A long-tenure owner offered to carry, so I'm moving slowly on purpose

I've been working a small list by hand, maybe 220 owners, everything over 25 years of tenure in two zip codes I actually drive through. One of them called back after the third letter.

Fourplex, all 1/1s, bought in 1991, owner is 79 and manages it himself. Rents are 620, 620, 645 and one unit he lets a relative use for 300. Market for those units is closer to 850 based on what's listed nearby. He wants 385k and said, without me asking, that he'd carry paper because he doesn't want the whole gain in one year, which is a tax question for his accountant and not something I'm going to advise him on.

What he floated: 60k down, 4 percent, 20 year amortization, no balloon mentioned yet. I have not seen a single document. No leases, no tax returns, no water bill.

At 385 with 325 carried at those terms the payment is around 1,970. Current collected rent is 2,185. That does not work. If I get three units to 850 over 18 months and deal with the relative, it's 3,400 and it does work, so the whole deal rides on that rent increase happening.

I'm inclined to slow down and ask for two years of records before I talk price again. My worry is that a 79 year old who has decided to sell will decide something else in a month. The decision is whether I ask for paperwork first or put a structure in front of him first.

Answer

1angela_burkeServicePRO6

The relative in the 300 unit is the deal, not the interest rate. I've taken over three small buildings from self-managing owners in their seventies and every one had a person in it who was there for reasons that had nothing to do with rent. Twice the seller had promised them they could stay.

Ask him plainly what the arrangement is and whether he's told them anything. If he has, that promise follows you, in practice if not on paper, and how much weight it carries legally depends on your state, which is a question for a local attorney. Also: raising three tenants from 620 to 850 in 18 months means notice rules, turnover costs, and probably two vacancies. Budget for both units to turn.

4 replies

3kevin_lombardPG1BPRO5

What does it mean that he doesn't want the whole gain in one year? I've read that phrase twice now and I don't follow the mechanism, and I'd like to understand it before I see it in a thread again.

3laurenkim53Passive

Ask for paperwork, but ask for the easy paperwork. Two years of returns from a 79 year old who self-manages is a conversation about his accountant and it stalls. Bank statements, the water and sewer bills, and whatever he has for leases will tell you almost the same thing and he can hand them over at his kitchen table.

I've lost a rural triplex by asking for a package like I was a bank. He got insulted and sold it to a neighbor for less than I offered.

2mitchell_ray4 Get yoursPRO6

A 1991 purchase on 1/1 units means you should be pricing sewer laterals, the original service panels, and whatever the water heaters are doing before you argue about 385 versus 360. Four units of that vintage with an owner doing his own repairs, I'd expect to find at least one thing he's been living with for a decade because it only bothers a tenant.

Go look at the panels. That's a five minute answer and it moves your number more than 4 percent versus 5 percent does.