Ownership Situation: Third Aspect to Consider When Buying a Property

When you talk about buying a property, many people think about the first two aspects - the physical characteristics of a property (its location, state of repair or disrepair, size and functions, amenities, etc.) and the price (because the price you pay will determine whether or not it is a good investment).

Most people don’t think about the third aspect: the ownership situation. The ownership situation has to do with who owns it, how they have been managing the property, and the owner's motivations for selling. The ownership situation can determine a lot of the challenges or opportunities inherent in purchasing a property.

Whether or not you want to think about it, it will be a necessary part of your purchase. You are purchasing a property from another human or humans. How they have been managing the property will affect the value of the property, and their own goals and motivations for selling will play a big part in the sale price.

Be Seller-Motivation Savvy

One of the aspects of buying a property will be to assess the sellers’ motivations for listing the property. A very motivated seller might be willing to take less on a property in exchange for speed in closing.

Negotiations will be different with an owner who’s desperate to sell as quickly as possible versus an owner to someone who doesn’t particularly want or need to sell.

Also, sometimes the owners are very clued in, savvy, and realistic about the value of their property. Other times owners think their properties are worth way more than they’re worth or way less.

If you are negotiating with someone who has a realistic sense of the value of their property, you can get the property and be creative while you do it.

When we bought our mobile home park in North Carolina, we bought the park from someone who had owned the park for 40+ years. Unfortunately, he was starting to have dementia and his children were very motivated to have him sell the park while the owner still had his wits about him.

The park had had very minimal management for years. It was in very poor shape and only 30% occupied. We were able to purchase the property at a great price with seller financing. We saw that because the market fundamentals were there, with good management and a decent upgrade of the space, the park could deliver an enormous return on investment.

Seller Management

Another aspect of the ownership situation has to do with how well an owner has been taking care of their property. A property with bad management presents a unique opportunity for value-add. Improving the management is a surefire way to improve the financials of a property.

For example, in the 51-unit building we bought in Albuquerque, the ownership situation greatly affected the deal we were able to get.

First, the owners were a mom-and-pop organization that had let things get away from them, and the financials of the building were a mess. They also had let in all sorts of tenants (many of whom had stopped paying rent). That scared a lot of other buyers off, but that was a golden opportunity for us.

We knew that by improving management - keeping good books, evicting tenants who weren’t paying rent or were bad elements in the complex, adding income streams (e.g., making the building pet-friendly and charging pet deposits, decreasing expenses (e.g., charging back utilities to tenants), we could add value to the tenants and create value for ourselves and our investors.

When you’re buying, pay attention to the ownership situation and be open to opportunities showing up because of that.

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About Monick Halm

Monick Halm, founder of Real Estate Investor Goddesses, is an educator and advocate for female real estate investors, Her mission is to help 1 million women achieve financial freedom through real estate investing. To find out more about Monick and connect with her, go to www.reigoddesses.com