Newbie in need of advice for first possible deal

[Brandon Bellino]

So I'm in need of some advice from the community. I am 21 years old, currently going to college for my business degree and plan to obtain my real estate license at the end of summer. I have been obsessed with real estate since I was young, it has always been a passion of mine and I think now would be a perfect time for me to begin investing. 

Now that I gave a little background on me, onto the good stuff. I found a potential deal on craigslist in my city, it is a package deal for 3 multifamily homes - Two of the homes are 2 units with 3 beds and 1 baths, and the third home is a 3 unit with a 3 bedroom 1 bath, 2 bedroom 1 bath, and a studio. The seller is offering the units packaged for $112,000. Separately they are all priced at about $45,000-49,000. 

I need some advice on how I go about making a compelling offer for seller financing, as I am not in a position to get conventional financing. I am worried because of my age and inexperience the seller may not take me seriously, so I need to have things really put together. 

I know the seller is extremely motivated to sell, since the listing agent made sure to write "motivated seller" on all of the separate ads, as well as the fact that each of the units were put on the market around this time last year as well and didn't sell. One thing I am a little perplexed about though is the fact that each of the homes were put on the market last year at $10,000 more than they were this year, so if they didn't sell why increase the price by $10,000 rather than lower it? Is that some kind of strategy used when you offer package deals? 

So what kind of offer should I make the seller to make him take me seriously, and to sway him to consider seller financing if he is motivated enough? And does their asking price seem fair? I will include photos of each of the homes. From what I can tell they are all in very good shape, and most of the multifamily properties in this area go for between $20-50k. 

[Samuel DeMass]

Brandon,

First, Welcome to BP.  I applaud your wisdom to reach out and get advice.

The first thing you need to establish is current and market rent on all the units.  GTS (Google that 'stuff') or use Rentometer.com and start figuring out ballpark numbers.  Once you know that, you can analyze the deal a little better.  Only pay for current rents.  Don't base your numbers on what you think you can get.  If they are advertising "below market rents" it is a sign that the current owner is not motivated enough to move rents, or they are unable to increase rents due to market forces.

Once you find out market rent, you can start negotiating on some real numbers.

Then you have to do what I call the "simple math" to derive cash flow:

RENT - VACANCY(~10%) - MANAGEMENT FEE(~10%) - REPAIRS (~10%) - TAXES(Monthly) - INSURANCE(Monthly) - MORTGAGE(Monthly) - SELLER FINANCING COSTS =

CASHFLOW.

Note: I'm not sure what your lending situation will look like, or if you intend to do 100% seller financing, so the above may need to be adjusted accordingly.

It's imperative in your situation that you ensure a solid positive cash flow.

If I were you, I'd just make the offer that you want. Include the seller financing up front. It sounds like you'll be using an agent to act as your negotiator anyway, because they have it listed on the MLS right? So you'll need to find an agent to help you out. Hopefully you've been thinking about where you want to go work once you're done. I'd go there and take your business to them.

Work the math out so you can point to solid evidence that you can make the deal work and then have them help you word it and deliver it.  The seller will never know how old you are, so don't sweat it.  They will receive a contract from their agent that was sent over by your agent.  I started buying houses when I was 18.  It's not as big a player for the initial purchase as a lot of people make it out to be in their own mind's eye.  You're just the name on the bottom of the contract to the seller.  Getting a bank to loan you money is something else entirely.  Buy a tie and rehearse your plan.  Make sure you can verbalize it to another human.  Spend the time to put a presentation together.  You can use it for the next deal too when you say "I did this deal before".

Have your agent write your contract and ask for everything you need.  I think it's worth pointing out that you can put just about anything in the contract that you want.  You can ask for a keg of beer to be conveyed with the house.  There may be some legal concern, but a contract is simply a legal agreement between two parties.  You can ask for almost anything.  The worst they can say is no.

Lastly, don't get too discouraged if this one just doesn't work out.  There are lots more out there.  It's way better to get shut down on a hundred times to find a great deal than it is to chase the deal and lose money on it.    You just have to keep looking.  Give this one a college try and see what happens.  Learn and apply on the next deal.