3 family in NJ – alternative offer advise requested

April 5, 2017 at 3:21 pm

Allen Brian

Hello everyone –
I am under negotiations and trying to make a deal of the following opportunity.

Legal 3 family house with current rent rolls (potential 16% increase in rent viable after repairs):
Unit A: 3b/2ba – $1500
Unit B: 3b/2ba – $1600
Unit C: 2b/1ba – $1100
1 Garage parking – incl. with unit C
Driveway slot 1 – incl. with unit C
Driveway slot 2 – incl. with unit B
Backyard access- incl. with unit C
Storage in garage – incl. with unit C

ARV: $500k – $550k
The property has a mortgage balance.

Seller(s) are the following parties:
A. Deed is under: Sister & Spouse who are managing the property
B. I am negotiating with: Elder Sister & Spouse, whom also has interest in the property.
C. 3rd party – brother of parties A &B that lives outside the country
**All parties to approve offer(s) and split sales proceeds evenly

I drafted the following offer and sent it to Party B, who is representing all parties:

Buyer to purchase beneficial interest in PROPERTY, for:
$450,000
+ $45,000 (interest)
= $495,000, subject to:
• Transfer of clear and legal title to Party B
• Inspection
• Party B to repair/renovate:
o Three Kitchens and appliances
o Five Bathrooms and appliances
o Hardwood floors on all 1st & 2nd floor rooms + stairs + hallways
o Carpets in basement or suitable replacement
o Add Tankless Boiler/heater for basement unit
o Repair, spackle & paint all walls
o Paint exterior grills
o Power wash exterior
o Refinish porch/patios
o Final repair list TBD after inspection

– 10-year interest only balloon note
• Annual payment of $4500 to Party B OR $375/month.
• Remaining principal balance due no later than 10 years.

Party B’s objections:

1. Transfer of clear & legal title – Party B wants to avoid extra step and extra expense
2. Monthly payments too low and they were making less than 1% interest at proposed terms
3. Lack of downpayment

Concerns:
If title is not transferred to party B….
How can I ensure that Party A will not file a lawsuit against me since I am making payments to Party B?
How can I guarantee that party A will continue to make mortgage payments and not have property foreclosed upon?
How can I guarantee that party A will not take out a 2nd mortgage or HELOC/HEL?

ALTERNATIVE OFFER #1
I’m thinking of going the following route to avoid the uncertainties and get around their objections:

Three year NNN Master Lease + Option to Buy for $495k
– I will pay taxes, insurance, maintenance and utilities for common areas (tenants pay all their own utilities)
-$1000/month with 100% credit towards option strike price
-Option consideration applicable to strike price 2% of strike price = in lieu of downpayment
– I will assume the first $200 of repair per unit, and pass that on to tenants.
**Anything else I’m forgetting?

Question: How can I make the repairs contingent on the option and option consideration?

Open to all your suggestions.

Thank you and have a nice day!