Return to Commercial Services PageWILLIAMS INVESTMENT REALTY
of BOCA RATON, FLORIDA
1515 N. Federal Hwy., Suite 300
Boca Raton, FL 33432
(561) 392-4550 Fax: (561) 392-9901
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TWO OFFERS ARE BETTER THAN ONE!
If you are like most buyers, and want to purchase an investment property, you will prepare an offer to purchase (just one). When it is submitted to the seller, it is sort of an "accept this or else" situation. How about submitting two offers and let the seller select the one that he or she likes best.
Here's how it might work:
You want to purchase a $1,000,000 investment property with $300,000 cash down and a $700,000 mortgage (which you have to obtain). There is an existing $500,000 assumable mortgage on the property, but it is not large enough and the seller has indicated he or she does not want to carry a mortgage (which leaves you $200,000 short in funds). You know it will cost you a minimum of $14,000 in closing costs to obtain a new mortgage and the rate will be 9.5%. Based on your investment analysis, you know that properly financed, you will receive a 10% return on your invested capital.
You make the first offer at a $925,000 purchase price, subject to obtaining a new $625,000 mortgage. (No one ever offers full price!) You also make a second offer, at the full $1,000,000 price but ask the seller to carry a second mortgage in the amount of $200,000 at 9% interest. You will than assume the existing $500,000 first mortgage.
What you are doing is giving the seller $75,000 more for the property as a concession for carrying a second mortgage. You are also asking for a 1/2% lower interest rate than the bank will give.. After preparing investment analyses, both alternatives will give you the same return on invested capital. You also save closing costs of obtaining a new mortgage if the seller likes the second option..
Submitting two offers requires you analyze both alternatives to insure that you receive the desired return with either contract that the seller accepts. You can still negotiate price and terms on the one the seller likes best. What you are doing is giving the seller a choice, not an ultimatum.
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