$120,000 challenge

[Roger J]

Sometimes people focus too much on why a person is selling.

Maybe this landlord is tired of landlording.

Maybe he needs the money ASAP.

Maybe he bought it for $30K and so is making a nice chunk of change.

Maybe he doesn't own it at all.  He's just trying to "sell" it to the unsuspecting (okay, bad example)

The point is, if the buyer performs due diligence (ie it's NOT the last reason), the numbers work, personally I don't care why they're selling.

Baloo. you summed it up yourself.  "Landlording is not my forte'."  Well, maybe it wasn't his either.

Raj

[masoning]

Does this qualify for the challenge?

People always ask why did someone sell their building for such a cheap price.  Here is an example that sums up the fact that there are opportunities for huge profits.

Someone calls me and gives me an address and purchase price of a building, along with the seller's phone number.  I know the area and call the seller.  She is very anxious and wants out bad.  She was left at the settlement table twice over a two month period.  She also lives an hour from the building and wants to spend more time with her children.  She bought the building for $70,000.  It is a fully rented 6 unit building that grosses $2,400.00 per month.  She tells me she wants $50,000 for it.  

I go and look at the building and it is a no brainer.  Turn key opportunity in move in condition.   I call her back and play a little possum with her.  She starts to get very nervous that I am going to walk away and I tell her that I can close by this Friday, 4 days from now.  She says "really, if you can close by this Friday I will sell you the building for $35,000.00."  I tell her it is a done deal and I fax her the contract that night at around 1:30 am.  I get the signed contract back at 6:00 am.  Think she is a motivated seller?

It gets better.  At settlement, I get the prorated rent for the building and we split all the settlement charges.  I list the building with my realtor on Monday, 3 days later.  The paperwork was completed earlier in the week after the contract was signed.  I manage the building, collecting next month's rent and sell it 45 days later for $145,000.00.

[Baloo]

Thats all fine and dandy.  And it is an understood that there are more things possible that what my simple imagination can fathom.

Yet I still proscribe to the "if its too good to be true it usually is" theory.  Not to say that I would automatically discount such an opprotunity, but there would be flags flying.

Dealing with SFH it is pretty apparent why someone is selling below market value.  And knowing the motivation for selling is an important piece of the negotiation puzzle.  I was simply asking what possible motivation could there be for dumping a passive income below market value.

[Roger J]

Baloo,

there are just as many, and just as varied, reasons people dump multi-unit passive income properties as there are for SFHs.

A person not familiar with SFHs would probably say the same thing (in fact, they do); "If it's too good to be true, then it probably is.  People just don't their properties away."  Sound familiar.  If you've been in this business for any length of time at all, it should.  That's what basically everyone that doesn't understand REI says.  You know, it doesn't work, you can't do that, etc., etc.

I think that the problem lies that you since you don't know about multi's and landlording them, you can't fully appreciate just how bad that you may at one day want rid of them, even if they are a cash cow.

Just my thoughts,

Raj

[luaprenraw]

masoning--

i'm in california and having a REAL tough time imagining where you can buy a 6 unit property for $50,000 or less (or $35,000 like you said)  that is generating  $2,400 monthly income (this equates to much less than 2x gross. and why wouldn't this seller list the property with an agent and sell it herself for over $100,000 2 weeks later?? was she just stupid or was she hurting that much.

like i said, just really curious where you can buy 6 units for $50,000 or less???  any specifics (like address and state????


thanks!!!!

[propertymanager]

Once you get over 4 units, the building becomes a commercial property.  The number of buyers for multi-unit buildings is MUCH less that the number of buyers for single family houses.  The turnover in multi-unit building owners is very high because of the quality of the tenants.  These tenants are often on the lowest level of society and the problems are many times greater than that of SFHs.  Just this evening, I received a call from one of my tenants complaining about another tenant who was in front of the building drunk with a switch blade.  This kind of stuff on a daily basis can drive you crazy, especially if you are a new landlord.  That's exactly why I always recommend that newbies start out with SFHs.  They're a LOT easier to manage and they're MUCH easier to sell.  

The point is that the deal can seem great when you buy and terrible if you must sell.  To the uninitiated, being flung into managing a 6 unit building can be an absolute living hell, where the owner will do ANYTHING, ANYTHING to stop the pain!

That's why these deals seem so good.  

Mike

[Markmcg]

Hello Baloo,

Good question...motivation...This seller has moved 2 hours away from the property and doesn't want the hassle of driving.  He has moved up to larger apartments and is starting his own management company.  He is willing to sell for what he has in the building and made the terms easy just to move it quickly.  It turns out, he loves to chat about REI and should be a valuable asset for me in the future.

It seems we as newer investors should spend more time finding MOTIVATED SELLERS.  The seller has actually accomplished my goal by acquiring 100 apartment units averaging $100.00 cash flow per unit.  It can be done!

Mark

[masoning]

Luapenraw,

I am in Maryland, but where you are does not matter.  What matters was that the seller wanted out in the worse way.  The deal was a slam dunk for me.  I have done 6 other deals just this year with those kinds of numbers.  I got a call the other day from one of my contacts asking if I wanted a building.

The owner was across the country and just wanted out.  The owner is selling me the building for whatever his mortgage payoff is.  It is a two unit building that grosses about $1,000.00 per month.  I am buying it for $40,000.00.  

[Roger J]

Masoning,

Sounds like you've gotten some real homerun type deals.

Unfortunately, those who subscribe to the "if it's too good to be true" mindset would have probably passed on everyone of them.

So the lesson for today is: If it looks like a good (or great) price, get it under contract, do your research on it (due diligence), and close the deal if it still looks good.

If a person offers you a $100K property for $50K, then reason that they're selling becomes just a routine question.  Yes, I'm curious, but it's no longer a "have to know the answer" question.  If it's a truly too good to be true deal, then your due diligence will find out why.

I know that most of the books/courses teach "find out why the need to sell."  That is a question that needs an answer ONLY when you're still trying to negotiate the price to where it needs to be for you to buy it.  If someone is asking $95K for a $100K prop, then WHY the need to sell becomes more important.  If you can find the "why" cheaper than $95K, then you've made a deal.

Raj

[Neophyte]

Haha i'm in the same boat.  Only thing is once again, we're wished luck. I'm starting to think the actual plan itself we have to come up with. Ive settled with just knowin gall the steps taht go into reaching my goal.

I'm trying to learn the fundamentals.

 I'll find my own way once I have a solid grasp of the fundamentals.

Y'know the rookie mistakes to avoid, financing, marketing, how to recognize deals etc......

It's all here.

It isn't laid out perfectly but, it's here.

I've read the glossary twice.