HELP! JV financing, partnership or just plain crazy. You decide
Ok BP universe.I really need help on this one or I'm going to lose my mind.This post is aimed specifically at the people who are very familiar with either JV funding/ Partnerships, private money or all 3.
The names and details have been slightly changed to protect the innocent (and also so I don’t possibly violate my non-disclosure). I will also will try to be as brief but thorough as possible, but it’s still gonna be long.
Ok, Lets say I have a seller, that’s selling 4 large apartment buildings.The units could use some upgrades, and the occupancies are lower than industry norms because the current owner doesn’t advertise or go out of his way to fill the vacancy once people leave. He would rather be fishing, and as long as money’s trickling in to put gas in the boat, keep the lights on and buy some food he’s good. He wants to sell and be done with it once and for all. All 4 buildings, all at once, no piece mealing.
His price tag is 3 million cash. NO Owner financing, all cash or nothing.If you were to take the shape of the buildings into account and the surrounding land plus the current and pro-forma rent rolls 2 million to me seems to be a very fair price, and I see where he is coming from. (Viewing it as a seller) .For all the units that need an update, I have the experience, a trained crew and the tools and some capital for said improvements. What normally would be a huge expense for the avg investor, I already have in place. So for me I’m chewing at the bit to get this deal done.
HOWEVER I run it by the loan brokers, and because of actual NOI vs the sale price will only lend up to 50%.I say ok, I'll try private money, private money says essentially the same thing! I try the hard money route and they start talking cap rates are under 8 and if seller comes down 1.5 mil they'll consider doing the deal, but otherwise no too much risk for them.
I’m either just not understanding something, or I’m talking to the wrong people for what I’m trying to do. If these buildings were fully occupied or even 85%, and even remotely updated. the value would be 10+Million or up. So what gives? They can't all be beautiful and fully occupied. Sometimes we have to pay a little extra to get what we want for a bigger payoff down the road. Right?
So WHY can’t I find a private money lender that will take somewhat of a risk. Everyone is telling me to walk away from the deal. Whats keeping me from doing that, is all my smaller past deals that everyone else passed on, I turned around and made a profit on them. So it’s kind of hard for me to walk away, until I know I exhausted everything.
So assuming I can't find a PML or HML, I was going to ask the seller for a partnership. My labor, my capital injection, my running things on a day to day basis. For added incentive, increase the sales price from 3 million to 4M Work my *** off, bring the buildings back to where they should be, dissolve the partnership on year 5 and reli the seller/partner off and cash him out in full.All the partnership details obviously drafted by a partnership / acquisition attorney.
Has anyone done some like this? Pro’s / Con’s. Am I crazy? Should I really just push this deal out of my mind?
Again just so you know where I’m coming from.I have been involved in so many deals in the past that others passed on only for me to swoop in and make money off of it.The sellers were motivated, and it was using my funds. But now I’m at a different tier, so I get the differences. I just have a gut feeling again that I can turn these around.
Again sorry for the longer than normal post,hoping the universe is kind with bringing me some answers from my fellow BP’ers Have an excellent day everyone!