Help! Deal is to BIG!

23 Replies

All of my cards on the table, I am still a "door-less" investor, but have been following the advice of individuals on here and talking to the different property management companies to get a feeling of the market.  Long story short, one of the PM companies I talked to was in the process of selling off his 250+ door portfolio and was down to the final 10 (that are not on the market currently) that are in the Oklahoma City / Edmond, OK area.  

He currently has 4 Duplexes, and 2 SFH in close proximity. It has been said many times on the BP Podcasts to "find the deals, and then the funds." I talked with the gentlemen for about an hr. and finally got the information that it would be listed as a portfolio for ~1MM with a 10.3% COC return. These are all verbal numbers, as he is hesitant to give me anything more until I have been qualified as a serious potential investor (can't really blame him).

I did ask him about seller financing, but he mentioned he had been burned by that in the past and was not interested.  The gentlemen is moving to be closer to his grand kids.

The big question is - How do I take down this fish, or am I way out of my league?  Furthermore, I don't have near enough information to start analyzing this deal, but cant get more information until I can show I am serious.  Its a chicken and the egg thing that I am thoroughly confused about! 

Any input would be greatly appreciated!

@Michael Pendleton that one might be tough. In my opinion it might be too big to pull off on your own unless you are sitting on a lot of cash. Maybe you birddog the deal to a more season investor. Or perhaps you network at your local REIA and essentially give the deal to someone else and you take a minority ownership interest. Basically you put in a little cash and use it to learn, do all the leg work for the more experienced investor that has the capital.

Good luck!

@Michael Pendleton If I were in your shoes my first step would be getting the addresses of the properties.  Drive around them and just see how they look to you.  If everything you're saying is true these are the last 5% of his portfolio.  I'd be incredibly curious why these are the "leftover" properties.  Obviously other investors have left these on the table.  And if he's solid 240 out of the 250 doors then other investors have had their chance, picked through, and consciously left these particular homes.  

By the way, you can offer to sign an NDA of some sort to get the information from the property management company.  If the PM you're talking to is anything like who I use it's just a matter of running a report.  Probably takes 10-15 minutes if they haven't done it already (which, I guarantee you they have).  

All of that said, my short recommendation would be to pass on the deal.  You're a rookie investor and getting (almost by definition) the bottom 5% of someone else's portfolio that hasn't sold.  People who aren't rookie investors have bought the other 95%.  That just wouldn't sit well with me.  

I'm such a debbie downer...

@Michael Pendleton I agree with Andrew Johnson. Evaluating the numbers would be a great exercise along with physically going to see the properties. If I remember correctly, you can get a sample NDA from Ken McElroy's website. If the numbers don't make sense, since pass, on the deal. It is better to be conservative than rushed into a deal that could potentially sink you for a long long time.

Sounds like you at least have a potential deal to analyze. Working on trying to get the numbers on this, even if it doesn't result in a purchase at the end, might be really valuable experience. I'm working on building my own experience, beginning with SFR in pre-foreclosure here in the Colorado market. I want to build up to commercial multi-families, and really like your method of calling around to local PMs @Michael Pendleton .

Talk to as many local investors as you can that know your market, and see if someone thinks this thing is worth taking down. Work with them on it and give half for the experience.

I’m no expert but I’m a big believer of starting small and working your way up. Listen to the podcast with Austin (last name starts with an F, it’s somewhat recent) and see how he started small and now a days has done multiple portfolio deals like this.

There’s a lot of IFs that have to go right for this to work. 1. You find financing, as this is not a typical deal, 2. He sells it to you even though you’re a complete newbie and 3. The properties are actually worth owning. These are just the few I can think of off the top of my head

@Account Closed   I know that line find the deal and the money will find you is a common one.. but I don't personally subscribe to it.. 

you need to have your money lined up first.. for the reasons your stating show the seller your serious etc.

and not to waste a ton of your time.. if you have the money finding deals is easy in your area and most of the mid west deep south.. 

I am extremely thankful for this community and the advice that everyone is willing to share so openly!

@Andrew Kerr - I appreciate your input, and obviously have never thought about it from that angle!  That is one area that I truly find fascinating about Real Estate, is that there are numerous ways to be involved with a deal, as long as you are creative.  The problem for me is, I am finding it hard to be creative if I don't have a foundation of standard to work from if that makes sense?

@Account Closed - My apologies, but I do not know who Toby Brown is and this is not his.  With that being said, if there is anyone interested in the contact information for the portfolio I have been referencing I will gladly share, but after the posts here, I am doubting there are any takers!

@Michael Pendleton I'm a bit late to the party but feel compelled to ad my 2 cents. In addition to the comments by @Account Closed which I 100% agree with, 10% COC is not a deal that would attract money. I would think you would have to be North of 20% before you would get attention and probably north of 30% to get local money that knows the market.

@Lawrence L. you need cash on cash returns of more than 20% per year to get people to start looking at your deal. You probably need cash on cash returns more than 30% per year to get someone you don't have a relationship with to jump into a deal with you.

Ah, the Midwest. 10% CoC isn't the kind of return I have hear people talk about when people talk about deals out there. When I have seen these kinds of things usually you would want to evaluate the area in Google street view and then work with a property management company In the area to know if there is upside in the rents As suggested before you have to walk all the opportunities to know if someone is trying to sell you a bag of nails. You can always compare returns for these kinds of JV in the marketplace to know if you can offer rate of return numbers that would make this work to leverage someone else's money.

My suggestion would be finding a partner with experience and/or money locally so that you can approach it better. Take a minority interest but just use this opportunity to learn. As to how to find a partner locally, BP and local REIA meetings are both great options!

And finally - if you wanted to analyze the deal just for the heck of it and could get one property address, in Oklahoma you could probably find the rest with a morning on the computer.

I have a feeling this is not that great a deal.  looks like near 100k per unit that is basically retail for alot of okc in general.  i have a feeling these are not the cream of the crop if they are still sitting around.  i would say just keep looking or try to buy the couple you like if they are a good price but dont bite this all off on your own or you may be sorry.  

Try to google the owners name and Secretary of State. Ie “Tim Reed Secretary of State Oklahoma” or “SOS” and all variants. This may display his llc’s or business entity. Then plug that into the Oklahoma County accessor website and you may find the said properties. Work backwards through the process and determine values that way if he won’t allow you to sign a NDA.

@Bill S. - Thank you for taking the time to respond, and clarification to @Lawrence L. as I was a little fuzzy on that point as well.

@Jason Monroe /@Stephen Kunen /@Deborah Burian - Thank you for the additional information.  This entire exprience has been eye opening, on a couple of fronts.  Mainly, the difference between book knowledge and practical application and how quickly they can diverge based on local market conditions.  Secondly, how valuable the BP community is.

@Rhett Tullis - I agree, and based on the feedback from individuals in the forum I continued analyzing the numbers and came to a similar conclusion.  It was actually a valuable exercise as it showed the need to read between the lines.

@Rocky Griffin - That is terrific advice!  This ties into the point that @Deborah Burian made that you can find just about anything on the internet given enough determination!