Any Way to Make This Work?

Question

Okay, real estate gurus. I have an owner of a 3/1 down and 2/1 up duplex (he lives in it) that wants to move down to Florida. He's asking $220k and arrived at that number this way : $110k current mortgage, $100k down on FL home, and $10k moving expenses. Monthly rental income would be $2150.

As a straight cash purchase, it doesn't work. Is there any creative way to approach this that may help? Looking for ideas or just straight "no's"

Thanks!

As a straight cash purchase, it doesn't work. Is there any creative way to approach this that may help? Looking for ideas or just straight "no's"

Thanks!

Bill Gulley · Answer

He forgot to add in his daughter's college education fund!

Frankly, I think you'll have too much trouble trying to educate this owner in the valuation process. His basis for his asking price is irrelevant to what he needs, it's based on the market if he really wants to sell.

No! That's my initial thought and it didn't take much to get there either......   :)

Matt Lefebvre · Answer

Unfortunately that's the way some sellers value their property.  A property is not worth what the owner needs to net, its worth what the market will pay for it.  What's the market value of the property?

Doug Thompson · Answer

That is spot-on, @Don Harris

Don Harris · Answer

to quote my friend J Parker, "you need to be looking for properties on sale not for sale"

Marcel Duarte · Answer

As @Matt Lefebvre mentioned, what's the Market Value of the property?

The rental income/purchase price ratio isn't too solid for a Buy and Hold investment at his asking price. But given that the owner is formulating his asking price completely independent of market value, it could be too high or too low. If it's too low and the Cash Flow numbers don't work, it may be flip deal.

If you subscribe to the school of thought that your offers should be independent of the asking price, it's worth a shot offering at the price you need to make the deal work. Who knows, he may have trouble selling at that price. He might come back to your offer after the summer, once it get's colder up there, and Florida starts looking better and better.

Good Luck!

Lynn Bown · Answer

@Matthew Bell and @Bill Gulley are both right.  This is an age old problem where owners value their property unrealistically.  The approach I would take is to get some comparable 2-5 sold recent and 1-2 listings in close proximity as possible.  Then meet or call him and discuss the reality of the property showing what properties like his are selling for compare condition, amenities, and get him so see the value, then explain that is he listed it what he would get and consider the realtor fees, closing costs, and potential time It would take and that you are an investor for profit and willing to close quickly and get him down to Florida faster.

May not work but if you cant turn him around on his view, you cant change your criteria to match his view or you will be the one with unrealistic profit expectations.

Lynn

Joe Schaak · Answer

Thanks for all of the great feedback. I agree with each of you. The place needs about $25k in repairs in order to get top rental rates. The ARV would be $175k. Previously, I gave him an all cash offer of $135k, a part cash and part seller financed deal worth $150k, and an all seller financed deal worth $180k. When I presented the offers, I gave him comps and my breakdown. I just checked in with him again yesterday and I thought I would throw it out to the BP community to see if I may be missing anything. I'll put this back in the files and follow up with him in another month or so. Thanks, again!

Jason Ramer · Answer

Pass.  As a recommendation, I would also make sure the seller has your contact information.  This clearly isn't the right time for them to think about what the investment income is, but at some point in the future it may be a good time to sell for a better deal.  They have your contact information, and then they may reach back out to you (may).  Also, if someone else does purchase the property for the asking price (or close), it would also be best to introduce yourself to them as they could turn into a seller.

I had a contact like this just Tuesday, so I made sure the seller had my contact information.  Maybe they will come back to me when they realize the current strategy isn't working, maybe...  for the time being though I'm moving on to other deals.

Jake Thomas · Answer

Not even 1%, that is a hard pass. I don't think you will ever get the guy to sway but you could present comps and show him its really worth $XXX,XXX and see how it goes, otherwise focus your time on the next one. I wish I could make every possible house into a deal but sometimes the numbers don't work.

Any Way to Make This Work?

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