[Rafael Vazquez]

Rafael Vazquez

Hello –

Would like some feedback on the following multiple offers proposal I am about to send a motivated seller of a free and clear property. My exit strategy is to get it under contract, get an option from the seller and sell my option to an end buyer.

ARV ~ 165K
Repairs ~ 25K
My profit = 10K will sell my option

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1. Purchase price: (Cash) $ 81,000.00

Discussion: When an all cash offer is given and there are virtually no contingencies, a discount is required.( ie. I take all the risk of the cost of repairs, lead based paint, asbestos, mold problems, termite and dry rot damage, cracked sewer lines / defective or worn out septic systems, settling or cracking foundations etc. etc. )

2. Purchase price: $120,000.00
Cash down payment: $ 15,000.00
Purchase money note secured by a first mortgage __________
payable $729.17 per month until paid in full. $105,000.00

Discussion: This offer will avoid the seller having to pay capital gains as well as depreciation recapture taxes due on the year of the sale. Instead it will allow these taxes to be spread out during the term of the note.

In addition, this offer will give you the same cash flow you are currently receiving in rents (monthly rent – taxes + insurance) but without all the headaches of being a landlord and having to pay property taxes and property insurance each year. Basically, passive income.

Buyer (Optionee) will give the Seller (Optionor) the sum of $100.00 in exchange for a 60-day
option to purchase the property with an additional 30-day renewal. Buyer (Optionee)
has the right to show and market the property for a quick sale.

3. Purchase price: $138,000.00
Cash down payment: $ 10,000.00
Purchase money note secured by a first mortgage __________
payable $711.11 per month until paid in full. $128,000.00

Discussion: Same as offer #2 above.

4. Purchase price: $165,000.00
Purchase money note secured by a first mortgage
payable $687.50 per month until paid in full.

Discussion: Same as offer #2 and #3 above.
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Any feedback will be appreciated before I send this proposal.

Thanks,
Rafael

[Rafael Vazquez]

Rafael Vazquez

Forgot to mention that this house rents for ~ $1,250/mo

[Jackie Lange]

Jackie Lange

Rafael,

Offer 4 is too much for the condition of the property.

Offer 3 should be a no money down deal but offset by the highest price.

Offer 2 should be for $5k down max That’s a starting point. Let them negotiate for more.

The reason I say this is that your buyer, or buyer of the option, will need to pay $10k-$15k to the seller PLUS pay $10k to you PLUS the repairs to the property PLUS closing costs. Guess who they will try to reduce their cash outlay… you!

You always have to think about your exit strategy.

[Rafael Vazquez]

Rafael Vazquez

Hello Jackie,

Thanks for the quick response. I was about to send the offer and I thought the same thing….the buyer would have to come with a lot of money up front and that’s going to be a problem….glad I posted the offers here….

On offer #3, should I leave it at $138K or make it a bit more since it would be 0 down 0 interest?

Should I leave #4 out completely?

Thanks,
Rafael

[Jackie Lange]

Jackie Lange

Off 3 should not be more than $138k. But remember that is a negotiation starting point. It can only go up from there. You might start at $125k to give you more wiggle room

I’d leave #4 out.

3 offers are enough.

[Ben Souchek]

Ben Souchek

Hi Rafael,

I agree with Jackie that Offer #3 for the $138k should be the highest offer made with nothing, or $300, down and then principal only payments.

Jackie may have a thought on this, but I would be cautious about including the Option language in the agreement. If the seller says yes to one of your offers, you can also right the purchase agreement for a 30 or 60 day close which will give you plenty of time to find a buyer for the deal if needed. I think this additional language may make the seller more nervous than needed.

And as Jackie mentioned, the offers are usually just one way to get a conversation/negotiation started.

Ben

[Rafael Vazquez]

Rafael Vazquez

Hi Ben,

Thanks for the feedback.

Glad you brought up the topic of the Option language. I was kind of hesitant about where/when to bring this up with the seller. I did a deal just like this back in 2010 and the proposal was similar in that it included the Option language. It worked that time but maybe you are right in that it could make the seller nervous.

I wonder, when using Options in this manner, where/when is the best time to bring this up with the seller? I am pretty sure Jack talked about this somewhere but I can’t remember. I know that I really don’t need an explicit option in itself since the contract has an escape clause or two. The reason I like to use this type of option for this type of deal is mostly to be able to get an extension in case I need to. Maybe Jackie can provide feedback on this too.

Also, are you saying that I could extend the closing date 30/60 days from the time the contract is signed?

Thanks in advance,
Rafael

[Ben Souchek]

Ben Souchek

Rafael,

If my offer was accepted, I would write the purchase agreement for a 30 or if possible 60 day close. That would give you plenty of time to find someone to assign the agreement to. If needed, you could extend this closing period.

If your numbers are at all accurate, I don’t think you would have any problem selling this agreement/contract, especially if the seller is willing to take payments.

Hope that helps,
Ben