The 11 Month Long Deal Houston TX 6 Unit

[Kevin Wood]

Previous property posts:

Houston Tx 5 Properties

Houston 14 Unit Multi-Family Close

Here is a little story on how we got 255k or 32% off the original price on a multifamily property. In Feb last year my business partner and I were looking for our first rental property. If you see my post history you can see some of the forays into finding deals. A month or two after getting started we fell in love with a 6 unit in the Houston Heights area. The property is in an A+ location and one of the larger properties in the area. 

Additionally Central Heights is undergoing a bit of a renaissance as they build new restaurants, bars, shops, etc near heights blvd. I spoke to the agent and learned that the property was one of several that belonged to a trust. The original owner had passed away December 2014. I was expecting the trust to want to divest of the property quickly, but come to find out the trustee felt the properties were worth well over market and was willing to sit on the property. This particular property was listed at $795k. Additionally, the tenants had been in the property for quite some time and thus were paying very low rent. These leases were being renewed frequently at these low rents. I recommended to the agent that if the owner wanted that high of a buy price he should raise the value of the property. The trustee who was very stubborn and had known the lady 30 years refused to update the property or charge market rents.

I wondered if the property would be picked up at the price, but knew if it wasn't then most buyers would not want to deal with the difficult trustee. So I continued to follow up at least once a month. I wrote a letter outlining who our company was and what we wanted to do with the property. I urged the agent to push the trustee as she would get double commission since we weren't using an agent. All to no effect. We purchased our five homes and got to the summer. 

In one of my monthly follow up calls we had an agreement to do a buy price of 610k with seller financing of 98k with balloon payment in year 3. We got a verbal agreement that we had a deal. The trustee then wanted to be the primary lean on the property which would never fly with the bank obviously. The deal obviously fell apart and at this point we dropped contact for a couple of months due to us moving on the 14 unit linked above.

We now were short on cash as we were updating the 14 unit which we decided to renovate rather than start cash flowing right away (another post). In the meantime we met through the BP forums a likeminded investor who was interested in our space. We connected and looked at a few properties together including a 40 unit in Houston. I mentioned the 6 unit as a perfect property we would like to have and mentioned it as a potential deal for us. 

I spent Q4 in Houston and decided to meet face to face with the agent. I met her for breakfast and we met the trustee to view the property. I then sat and talked to him for 3 hours about life, the area, etc. I didn't make a deal on that day. The trustee had three remaining properties of the original trust and had bought property in Arkansas he was retiring too. He was ready to finally be done with it. We (Myself, business partner, and BP member) made a lowball offer on all 3 properties and he declined. It was a duplex and a single family that made up the other two and we had to severely discount them due to their cash flow. So we then mentioned we would "up" our offer on the 6 unit to $540k. This was $73k less than our agreed upon deal 6 months before. Again he declined.

A month later we got a phone call saying to write up our offer and the trustee would accept it. This property won't require near the work to renovate of our 14 unit and has a higher tenant class currently living there. We will update cabinets, redo floors, and raise rents. We expect to be cash flowing nicely this year (excluding closing costs).

Lessons Learned:

- Like a previous podcast guest mentioned. Find the properties you like and start relationships. When they are finally ready to sell they will come to you.

-You can meet great partners on BP forums

-Stick to your price and you may eventually get it