Unloading a non-performing 4 plex
After years and years of owning this 4 unit apartment building in another state, I finally had enough basically breaking even for the pleasure of some tax benefits. As much as I wanted to keep the building because the loan was "good," the report in Quickbooks didn't lie. It was time to harvest what little equity would be left in the deal and move it back to California.
I put the property on the market at $160,000. I had owned it for around 8 years and that was about what I paid for it when I bought it. Those who say they invest for cash flow and not appreciation apparently never sold a property, because selling something you've owned that long and not having any upside other than the amortization wasn't that exciting.
Luckily, I got a full price cash offer. I had told my agent before I listed what my minimum acceptable net out of the deal would be. The cash offer gave me just about what I was looking for. The buyer did his home inspection and found a variety of issues they attempted to use to get a nice discount out of me. Apparently, they didn't know me! The buyer asked for a $20.000 discount off the accepted contract price.This is actually the strategy I expected the buyer to use so I wasn't shocked. I sent my agent an email that stated, "I'm not writing a $5,000 check to sell the building."
The buyer then sent over an addendum asking to do mold and meth testing. Wow, what a can of worms that could open up! What if I agreed to this nonsense? What is in it for me? I see no upside in this. If he finds something, my tenants will most likely move and I'll be on the hook for the expensive remediation. My agent also suggested I not allow them to do the testing. Here is my email response;
I've owned this property for something like 8 years. Nobody has been cooking meth in there as far as I'm aware, but I agree with you. I'm not going to take the risk. I've got a good loan and it stays occupied. If they want the building they can buy it. If their intention is to get me into escrow with a full price offer then try to negotiate a discount, they can walk. I don't need to sell this property at all. I just was hoping to clean up my portfolio - I own properties in 5 states - and focus more on my California holdings.
Talk about an unmotivated seller huh? My thinking on selling this property was basically, I could make a lot more money using what little cash I'd get out of it buying something wholesale here. Perfect example; Let's say I make $20,000. I recently purchased a wholesale house here in California that I intend to flip. I paid $178,900 for that house. My lender funded $170,000. I had to go to escrow with $13,700 to close this deal. I expect to make something like $40,000 in profit on this deal when I sell it for $265K. I hadn't made $4,000 in profit on my apartment building in 8 years, but now I can use that equity to make $40,000 in 4-5 months.
Well, I guess it is true that when a party commits a certain amount of time to a negotiation, they tend to want to see it through. Even though I shot down all their requests and basically sold them my beat up 4 unit as-is, the buyer closed. I am very happy to now only be invested in 4 states and have already put a triplex in one of those states on the market. I hope to be down to 2 states by the end of the summer.
Have you ever considered buying out of state? Have you bought out of state? What was your experience? Please leave your comments below.