Can u help me put this deal 2gether? $2mil partial owner finance
Appreciate the help and advice as this topic moves along. A little long however figure the more info you know the better tailored your advice can be.
What I've got so far. I met with a local gentleman who started investing in the early 90's. After meeting with him and expressing his desire for privacy/discretion in sharing information he strikes me as the "millionaire next door" type - lives in a modest neighborhood, drives a modest car, does not want to be flashy, show off his wealth etc.
We've had the chance to meet for 2.5 hours so far.
He's in his 60's best I could tell - ready to retire. Wants to divest part of his commercial portfolio - his stated goal is to give someone younger an opportunity and he's against selling the properties to one of the few wealthy families/dynasties that control a lot of things around here, does not want to sell through a broker or to someone with great wealth.
He stated he would not prefer to leave the property to his family and is mainly concerned with having an income stream for the next 30 years to carry him through retirement, not worried about living an extravagant lifestyle etc. Through our conversation I understood he had owned various businesses and may still have some in existence. Sounded like at one point he had nearly 100 employees working for him - now just has one.
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Property Breakdown - meat and potatoes
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6 Properties total - I'd call it a "C" grade area, an older area of town built up in the 50's and 60's. All properties are supposed to be close together and very close to one of the hospitals (we have 3 large ones in town) and all have very easy highway access, and fairly centrally located on main arterials. It's not a bad area, just not "new & shiny." Not the poorest of areas, definitely not the wealthiest of areas, the large local grocery chain still maintains grocery stores there, starbucks/wal greens can be found etc.
2 shopping centers, one free standing office building, 3 other mixed use properties that have restaurants, retail and office space. He is reporting tax value is near 3 million. He's willing to exit at 2 million, would like 20% down and he would finance the rest so 1.6 mil and he wants a payment of $5555.55 per mo for 30 years which equates to about a 1.65% interest rate.
He may also be willing to partner with a potential buyer -- ie they turn around the properties, and when they are in a better cash position or better able to secure financing for a 20% down payment they buy him out, he may still owner carry the rest at that point as well.
So far I've only only received limited info and have not been able to see the properties as we are just beginning to talk. He mentioned a non disclosure agreement so would assume we'll need to put one together before being given the line by line details. I was given the general vicinity and am 99% certain I met him at one of the restaurants included in the package. I do not have the # of tenants, but he stated to me there is some deferred maintenance, and high vacancy, however he's still cash flowing on all the properties as I was able to see his IRS Schedule E - redacted of course. States he does not have the desire to focus all of his attention on the properties and wants to move on. Says someone with new energy should do fine. He has stated he has been easy going on tenants and some he has not raised the rents in 20 years among other things.
#'s on the IRS Sched E (rounding for easier math) (He does not have mortgages on every property - just the 2 shopping centers)
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Prop 1 - Shopping Center 55,000 SF
- $110500 Rents (states if full should be appx $264000)
- $36700 Earnings after op expenses before Dep & Mortgage Interest
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Prop 2 - Office Building - 12,000 SF (I believe he occupies about 1/3 of it but will move out -- he does not pay rent on this portion of course, uses it as a writeoff)
- $22200 Rents (says if you lease space he uses income would be higher)
- $8075 Earnings after op expenses before dep & mortgage interest
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Prop 3 - Restaurant & Offices (wasn't given sq footage)
- $11400 Rents (says it should be appx $18k)
- $2000 Earnings after op expenses before dep & mortgage interest
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Prop 4 - Shopping Center I believe...unk sq footage - didnt get a lot of details on this one
- $72000 Rents - unk if it should be higher
- $24400 Earnings after op expenses before dep & mortgage interest
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Prop 5 - Restaurant - unk sq footage - got the impression this bldg was near the end of it's life - said best thing is at some point, scrape and rebuild - this may be a national restaurant and for the most part a NNN lease - made the comment every couple of years they tell him what they will renew the lease for. Not much he does with this one
- $12800 Rents
- $10400 Earnings after op expenses & before dep & mortgage interest
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Prop 6 - Storefront - unk sq footage or if rents are low
- $22200 Rents
- $7600 Earnings after op expenses & before dept & mortgage interest
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(Based on what he provided me - he earned appx $88k on the 6 properties before taking into account the 2 mortgages he has left and depreciation so unsure of what his exact cash flow was)
I do not know the vacancy percentage at each property - he left the impression it was high, stated one of the large wealthy familes in town who own a lot of retail space have lured some of his former tenants to their properties while he wasn't paying as close attention as he should as they gave signs they were being courted elsewhere, however he missed that.
2 Nationals and lots of mom/pops - no tattoo shops, no vape shops, no check cashing places, no liquor stores. Only one church - however has been a good long term tenant - reverends family is extremely wealthy and always makes sure the bills are paid.
Is there something here? I believe there is. Throwing this out there - anyone with experience in these deals interested in entertaining a partnership? I'd consider with an experienced individual or will figure out how to do this on my own if this is worth doing.
I've got an email in to him asking for vacancy percentage and # of units at each property. We plan to meet again soon.
