Reader Question: Hi Monty, I want to create a purchase proposal for a property owner. These are modest houses in a decent neighborhood where we own other rentals. One is vacant. We have a rental right next to the homes I would like to purchase.
I have become somewhat of a friend of the homeowner to whom I want to make the offer. He is an elderly fellow at around age ninety whose wife is ill. He owns five homes including their residence. These houses are in the sixties era, and all floor plans are the same throughout the neighborhood. He has kept them in good shape. They usually are valued at around $65,000. If all of his properties are rented, he grosses $3000 a month. I would like to make an offer on all five, including his residence, where he can live rent free for the rest of his life while I rent out the others. As a stipulation, I would like to get a great deal that would be favorable to him as well. Any suggestions? Thanks, Mario D.
Monty’s Answer: You know much more about what has transpired in the relationship with your neighbor. Based on what you describe as your goal, here are a couple of ideas that may be helpful.
The needs analysis
Learn how he thinks about his property and his situation. Tell him you are interested in acquiring the properties. You want to sit down with him (and his advisor, if he has not outlived them) to better understand how he is thinking about his real estate and his future. Tell him you do not want to waste his time (or your time) making a proposal to him without the benefit of his input first. Here are some example questions to ask:
- Have you ever considered selling your property? (If he says, “Yes,” ask him if there is any reason he hasn’t done it already?) (If he says “No,” ask him if anything is preventing him from doing so?)
- Where would you move to if you sold the property?
- Is anyone helping you take care of your wife?
- Would your family be interested?
- If you could pick the ideal way to sell your property, what would it be?
- Do you still like taking care of the property?
- Are you concerned about losing the rental income?
- Are you concerned about outliving your money?
- Have you been through the senior housing development over at ____? (Offer to take them to look)
There will be other questions that come up. Without saying it, you want to hold genuine concern for their situation. The way you demonstrate this to him is through the questions you ask. You are seeking to understand. This meeting is a “needs analysis.” You want to learn if there are some drivers that may give you hints about how to proceed (or how not to proceed).
Take a step back
Once you have a good grasp of his fears, desires, and his intentions, tell him you want to think about possible ways you could work with him to acquire the property? Ask him when would be an appropriate time for you to get back to him with some ideas.
Absorbing the discussion
Depending on how you interpret his reaction to the discussion, you may decide just to offer to buy the vacant one, buy the four he is not living in or buy them all.
Consider passing on the life estate for a great deal. It complicates the calculations and is difficult to project because you have no way to calculate how long he and his wife will live. He also may be leery of the idea. Instead, consider asking him for a land contract to keep cash flowing. He may see that as a fair deal.
If he does not want to sell them all or wants to die in his home (not uncommon) perhaps he would consider a right of first refusal on the others. You have discovered how he is thinking. Presenting options you can accept may make the difference.
Now you can crunch the numbers under different scenarios, some of which he may have already indicated an interest in pursuing. Determine which ones work out best for you. Now you can make a proposal that fits his desires and defeats his fears. He may even suggest a proposal you never considered.
“Richard Montgomery gives no nonsense real estate advice to readers most pressing questions. He is a real estate industry veteran who has championed industry reform for over a quarter century. Send him questions at DearMonty.com.”