Welcome to part 2.5 of my little series of case studies about how I grew my portfolio by 60% in Q3 of this year. I started by telling you about the first four units—a great Supercharged Seller Financing acquisition. Then yesterday, I told you about two neighboring triplexes I bought, also with Supercharged Seller Financing.
Today, I’m excited to pick up from where we left off, and to tell you about Herbie.
(We always name our properties, and I recommend you do too. It makes it much easier to refer to them than by their addresses, and way more fun. ☺️)
Herbie the Duplex
In April, I got a call from a nice guy who had received one of our normal letters. His family had owned a great duplex in a wonderful neighborhood for a very, very long time. They had decided it was time to sell and 1031 exchange into something a loooong way away in Florida, and they were in the process of both tenants moving out.
I—being the Seller Financing-focused person I am—was hearing clues all over the place, that made me feel Seller Financing would be great for them. So, I made a proposal based on Seller Financing, at his asking price. He carefully considered it, and in doing so applied some very seriously complex math to his evaluation of the two paths. Ultimately, he said no to the proposal. I then told him I’d be happy to use my real estate license and plex experience to help him take it to market, and he said he’d think about it and get back to me.
A couple months passed, but I stayed in touch with him. One day at the beginning of July he called and said he thought he’d found a way to sell it to me via Seller Financing AND still do his 1031 exchange. (I doubted that, but went along with it anyway). Jessica and I met him at the property and got to see inside for the first time, because it was now vacant. He told me a price and terms he would accept, and it was surprisingly reasonable. In fact, the pricing was $60k LESS than I had offered him originally, AND had Seller Financing. I was going to have to put $75k down, and like usual I wasn’t sure where that would come from, but I knew I’d figure it out like always. We agreed verbally and I told him we would write it up and send it for his signature (normally I would do all that in person but he lived several hours away and was heading home right after we saw him).
The next day, I wrote it up and sent him the purchase agreement for his signature. A day or two passed and he called me. He said, “you’re not going to believe this, and I’m SO sorry, but I just unexpectedly got a far better offer. I can’t pass it up.” I was disappointed and frustrated, of course. I asked him who the buyer was, and he reluctantly told me. I told him I knew that person and they were very credible—he was in good hands and should proceed. It looked like I’d lost the deal.
But still, I stayed in touch. A couple weeks later I emailed him and said “Hi, just wanted to see how things are progressing. I hope all is well, but if anything changes, let me know.” He responded and told me everything was on track.
Then around August 13 or so, he called me. Turns out his other buyer had backed out…but the seller was now on the hook to ACQUIRE his 1031 exchange replacement property in Florida on August 27. So, he was REALLY under a huge and stressful time crunch. He asked me if I would still buy his duplex, and if I could close in time.
I told him I could…but I’d have to revisit the terms a bit.
Because now, of course, I was in the driver’s seat. He needed me to perform, and I had more leverage in the conversation. So we began some very accelerated due diligence, and I went back to my numbers and asked myself: “what do I need the price and terms to be in order to feel good about doing this?”
Here’s where we ended up: $810,000 price ($70k less than our April conversation), $20,000 down, $790,000 on a note at 5% interest (Supercharged of course!) for 15 years with 6 months of deferred interest accrual, and a $10k credit at closing. He was able to close just in the nick of time and complete his exchange purchase. Pretty sweet for everyone.
(You may be wondering how he did Seller Financing AND a 1031 exchange. I’ll have to explain it 1-1 to you sometime, because otherwise this already-long story will get WAY longer!). Tomorrow, I’ll tell you about the final deal I did: a sweet 9-unit property.
P.S. I put this little chart together to show the progression of how the negotiation went over the course of those few months. Every time the box is green, that means the deal got a little better in that category.
