I may have an opportunity to buy a 14 unit complex with as little as $10k down in actual cash and have the balance carried by the seller for up to 20 years at around 7%. His price is higher than I feel theyre worth yet they would still cash flow a little with these terms. Im thinking the long term financing and potentially never having to go the bank adds some value…but how much?
ROI would be through the roof…
Any thought?
Brandon: do you know the seller’s story here? Does he own f&c? Or is trying to wrap it. How long has he had it? He may just be trying to get out of a bad situation with 10K, thereby making it your bad situation. If they are cash flowing now why is he selling?
He is a long-term owner…its 7 duplexes and he is bought them here and there over the last 35 years or so. Theyre all built around 1970. This represents about a 3rd of his overall rental portfolio. He is an older guy ready to start unloading and ive know him for about 10 years (neighbor) and he knows ive been buying a lot lately and am wanting to expand. Out of the 7 he has loans on 1 or 2 so it would be a blanket land-contract on all 7 wrapping his 1 or2 loans. I dont have all the info yet but know quite a bit from talking with him over the years. Ill do my homework before I write the offer but I dont think he is motivated in any way other than its time for him to start thinking about getting his house in order and enjoying some down time. He knows im not interested in all the singles and chopped up multi’s and thats why he pitched me these. I just threw the $10k as a guess. He knows I just did a deal for 3 duplexes at $250k with $6k in cash to close so he knows I buy on contract with low-downs and he has sold and bought stuff on contract before. Ive kind of called him as a mentor in the past so we know each other fairly well. This is also a small market where, im not exaggerating, Im the ONLY guy buying multi’s other than foreclosures. So I kind of have an advantage in that there is little competition if he wants to sell them as a group.
[QUOTE=Brandon (NE Indiana);883111]I may have an opportunity to buy a 14 unit complex with as little as $10k down in actual cash and have the balance carried by the seller for up to 20 years at around 7%. His price is higher than I feel theyre worth yet they would still cash flow a little with these terms. Im thinking the long term financing and potentially never having to go the bank adds some value…but how much?
ROI would be through the roof…
Any thought?[/QUOTE]
Find out what he would take on a cash sale to redirect his thinking towards a lower price, and start negotiating towards that number.
Understand there is a point in landlording where you have enough work to keep yourself very very busy, and not enough work to employ staff full time. Which means your commiting to a ton of personal involvement (somtimes at very inconvient times) at least temporarily, and possibly a very long time.
My experience is such that I believe that point to be around 20 units. If you have a plan to get firmly past that point, then its possible the financing arrangements will be ok.
If your plan leaves you stuck in that 20 unit range, you will need your ROI absolutly through the roof, because even a one hundred percent return on 10 grand is only 10 grand, which wont be worth it. The fact that it isnt worth it leads to the inevitable outcome where the seller gets all the property back.
So I would say proceed negoiating with the seller, and use extreme caution towards long term debt commitments.
My wife and I have decent jobs and dont plan on pulling money out of my rental account as personal funds until I get to the point where I can sustainably pull double what im earning at my current job while still leaving some excess cashflow in the account for growing the business or paying down debt. At that point I would go full-time. This deal would put me at 27 units and I feel that the first 3-6 months would be hectic but then level out as I get used to the load of 27 units. My current 13 is a decent load but im very organized and so far am handling it well. These 14 units are 5 minutes from my house. I am shooting for at least 40-50 units within the next 5 to 8 years and I am not setting any goals/limits beyond that. Im 34 and ive wasted enough years screwing off and am ready to put some footprints on the moon. Screw that “the sky’s the limit crap”!!
My eventual plan is to use the cashflow/stabilty of the 40-50 units to get into doing the types of stuff Ray Alcorn. Commercial repositioning type stuff. I know to get that type of cashflow I need will take time to pay down the balances and raise the rents over time…its a long road but at my age I may have the time to travel it well.
My thinking on the ROI is that the $10k turns into several hundred thousand dollars in equity over the next 20 years. Seems better than buying Tbonds to me.
Ive read “Tales of a Whitetrash Landlord” so I understand the ugly side of residential rentals as well.