Advice On Purchasing a 50 Property Portfolio with OPM

Buying & Selling Real Estate
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Advice On Purchasing a 50 Property Portfolio with OPM

Chandra Minter
Investor · Richmond VA · Member since 2015 · 20 posts · 4 votes

I've been investing in real estate for the last 2.5 years however my current portfolio is small as I initially started investing as a hobby. I started buying and renting and have recently started wholesaling. Last week I talked to a gentleman that wants to sell his portfolio of over 50 homes. On the initial conversation he stated that he's in his 90s and wants to enjoy spending time with his family and therefore wants to sell his properties. He wants around $130k per property at $6.5 mil for the entire portfolio. In the initial conversation I was unable to find out how much each property rents for however I do know that all except for 2 properties are currently rented. The seller is willing to owner finance with 20% to 25% down. I plan on building a relationship with the seller to get more information on the deal such as a list of all the properties, current rent, rent history, status/quality of each home, cap rate etc.

My issue is I don't have anywhere near the 20% to 25% down payment, even if I were to negotiate the price down by $1.5 mil. I have a couple of private investors however their lending ability combined would not meet the down payment requirement.

The question I'm submitting to the forum is, how can I structure creative financing for this deal including the down payment? Any strategies and/or advise is greatly appreciated!

FYI: OPM (Other People's Money)

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Corby GoadeBusiness Member
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
7y

Use some of the same strategies you use as a wholesaler. He doesn't want to deal with the properties any longer and live the dream? How can you help him do that? Maybe he gets 20% of the rents in perpetuity and that passes on to his heirs and there's a balloon due in 15 years? Maybe he carries the entire balance, but gets a premium every month based on rents? Maybe he gets to keep 25% of the equity as a passive investor in you? Just a few ideas, but there are a million ways to skin this cat, it's exciting to think about. Good luck!

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  • Matt CrusinberryPro Member
    Hollidaysburg, PA · Member since 2015 · 327 posts · 350 votes
    7y

    @Chandra Minter, There's a couple of different strategies that you could use for this portfolio, but it really comes down to what you are able to negotiate . You could try to buy as many as you can get financing for, to include the partnership you set up (w/your investors). You could turn it over to a syndicator and have them show you the ropes. You could try to start wholesaling these properties if they're at a great discount. You could try to talk the seller into a master lease. Obviously before you do any of that you would need to see the rent roll and the T-12, and do a quick analysis of the numbers. I'm sure there are other options out there as well, but I wish you the best of luck!

    3Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    7y

    Use some of the same strategies you use as a wholesaler. He doesn't want to deal with the properties any longer and live the dream? How can you help him do that? Maybe he gets 20% of the rents in perpetuity and that passes on to his heirs and there's a balloon due in 15 years? Maybe he carries the entire balance, but gets a premium every month based on rents? Maybe he gets to keep 25% of the equity as a passive investor in you? Just a few ideas, but there are a million ways to skin this cat, it's exciting to think about. Good luck!

    5Reply
  • Alina Trigub
    Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
    7y

    @Chandra Minter

    I think you should start with the due diligence to determine whether these properties are even worth looking at?! Then determine your price and simultaneously look at multiple strategies such as but not limited to:

    1) seller financing

    2) wholesaling full pfo or one property at a time

    3) potential syndication with investors

    4) JV with a capital partner

    If you happen to buy the entire pfo, consider doing lease to buy option.

    If you're looking for someone to potential buy a full pfo, PM me.

    3Reply
  • Chandra Minter
    OP
    Investor · Richmond VA · Member since 2015 · 20 posts · 4 votes
    7y

    @Matt Crusinberry Can you explain a little about the master lease route as this is something I haven't heard of but seems like a route that may be beneficial in this scenario.

    1Reply
  • Chandra Minter
    OP
    Investor · Richmond VA · Member since 2015 · 20 posts · 4 votes
    7y

    @Alina Trigub Thanks for your help. I will PM regarding buying the full pfo.

    0Reply
  • Chandra Minter
    OP
    Investor · Richmond VA · Member since 2015 · 20 posts · 4 votes
    7y

    @Corby Goade Thanks for your input! Can you help me understand how a perpetuity would work as far as my ownership in the portfolio and how that would impact my monthly profits 

    Have you seen any deals where the owner will carry the entire balance in return for a premium of rents? If so, how is such a transaction structured?

    The final suggestion is what I'm most interested in. What would a deal work in which the owner keeps 25% equity with me as a passive investor? 

    Your advice so far definitely has me on every real estate site and google working hard to figure out how to best go about this. Any additional help is greatly appreciated.

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y
    @Chandra Minter. You need to do a lot more research before considering this. I would pass on this and move on.
    2Reply
  • Jason Tanner
    Member since 2018 · 9 posts · 14 votes
    7y
    @Chandra Minter My advice...stay in your lane. What I mean is if this is completely out of your wheelhouse, focus on where you are an expert. Going from a small hobby portfolio to a large portfolio overnight could be disastrous. If you have to post to a forum for advice on how to raise thIs level of money means you haven’t played in this league before. Stepping way outside of your expertise is how many investors got their heads taken clean off during the last recession. Playing in this league is a great goal, but it doesn’t happen overnight. Finding the money for a good deal shouldn’t be hard...if the deal is right, and you have the right skills and network. Raising $1.4m of OPM is a very big responsibility. If you syndicate a deal you have significnant fiduciary duties to your investors that you have the skills and experience to lead them to success. My two cents-
    1Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    7y

    @Chandra Minter, I'm no expert in wholesaling, it's hard work! I was just brainstorming some possibilities. I've heard of people using all of those strategies successfully. My suggestion for the owner to keep 25% of the equity was an effort to eliminate the need for a down payment. Basically, they keep 25% of the equity, and in turn, they receive a 25% payment of the NOI on whatever schedule you agree upon. There could be some sort of buyout option that you both agree upon at a later date. Maybe in 5 years plus, you have the option to have the property appraised, or base the value on your NOI and a CAP, and pay 28% of the value to him? Like I mentioned, those are just ideas, if you two can creatively come up with a solution that is mutually beneficial, you can do it any way you want. In my opinion, this is when REI can be really fun- without a bank, a deal can look any way you want it to look. Let me know how it turns out- happy to discuss further if you like.

    1Reply
  • Chandra Minter
    OP
    Investor · Richmond VA · Member since 2015 · 20 posts · 4 votes
    7y

    @Corby Goade Thank you so much and I will keep you posted!

    0Reply
  • Matt CrusinberryPro Member
    Hollidaysburg, PA · Member since 2015 · 327 posts · 350 votes
    7y

    @Chandra Minter, You requested a more in-depth explanation of master leases (). I suggest you read read this article, as Brandon Turner does a great job shedding light on the subject. I hope it helps, and good luck!

    1Reply
  • Chandra Minter
    OP
    Investor · Richmond VA · Member since 2015 · 20 posts · 4 votes
    7y

    @Matt Crusinberry Thanks!

    0Reply
  • Chandra Minter
    OP
    Investor · Richmond VA · Member since 2015 · 20 posts · 4 votes
    7y

    @Matt Crusinberry Matt, thanks for sharing that information. I read the article and reached out to the seller. At this time he's more concerned about selling the portfolio and having the properties off his hands. But I did offer the MLO. Thanks again for your advice. I'll definitely consider that strategy when the opportunity presents itself again.

    0Reply
  • Chandra Minter
    OP
    Investor · Richmond VA · Member since 2015 · 20 posts · 4 votes
    7y

    @Corby Goade Quick update...I went the MLO route on this deal however the seller was not interested. Thanks again for your advice as I will keep these strategies in mind when similar deals are presented in the future.

    1Reply
  • Ivan BarrattBusiness Member
    Investor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes
    7y

    @Chandra Minter offering seller financing in this stage of the market cycle (when assets sell easily) is a red flag. Not a deal killer per se but I'd be wary of owner financing when real estate is selling like hot cakes! I smell lots of issues!

    1Reply
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