Inside the park home run

This is my first blog post and a very exciting one!! I have a great story to tell that I hope would inspire everyone that doesn’t think great deals can happen. This deal has nothing to do with luck (which I’m not a big believer of) nor does it have anything to do with having money (cause I financed 105% of the deal). Rather, its all about patience, perseverance and a plan!! Im not going to go on into any detail about my background as you can read my profile to get that info, but rather, I want to get right down into the details leading up to the transaction. My construction business was growing and for the start of 2016 my top goal was to get an office space. For the 1st 7 years in business I worked out of my home. A 1 bedroom loft style apartment (a triplex which was my 1st purchase) with my kitchen table being my desk (a glass table that always drove me nuts to clean). So I stepped into the batters box and began to browse around for some office space. Knowing the particulars of what I was looking for allowed me to narrow down my searches. 1st floor, corner property, mixed-used with multi-family, a lease to purchase option or just a purchase option. Most importantly I wanted to be on South Broad street. I was essentially looking for my pitch to hit. For those that are not familiar with Philadelphia; Broad street is the main street in Philadelphia that provides clear access from the all the sports stadiums in South Philly all the way up North past City Hall and into North Philly, approximately 10-15 miles of straight run. Real estate on South Broad street is tough to get, due to the fact that its costly and when anything does become available; you better believe its going for listing price or greater. Broad street always has a real “hustle and bustle” feel giving you a real energy boost!! A great location for an energy packed office setting! So I started to watch and began doing internet searches, talking to realtors and stalking properties by dedicating a few hours a week driving around and taking notes. Swinging and missing at every pitch thrown my way was frustrating. I couldn’t find what I was searching for so I needed to expand my search to different neighborhoods off of Broad street. I would find properties that were either for rent or seemed vacant and I would contact the owners or the listing agent if they were for sale or even for rent. A lease to purchase option was the goal, as purchasing a commercial property with the intentions of constructing an office would be extremely costly. I browsed and kept browsing; speaking to owners and agents, doing walk throughs but no one was interested in doing a lease to purchase or the properties just didn’t have the appeal I was looking for; frustrating for sure, I just couldn’t see a good pitch to hit! It was May 2016 and I was about 5 months into my search and I was following up with previous rental listings that were still vacant but no one was budging. Finally when I saw a pitch that I could drive into the gap I had to capitalize and when I came across this property on South Broad street that had an office sitting vacant for about 4 months I couldn’t pass it up. I was a bit reluctant to approach the property owner as he was a close friend of my family that I have known for years and even did some slight maintenance work on one the apartments several years prior. Given the relationship I didn’t want to mix business and pleasure. Nevertheless, I took a swing. Knowing the office was vacant for some time I was hopeful. I bypassed the rental agent and contacted the owner directly. We spoke for a few minutes and informed him of what my goal was. I needed an office and was interested in a lease to purchase. His reaction was surprisingly positive and he said, “it’s all about the bottom line price, so make me an offer and we can discuss.” I wanted to tread lightly as I didn’t want to discourage him at all. We scheduled a walk through of the property the following week and boy oh boy was I hype! The property consisted of 3 (1) bedroom apartments, a Broad street view 1st floor office and a Broad street entrance lower level office (5 units in total). The kicker of it all is that it was directly around the corner from my apartment. I can literally see the back of the property from my deck!

So we walked through, checking out all the apartments and offices. The building was underwhelming to say the least and for lack of a better word was managed by an absentee landlord. Three vacancies and a deadbeat tenant in one of the units. This piece was not an “income producing property” that’s for sure!! However, it was Broad street and to be negotiating with an “off market listing” like this is definitely a big picture view! I was seeing well past the mess and definitely envisioned my office for sure.

In mid May is when the negotiations began! So i did my due diligence. I came up with a price based on comps in the area, considered the cost of rehab needed in order to bring the apartments up to market value and etc... As I mentioned earlier I wanted to tread lightly throughout this process and not rattle any cages; I wanted this property! So I created a very detailed proposal package which included a Lease to Purchase Agreement with a low ball offer of $375,000. I would rent the office space at the rental asking price, I would invest $2,000 in each apartment (3) when they became vacant and if I were to complete the transaction within 1 year I would receive all my issued rental payments at closing. He didn’t accept the offer as expected and countered with an offer of $425,000 (far closer to market value). I agreed to the counter offer knowing the fair market value and requested a $10,000 seller assist that I would receive at closing to help absorb closing costs. In July we came to agreement after several back and forth discussions and we finally had ourselves a pitch to hit and we drove that ball right down the 1st base line and straight back to the warning track with a finalized contract.

The next steps were the most exhausting and for 3 months I tried to secure financing. I had to come up with approximately 25% down payment ($106,250), I had a rental payment of $1,650 per month, I was required to spend $2,000 per vacancy, I had an office that I now have to prepare to rehab. All of this while running a very aggressive and growing construction company! I decided that I would not touch the office rehab until I was to able to secure financing for the property. I didn’t want to run the risk of not being able to secure the property and then be stuck with renting office that I didn’t want. Thankfully I have a tremendous relationship manager at TD Bank (my 3rd base coach) that I had complete trust in. We explored different programs, we explored hard money lenders, I even explored different banks, we explored pulling equity out of other investment properties I had, the seller was pushing me for answers as he was preparing for a 1031 Exchange. Everything was tricky, nothing was easy. It was exhausting!

It was November and I was exploring the idea of approaching the seller with a seller finance option. I really was reluncant as I didn’t want to rattle any cages and lose the deal. The same day I was thinking about it, the seller had called me and approached me about the option; I kid you not! It was pure music to my ears. I couldn’t believe it and I immediately discussed it with my lender and we came up with the number needed to secure 105% financing (75% from the bank / 30% from the seller) (sale price + closing cost). I prepared an agreement and a full amortization schedule that I presented to the seller, we discussed back and forth and by the end of December we had a seller finance agreement!

So now everything was in full motion and we were rounding 2nd base. Home plate seemed so close but more obstacles to come made it seem so far away. We were confident we were heading in the right direction and therefore in January 2017 I began the Construction of my office. A bit premature I would say but at this point I was to going to do whatever necessary to secure this property. I was unable secure financing from TD bank until I had my 2016 tax returns filed. I needed those returns to reflect the financial growth that I had in order to secure financing. Rushing to file returns we even had to amend some that weren’t accurate. At this point I was in so deep between the office construction, my rental payments, the vacancy construction and the jeopardy of not closing within 1 year. I needed an official bank qualification note indicating that I was able to secure financing. Once I was able to present this note, the seller couldn’t back out of the deal and if he did so he would have to forfeit all the payments I issued along with costs associated with the construction of the office and the vacancies. Once I got that letter in April I was able to finally breathe and the 3rd base coach was waving me home!

90 feet away from home plate mind as well had been 1 mile. It felt forever! The right fielder had gotten to the ball faster then I had hoped and was setting himself for a play at the plate. The seller had gone to Europe for 3 weeks and I voluntarily offered to be the liaison between his 1031 Exchange and the Title company (whatever it took to get this deal done). Back and forth with the time difference was a mess but we were able to get everything situated and had a closing date scheduled.

May 1st, 2017 we finally closed on the property after 9 months of negotiations. I walked away from closing with a property valued at 25% greater then the purchase price, 105% financed and a $35,000 check! Everyone at closing couldn’t believe that I managed to pull this off. I was able to beat the throw and cross home plate standing up with a walk off, inside the park, game winning run!