All Forum Posts by: Mariah Jeffery

I had a long conversation with the seller's daughter last night. I asked what kinds of terms and conditions they had in mind for the owner financing so we could get on the same page with that before talking price. First she said they wanted 20-25% down. I explained that this wouldn't work and that's the whole reason why going through the bank is not an option. She seemed clueless on the whole credit crunch, so I had to fill her in on that. I explained that to find a buyer who could go through the bank, they would have to find someone with either $600K+ in their bank account, or a lot of equity that they wanted to trade into these properties. And if people 1031 exchange they usually do it into large apartment buildings. She agreed and said she'd talk to the folks about taking 5% down, but mentioned we may have to compromise on that.

Re: interest rates, I didn't go into specifics but I mentioned that we could do something in the middle of what they could expect in CD's (a measly 1.5% if they're lucky) and what I would pay for a mortgage. She agreed with me that this would be a win/win. I consider this a major score because most owner financed deals have a much higher interest rate. I'm guessing they may even be willing to accept 4%.

I also mentioned that I would need the ability to sell and pay off some properties separately, which she was fine with. I said if we work out a deal, we'd probably want to close in batches (i.e., 10 per month for 5 months) so that we don't overwhelm the property management company. She saw no problems with that was well, as long as we were willing to provide an earnest deposit of approximately $20K that we would forfeit if we don't perform on all properties within a specified time frame, possibly the end of '11. This sounds reasonable to me.

I didn't mention balloons, because in all honesty I doubt they've heard of one before and I don't want to plan the idea in their minds.

At this point I'm waiting to hear back if 5% down with a 30 year am. is agreeable to the parents, and will proceed from there.

This is 42 separate lots. Most are single family homes, with a few duplexes. A few are commercial property.

About 20 of the houses are right next to the main street of the city. The land could be worth a lot some day.

There is no debt on any of the properties and hasn't been for decades. They were purchased no later than the 70's. Some were built by the seller in the 40's and 50's.

If there's one thing I've learned about the seller over the years, it's that when something gets stuck in his head, it's hard to get it out. The daughter told me that it's "his dream" to sell all of the properties to a single entity. Sometimes he gets very emotional about these properties, which have been his life's work since he was in his 20's, so nearly 70 years. I think I'll get a much better deal by catering to that emotion.

True, but why would I refi with a 5% interest rate? I would make my offer without any balloon payment involved. I just meant in terms of the seller's acceptance, they're more likely to be enticed by a higher offer price.

Here are some #'s:
-The rents come to just over $30K/month. All 52 units are currently occupied.
-Property taxes run 1.8% of assessed value/year.
-Insurance I have ballparked at .4% of assessed value/year.
-That's about $51K/year in taxes + insurance.
-Property management fee would be 8.6%.
-Properties are in fair to good condition. There is some deferred maintenance due to the seller's age, but for the most part they've been kept up.
-I estimate repairs/improvements to be 20% of rents. I used this value for the properties I own in the same area, and I've found it to be a little conservative since my father-in-law does maintenance and charges less than a pro.

I'm considering making the following offer:
-Purchase price to be $2.3M.
-Owner finance @5% interest, 20 yr/ am., 10% down payment.

Any thoughts on this offer?

I know 5% interest is ridiculously low for an owner financed deal, BUT these sellers are so clueless I'm not sure that they know that. I also know that they refuse to invest in anything that's not FDIC insured and the proceeds of the sales will go into CDs earning about 1.5%. It seems to me to be a win/win situation.

I could certainly give them a higher interest rate but the price would have to be lower. If anything, I'd probably be better off leaning towards increasing the price and reducing the interest rate further.

I do like the idea of potentially taking on a partner to raise the funds I'm lacking rather than sell off all of my other investments. If the sellers agree to my offer, I'll approach family members first and if they aren't interested, I'll post again on BP looking for a partner.

I have 23 rental units now. I bought a duplex in '07. The next opportunity came in late '09 when I met a motivated seller, an elderly couple that gave the a great deal on my next 11 units/4 properties. This couple still has 52 units left. I had hoped to buy more from them, but they suddenly because less motivated and wanted higher prices. I continued to buy more from other sellers, most recently in December '10. I'm pretty happy with the 23 I have now, and although I'd like more, my rental business grew very quickly.

Last night I received an email from the daughter of the sellers of my units 2-11. Dad is about to turn 89, and wants out. He wants someone to buy ALL 52 of his remaining units and will give a good price to whoever does. Tax assessed value is $3M. I wrote back to the daughter and said thanks, but I don't have anywhere near $600K in down payment money to go through a bank for financing (I had brought up owner financing before and they said no way).

This morning I got an email back "We are willing to consider creative financing proposals. Please put together your best offer and get back to me."

So ... they've indicated they could give me a good price and good terms. Do I really want to more than triple the number of units I have? I'll be going through a property management company so it won't be as bad as if I was going the management myself, but it's still scary.

Also, I assume they're going to want at least 10% down. In order to get this much $ together, I'd have to liquidate stock accounts, possibly 1031 exchange a few existing properties, possibly borrow from my IRA and/or my parents. Basically all my eggs would be in one basket, which also scares me. On the other hand, I could potentially get a return of over 20% even with a management company doing all the work. What should I do?

The bank accepted my offer, but the inspection report was not satisfactory. There was evidence of flooding. I gave the bank the option to reduce the purchase price by $20K but they chose to cancel the contract. I will submit a bid $20K lower if this is still listed in a month. The saga continues...

Most of them had tenants in them already, although they had deferred maintenance so I usually waited until the first turn-over, fixed them up, and raised the rent.

The last set of 4 single families I bought had only one with a tenant. One was ready to rent and the other two needed serious work to get them ready. My team is still working on the last one and we have not found renters for any of the new ones yet.

I'm not funding them all through my local credit union.

I think you have to be prepared to buy when the deals come up. I bought my first rental in March '07 and then waited patiently until Sept. '09 until I found another deal, then another and another in rapid succession. I had 2 rental units in the beginning of 9/09, then by 3/10 I had 19. I just kept finding good deals and I was closing on a property every month. From 4/10 until about a month ago I just couldn't find anything worth buying or I got outbid on everything I was interested in. Finally, 8 months later I found and closed on my best deal yet, 4 single families in a package. Yes, you can get in over your head but as long as you have a plan and a good team in place, you'll be fine.