Things Tenants Do #103 Why is the seller selling ?

Real Estate Agent with Property Management Solutions

When we come across an investment that appears to offer a 10 - 20% cap rate we should realize that if it were a perfect property filled with perfect tenants it would most likely not be on the market. You should take a moment to examine, why is the seller wanting to get rid of his golden goose ? 

Once you have inspected the property you should be able to account for conditional issues , such as deferred maintenance, upcoming repairs and functional obsolesce. These can all be calculated into your investment model with relative ease and hopefully with plenty of margin for the surprises or additional expenses that always seem to occur.

But our line of investing comes with a variable that is not so predictable as well , that is human tenants. 

The most common (but definitely not the most expensive) action a tenant takes is actually an inaction , IE they do not pay their rent on time or not at all. thing to realize is that most of them do not start out as dead beats or even with the intention of not paying their rent , it is just that by the time you come into the picture as the new buyer of a property, your are stepping into a history that you were not a part of making , but that has shaped your present and well greatly effect your near term future. 

Generally when a tenant is not paying what they owe it is for one of two reasons. 1. They do not want to pay. ( Remember their perception of past events trumps reality here) or 2. They can not pay. (often reality trumps their perception in this case). You must determine which is the case as soon as possible , one is curable and the other is generally not curable in your time frame. 

Back to our potential 20 cap inheritance , 4 units with potentially 4 income or expense generators attached to them. Unit A is a female with several kids. Unit B is another female who says she is married. Unit C is a male who has a dog. Unit D is empty. Because of the terms of the sale we have taken the building in its present condition and with its present occupants. 

In the next few post we will take a look at the effect that will have on our return on investment and meet our tenants. 

... more in post #104 

Comments (2)

Bill Reddington
Re/max By The Sea - Destin, FL
Destin Florida Real Estate

10 - 20% cap with a vacancy? Seems a little strange to me or the building is either way undervalued or has other conditions. Interesting.

Oct 31, 2012 12:26 AM
BrokerBarry Mathis
Property Management Solutions - Roseville, CA

The building has a projected gross cap of close to 20% , todays post will introduce some of the "net" expenses , Sorry if that wasn't clear . Thanks for staying alert 

Oct 31, 2012 10:03 PM