I had a meeting last week with a seller and thought that it went pretty well. I made a verbal offer to her and she said she wanted to discuss the offer with her daughter and we would talk next week. The offer was around an 8.8 cap rate on existing income.
I spoke to her this week and she stated that she is not interested in selling right now and possibly may hire a property manager to take over the park. She said to call back next month and to keep in touch. She also stated that she is going to increase rents if she keeps the park.
I understand if someone does not want to sell there is not a whole lot that can be done other than wait, but in this situation I feel that the seller wants to sell but needs to be nudged by her daughter.
What is the best away to approach a mom and pop seller given the above?
Offer a 6 to 7 cap rate. Right after purchase if you raise the rents, you’re up to an 8 or 9. If you can hit your target cap rate shortly after purchase it makes sense to overpay based on the current income.
There is a little wiggle room left but I wanted to save that for when I expected her to counter. If I throw out my max offer now, I would just cost myself more and possibly still not have her to the table.
Making you wait a month is her counter offer. She, or her daughter, are negotiating with you.
I personally would not make a higher offer either but when I negotiate I always determine my number and either get it or walk.
In your position I would wait a month and then make a slightly lower offer explaining that your situation has changed and is continuing to change as you commit to other purchases. Alternately you could tell her it is a limited time offer and you will be moving on with other deals. You may or may not be in a position to return in a month.
That is how I negotiate keeping in mind no deal is a must have. Always turn it around forcing the seller to be in the position of making a decision. You want them to believe you do not care if the deal goes through or not.
Interesting that people are saying make a higher offer without really knowing much about the deal. Are rents significantly below market? Is it in a great market? Public utilities? Some other major value add? Never make a deal just to make a deal.
Honestly I think your park pipeline should be big enough that it is almost meaningless if one deal falls through. It’s “on to the next one”, but that’s just how I do things. I see these deals as investment opportunities and don’t get emotionally attached to them at all. And I know it can suck when you put in a ton of work and the seller pulls this kind of thing. But I can pretty much guarantee this won’t be the last time it happens.
Yes, it is a 100k plus metro, 40k income, 100k plus housing, diverse workforce. Rents are 80 dollars under market and the market is at 250. Direct billed water and sewer. The only value add is through raising rents albeit a significant value add.
I 100% agree with that but my pipeline is not at a level where I am seeing enough deals and I am aware of that. I am in the process of building that pipeline but it is not an overnight process.
The fact that she is considering a property manager is telling. She wants to keep getting income, without having to deal with the park. If she owns outright there may be an opportunity to negotiate a seller financed deal at a lower cap rate. Put yourself in her shoes and device a seller financed offer.
Rents 80 bucks under market is definitely nice. Plug that into your formula and see if it makes sense to make a higher offer since you can easily raise rents soon after taking over.
You can’t rule out the emotional attachment that she has with the Park. I used to be in her shoes. Long story, really bad situation. She’ll sell when the circumstances dictate she sells. I’d listen to her and get in touch next month.
Just offering a different perspective.
If it was me, I would first remind myself to serve this person, rather than seeing her as a dollar figure, because it’s easy to see life that way, at least to me it is. She doesn’t care what I know, unless she knows that I care.
Then I’d consider re-asking her why she wanted to sell the park to begin with, so she essentially reminds herself with the pain points that caused her to put the park on the market to begin with. Then politely ask her why she’s not selling any longer and do a strong take away, most likely because of a new set of pain points greater than the original pain points why she wanted to sell to begin with. Listen, repeat back, listen, be understanding, listen be sympathetic.
Then see if I can find creative ways to provide solutions to help her with her problems, whether I buy the park or not. If she’s set on not selling, I’d tell her that I’ll touch base with her in a couple of months to see how she’s doing. If not today, maybe next year, or two, maybe even three. This business is a long game like no other business I’ve never experienced in my life…
Mike, thank you–too many times it is only about the money with little concern about the issues sellers are facing–at some point ALL park owners will be Sellers. Very refreshing!!!
Thanks Carl! Greed is a disease that ALL OF US have to keep at bay, especially me. Recognizing it’s reality is the first step, being an over the top Giver is the ultimate cure.
@MikeT316 hit the nail on the head. You can’t make anyone sell. By listening to the owner and going back to serving her, you will win the deal. And you will figure out how to make the deal work for her and you. That’s really how simple it is.
Agree Agree- what motivates seller? Maybe steady income from seller financing or less management headaches ( manage for a fee with right of first refusal or option). - tax issues 1031? Find out goals
