offer is accepted because I dont like to leave money on the table.   If you are buying for yourself, that is different, if you are buying for business, you have to get the property at the best price you can.   It sounds like you are buying for both so I think you have to blend the offer a bit.   You want to get the property to live in but you should try to do well on the price so it does well with the rent you talked about too.

Good luck and I would like to hear how it goes for you.

Shaka Farrier · Answer

Thanks Tom. I have to say, I do like this property. It's one of the best multis thay I've seen in a good neighborhood. It has everything that I'm looking for but something tells me that I can get a better price on it. I'm just afraid of scaring away the seller if I go too low

The comps are all over the place so it's hard for me to base it on just those. I'm assuming appraisal is the next best way to get better judgement on the actual value of the property

Shaka Farrier · Answer

Thanks for the responce. The owner is willing to bend and I believe he also is willing to do owner financing. I was thinking that it may be price a little high but my agent says that it is priced right.  The property has been on the market since the last week in July

Sean Ploskina · Answer

224K for a duplex in HR is pretty expensive.  If it is about 60 years about that is overpriced unless you are in something like Ghent where things are more pricey.  Zero down loan at 3.5% will still be well over the 1200 you are trying to get.  Plus in my experience the one percent rule is not enough in Hampton Roads.  I would keep looking unless they are will to drop the price a lot.

How do I negotiate this duplex without scaring seller away

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