HELP -NOT MUCH TIME!

35 Replies

I received an unsolicited offer for some pretty out-of-state. Decided to sell, but now I am in a quandary. I have a very short and to identify and purchase the new property here - and missing the Steadley would be disastrous tax -wise.

The question is this, do I contact many real estate agents or try to stick with just one. It vantage of using several's office, but some real estate agents recent you working with other agents. 

Also, how does anyone make this kind of a decision on a short time frame. Inventory in the Salem Oregon area is down, and of course that is a real problem. I have tried looking in surrounding areas (within 40 miles) but do not want to purchase apartments in areas that I cannot adequately service within a reasonable driving time. 

I am looking for apartments in the 20–40 unit area. If I do identify properties, do I make offers to all of them some of them or just a select one or two. If you only make offers to a select few, if they fall through, there icould be a real problem.

Who knew that receiving an unsolicited offer would be such a problem!

HELP...

Dave

MODERATOR:  NO DEALMAKING IN THIS FORUM, PLEASE.  THIS POST IS SEEKING ADVICE, NOT PROPERTIES.

Obviously, I should have edited my post - sorry about all the misspellings and errors.

Please bear with me, thanks.

Dave

Has the closing on the sale of the relinquished property happened yet?  If not, start with seeking an extension of the closing date. 

Steve, thought about that! Buyer wants to tear down the houses (no inspections or exclusions) and put in a extension to his business. He is willing to pay all cash, but wants a speedy - repeat speedy - closure. 

Again, not a bad problem to have, but does not help the situation.

Dave 

Hi Dave,

What is your 1031 equity from the sale and how much of a tax hit would you take if you didn't 1031??

Sometimes it makes sense paying the tax versus buying into a marginal deal.

I am commercial broker with clients all over the country. Sellers and listing brokers love 1031 buyers as they know they are motivated and under the gun to find a property to buy.

If you locate and identify properties to purchase and do not close on them then my understanding is your money is tied up with the QI holder for many months before you get it back. That is on top of paying the tax from not buying.

If you decide not to assign properties during discovery period then you just take the take hit but money is not tied up for awhile before releasing. So you really need to be sound about the properties you are selecting.

No legal advice

Joel, 

Thanks for that information. Do not want to have my funds set up and unavailable for several months.

The total tax would amount to about 250 K.

As you can see, this is a substantial amount.

Dave

Are you adding money to this for a purchase of your 1031 acquired property?

Example you have 250k to exchange.

If you want to buy 20 units at 50k a door that is 1 million purchase.

25% down Is 250k but you will need reserves and due diligence with closing costs fees that are tens of thousands of dollars total.

Will you self manage the property or use a PM company?? That small number of units you need to stay local as you can't scale it to be hands off. Lenders will want to know your liquidity and net worth after down payment. In a lenders view id 250k is all you have you are putting all your chips into one property. If you have other property you own with equity, cash reserves, 401k, IRA, cash value of life insurance policy, stocks, etc. then your personal financial statement will look better for funding.

Joel,

Yes, I will be managing the property myself. Should have no problem in qualifying for anything that's out there. Looking into a $2 million-$3 million purchase price. I have about a third down. 

One of my original questions was should I use just one realtor, or contact half of them in the Salem area haha. If I contact several, then they may not want to put all out effort, thinking they may lose it to another Realtor. If I only  use one Realtor, I may be losing out on additional sales opportunities. 

Any thoughts on this?

Dave

Hi Dave,

I would work with a quality commercial broker who has a track record. Commit to them and the process to find you some good properties. Commercial is specialized so a multifamily broker will have deep connections with other brokers, developers, off market etc.

Think of it this way. A broker with a great listing gets a call from me the buyers broker representing a client. This agent knows me and previous deals have closed. They know I screen buyers and get funding lined up in advance so the seller is assured the best odds of certainty of closing if they go under contract with us.

This versus you calling around brokers at random throwing mud at the wall and seeing what will stick.............. : ) 

The bank on the loan of a property that size might require you to use management as a condition of the loan.

Joel,

Really - didn't know that that condition might be a problem. thanks for the heads up.

Took a class today on 1031 exchanges - learned a lot. It seems the deal on the 1031 exchanges are made when you identify properties over when you close on them. And the number and amount of properties are limited also. 

What a pile of El Toro Poopoo...

Thanks for the support.

Dave

Hi Dave,

I was in a very similar situation last year, and am in one again as of last week (tenant made an offer to buy their rental and has now removed contingencies). 

Last year we worked with a specific agent in our niche market and despite putting in all kinds of offers, were outbid by all cash buyers repeatedly. It got to the point where we had 2 weeks left and I was getting freaked out. We finally got something under contract, but I was pretty mixed about the deal. I ended up calling a few people for advice and my parents mentioned that they were quite happy with their latest rental acquisition and that seattle wasn't as hot as the bay area (at that point) but had the makings of a strong market. We had never done an out of state deal, but I knew the area where my parents lived and I trusted their opinion and experience. I was able to lean on their team and we got a property under contract that week with far better numbers, even with management. The experience since last october with the property manager has been so positive that my wife and I were asking ourselves if we should sell on of our places here and give our manager more doors.

I would consider your relationship network and see if you trust some to guide you in a second market. It's good to have a backup plan.

Shane,

Not been in the area, how could you know or  guess about all the particulars.

For example, what can you rent the units for, is it great area or a bad area of the city, what were taxes what was the school district would it be a good place for renters.

All these are questions that are hard to answer in a unlnown location.

Dave

Im working with a 1031 buyer and I can tell you first hand that sellers aren't interested in being identified and having their property tied up for a considerable amount of time only to have Buyer close on a different deal; it happens quite often. It's best to work with one Broker who works their butt of for you and verifies availabilities and speaks to the listing brokers before putting any deals in front of you. Your agent should put you in the best light and give confidence that you fully intend to close should you present an offer. 

As an FYI, there is a lot of competition right now from All Cash buyers with 10-15 day closings. A technique we used to secure a property was to include the contact information to the lender and accommodator for seller's verification. 

Juan,

Great information. I don't have much support of or knowledge of, Real Estate brokers in this area. Can you give me an idea on how to find one – quickly? 

And your point about properties being tied up is right on. I worry a lot about that scenario.

However, the properties I have sold in the past and the ones that I have purchased, were not closed in that fast of a timeframe. But, I can't see that a buyer would be concerned that if his property (that was on the disclosure list )was not chosen, then he has wasted his time.

Any suggestions on finding a real estate broker quickly?

Dave

First you need to focus on what kind of real estate you intend to purchase. Residential or Commercial?

Juan,

I'm looking for a 20 a 40 unit multifamily apartment complex.

I intend to leverage the down payment  approximately 30%.

I should have no trouble and qualifying for about any loan.

Dave 

Do you already have experience with these types of properties? I just did a quick search for: 20+ units, max $3,000,000 and in Oregon; only three listings came up within the last 30 days and one of them is under contract. Have you considered an alternative option?

There are single tenant commercial properties you can purchase that have 10 to 20 year leases on them. Tenants range from mom & pop shops to National brands (i.e. McDonalds, Starbucks, Chipotle, Dollar Tree, etc). If you have a strong tenant on absolute NNN terms, you won't be limited geographically and will have many more options.

Hi Dave,

There are other options, often used as back-up solutions, such as Net Lease properties (as Juan mentioned above), Tenant-In-Common (TIC) investment properties, and Delaware Statutory Trust (DST) investment properties. There are pro's and con's with each of these investment options, as with any type of investment. If you need a referral to individuals that represent these types of investments, let me know.

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Leslie, Bill, Juan,

I have absolutely no experience in the areas that you mentioned. I think it would be somewhat difficult to enter an area with no experience, and make such a decision in two or three weeks.

Do you have information or areas that I could explore, where additional information could be obtained?

Dave 

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@Dave Simpson  There are companies out there that specialize in helping you in your situation.  They work with brokers, property owners and developers and have a vast network to help you bring a deal to fruition.  I know of a few that I get regular updates from via e-mail.  If interested give shoot me a PM.

Folks, this is NOT a dealmaking thread.  Do not offer properties for sale or to assist in competing this transaction.  Such posts have been and will be removed.

DST's are usually a last resort for an exchanger. The downside of DST's is limited payout and they lock you in for a long time. I believe it's five or seven years depending on the sponsor but do not quote me on that.

There is also some buzz by tax attorneys that DST's are on the IRS radar for a challenge in years to come so some are not recommending them.

Some areas are overheated for investing. If you want to be in that area for multifamily and have to identify in a certain time then you will have to buy what's available or pay the taxes and wait for the right investment.

Sellers love 1031 buyers because they know they have to buy into a property. The buyer loses negotiating power as you are more committed to that one property so you try to get as much done upfront in the LOI as possible. The buyers usually end up purchasing good properties but not amazing properties due to tax constraints. You want to make sure you are not buying into a bad property just to exchange and avoid taxes only to have to sell years later at a high cap to dump. In that situation you are negating your tax savings on the back end and may even come out of pocket with a loss of less than what you paid for the property.

So each 1031 buyers situation is different and it's a case by case basis. When I interact with clients by e-mail and phone ( in person eventually if local ) a bunch of items are discussed. The buyer has to be realistic with time frame and expectation or they need to change markets to get the yield they want. Some larger 1031 buyers want to get elaborate and take 3 million and place in multiple types of properties. That's fine if you plan months and months in advance but I see people trying to do this at the last second with a week to go. That complex of a deal isn't going to happen like that. 

Those who fail to plan, plan to fail.

Hope it helps. No legal advice.

Joel,

Not sure what DST is...

You are exactly right about buyers not wanting to tie up property. However, just made an offer on one property that hopefully will happen, but in addition to the 1031 problems, I am asking for a $140,000 discount.

I am a real believer in fate, so if it is to be it will be.

For those that might want to review this post, I will try to keep you up-to-date as to exactly what is happening.

As always, will always be looking for advice.

Dave

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