MultiFamily Deal Structuring Advice!!!

[Wayne Mack]

Good Afternoon Guys! I really need some advice! Just a little background: I found a gentleman who is looking to sell a multi family property off market (4-plex) that he owns. He is asking $210,000 (but I'm thinking of offering him much less than that) and he has $70,000 in equity. He really wants out and is motivated to sell within the next two weeks. Two of the four units are currently rented and the other two are being rehabbed right now. Asking - $210,000 Rehab- $20,000 2 units rent- $600, and $1,200 Market rent for vacant units- $940 each I want to close on this deal but I am unsure how to structure this deal as I don't have $20,000 for a downpayment that he is asking How would you guys structure this? Thank you!

[Matt Skinner]

So he has a $140,000 mortgage in place (If he sells for $210k he claims he has $70k equity) - the payments although I am not told what they actually are should be something like $7 - 800/month.

Monthly gross potential income from rent is $3600/month => $43,200/yr

If you used a 50% expense ratio (which is really high in most markets except Texas where property taxes are through the roof) you could have a $21,000/year NOI or a 10 cap if you paid $210,000.

With a cap rate that high I would first ask if this is a high risk area/property.  By the way, buying something 50% occupied (rehabbed or not) is a HIGH RISK deal.  Use that to your advantage in your negotiations.

I would say to the Seller:

Listen, the property is only 50% occupied and that is risky.  But here's what I can do. 

I have four options for you.

1.  I can pay all cash and close quickly but I can only pay you $170,000 (20% discount)

2. I can give you $50k down and take the deed subject to.

3.  I can give you FULL PRICE with $10k down and an option to buy it for $210,000 and pay you monthly rent (anything over the mortgage around is your cash flow on a $10k investment).

4. I can give you OVER ASKING PRICE $230,000 for the property.  I will pay your current mortgage payment.  I will give you a note for $90,000 in second position and pay you $500/month on that note until I sell or refinance or until it is paid off.   You get $6,000/year Mr. Seller.  I will even let you keep the tax benefits of the first mortgage AND we can close today if we can get the paperwork done before supper.  

In scenario 4 your cash flow would be something like $500/month to yourself on a ZERO dollar investment.  

Feel free to send me 20% for teeing it up for you.  lol.

Now go take that property down.  Assuming my guestimate underwriting is somewhere near correct, sounds like this property has some killer numbers.  

Feel free to call me if you want me to walk you through it again.

Bombsaway!