First motivated seller...What am I missing?? And how can I get it??

Question

Hello BP!I got a call from a seller yesterday that I mailed a yellow letter to. The owner sounds VERY MOTIVATED to sell. The house is currently being rented out. It’s also a house that was converted into a 3 unit apartment. The seller is what REI community would call a tired landlord.We set to meet this coming weekend to look at the property. However, I cannot find any details on the home to even start crunching numbers (using mainly Google). I can find estimated yearly taxes and when the home was purchase, or, in their case, left to them from a relative. However, I do not see when the home was originally purchased and for how much (not sure if that matters).At this point, I’m not sure how I can prepare for the meeting when I do not have a ball park figure as a starting point before I go meet with the seller. I know that once I do the walk-through I can estimate repairs cost, but I feel like I’m missing something.Any help is appreciated.Thanks

Burt L. · Answer

My own experience with selling such a property is that even if it does cash flow quite well in its current use, if its not a legal use then an investor cant get a loan on its present use other than hard money for converting it back to single family residential. An indicator is whether it has separate electrical meters for the different units in the house. The zoning will also be a strong indicator or whether this is commonly done in the neighborhood. In my view, what the owner paid for it and when isn't nearly as important as the after-repaired value less rehab costs less your fee, and whether it is still a deal. It can be hard to sell a non-conventional property, but you say you have a very motivated seller. They will also be very motivated to sell it to someone else, so put that motivation under contract if it really is a deal.

Nathan Emmert · Answer

If it's a multi-unit rental, you won't be selling this to flippers or owner occupied buyers, you'll be targeting buy and hold investors.Buy and hold investors generally value property based on price versus the income it produces (a generic CAP rate). You need to find out what properties in that area normally generate per dollar of investment. If the $100,000 down the street is rented for $1,500 a month... and the $80,000 property across the street brings in $1,200 a month... and this property brings in $900 a month... you can pretty quickly figure out what someone is likely to pay for it.Make sure you understand things from a buy and hold investors perspective... are the utilities separately metered (electric and gas, maybe water)... are they tenants on year leases or month to month... what is the deferred maintenance... what would it take to get units rent ready again if the tenants all bail... what is the true market rent for the units based on condition and location.This valuation will be a bit different but could be easier if you know what you're doing...

Malita R. · Answer

Thank you @Nathan Emmert @Larmon Cummings Jr @Jerry Puckett and @Burt L. You all made some great suggestions and points that I definitely did not think of.I know now that IF this is a legal conversion into an apartment, that I will have to target buy and hold investors.I also would not have known to look for separate meters for utilities. I guess if I do not see that, I know it was not legally converted.I hope during the walk-through I'm able to get a good evaluation of the property. Especially scoping out whether or not the property is easily converted back to a SF home.Thanks again and I will definitely keep everyone updated!

Jerry Puckett · Answer

Hi @Malita Robinson ,The thing that jumped out at me from what you wrote was the juxtaposition of the phrases "Very Motivated" and "a house that was converted into a 3 unit apartment"You need to find out if this was a legal conversion or if the property is non conforming. You could end up with a sweet deal that's difficult at best to sell. (Isn't that right @Burt L. ...care to share your tri plex ordeal and how you solved it?)If it's an illegal apartment, that could explain some difficulty in finding good info.Other wise, good luck to you on this first call, and congratulations for getting out there and doing it!

Larmon Cummings Jr · Answer

Those are some very good points@Nathan Emmert . Also, if you want to find more information on the property check the county website and do a property search, zillow, and also redfin. I'm assuming you do not have MLS access, so these are some free ways to find more information about a given property and also comps in the area. Also check out CL to see what the market rents are in that area, so when you get more details on what this particular property has its rents set at you can have an idea whereas if they are current with the market, too low, or even to high. Hope this helps. Wish you much luck on your meeting also-go get em. :-)@Malita Robinson