A Scary Inspection Report and Seller Financing

THE JOURNEY OF A PART-TIME REAL ESTATE INVESTOR

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ACCOMPLISHMENTS

I went through the 8-unit inspection report in detail (I should have done it sooner but I ended up just having _fun_ on my Daddy Daughter Seattle trip). It was an intimidating 83 pages long and packed full of scary items like 46 year old HVACs, 8 electrical panels that need to be replaced, broken rafters in the attic, missing GFCI outlets, HVAC venting into the attic, window rot, and many more items. It was so much that I wanted to throw my hands in the air and run away. But I didn’t. This is growing pains. This is a large report on 8 neglected units. I’m sure it is common for value-add multi-family properties.

I met a property manager and general contractor at the 8-unit on Wednesday, broke down the repairs, and got estimates for everything except the foundation. I was pretty happy with these two and plan to work with them.

I also needed more time for the inspection period to have a couple of companies bid on the foundation work. The Seller was _not_ happy about delaying things via email and complained about not getting rent for the extra time since I had written up that the vacant unit could not be rented. These types of conversations are best in person. I showed up with two amendments to the purchase and sale agreement, verified that her only concern was the rent, and brought out the amendment that moves the dates back like I needed and has me paying December’s rent for any unrented days in that unit with no strings attached. The seller was very amenable to this and now I have time to schedule with a couple of foundation companies.

I have continued negotiating on the 24-unit property. This has been a bit challenging as the Seller is stuck on a price that is overvalued by about $30,000. There is also a duplex for sale that is undervalued by about $20,000 but my funds are too tight to buy it also. My negotiations are hampered by going through a Buyer’s agent to a Seller’s agent to the Seller, but I brought up seller financing which is one reason that I might over pay a bit. It turns out the Seller was ok with $100,000 of seller financing which also lets me offer on the duplex as well. We are currently negotiating the terms of that note. A low interest rate and a long term are best for me. He initially responded wanting a 5 year term, 15 year amortization, and no mention of an interest rate. I responded with this chart (excluding the balloon payment column) hoping that he would pick one of them:

Interest

Term

Amortization

Amount

Monthly Payment

Balloon Payment

0.03

5

20

100000

$554.60

80308.77

0.04

10

20

100000

$605.98

59852.78

0.05

15

20

100000

$659.96

34971.52

0.06

20

20

100000

$716.43

0

I reached out to a few banks about financing for this. This was much faster after having gone through 30 banks for the 8-unit. The lender that I thought would be the best option came back with 80% LTV (loan-to-value), 5 year term, 25 year amortization, and 3.6% interest. These are _great_ terms and I’m not shopping around any further.

I got the 2nd coat of primer on my office wall, had a great Saturday with swim class for Kahlan, my 8 year old daughter, a 3 hour outdoor Girl Scout event, and a birthday dinner with my extended Family.

HOW TO CONNECT

My blog is temporarily on the Bigger Pocket blogs which you can follow at https://www.biggerpockets.com/member-blogs/12537-the-journey-of-a-part-time-investor.

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NEXT STEPS

On the 8-unit, I will talk further with the PM and GC to make plans for the acquisition, schedule two foundation companies to bid on the work, and talk with the lender to make sure they are solid (they are making me a little nervous right now).

On the 26-units, I will continue negotiations.

My next steps are lighter due to all my travel next week where I’ll only be home one evening and likely doing chores and spending time with family. I don’t expect to make any progress on my office, tv mounting, and I’ll be craving family team when I get back.

READER Q&A

You are welcome to send me questions and I may share them here. I’ve enjoyed hearing what several of you are up to and a few of you have asked questions.

Q: A common question from several of you has been about which meetups I like in Seattle.

A: While I live in Kansas City now, I previously lived in Seattle from early 2001 thru late 2018. My favorites in no particular order are:

• REAPS: this is the local chapter of national REIA. You’ll find a large community, education, training, and 4-6 times a year you’ll see national speakers.
• Fixated on Real Estate: Tarl runs a great meetup which focuses on Fix and Flip. He is transitioning into more buy and hold so I expect the content will include that as well.
• Addicted to ROI: Jennifer runs one of my favorite meetups and talks about a wide variety of investing topics.
• Seattle Investors Club: I have only been here once but that is only due not having the time to regularly attend a 4th meetup. I have heard many great things about Julie and Joe.