Another 48 units and counting!

40 Replies

Originally posted by @James Johner :

@Alina Trigub I have a single partner that I work with to help take over the world with. Partners can be a vital part of any business, but you must choose them wisely.

 James we have a vacation rental under contract. We’re willing to assign the contract in the next month; otherwise we’ll close and list it for 150k more as is (already fully renovated). 

Check out the listing in marketplace:

https://www.biggerpockets.com/...

@James Johner incredible to hear! Especially since you and your partner are still just doing this 'on the side' while keeping your 9-5 jobs. I don't know your family situations, but you may want to look into having your spouses become 'real estate professional' status, so you can enjoy all of the tax benefits that come along with the investing as well. 

Originally posted by @James Johner :

@Justin G. Great questions Justin and thanks for asking. We don’t syndicate deals. All of our deals are handled on an individual basis. Some we have partners on others we don’t. This latest one is even more interesting. Financing 1.4m with typical bank loan 25yr am/5% 7 yr balloon. Owner is financing the remainder over a scaled period of time. Did I mention interest free with zero EDM?!? I love getting interesting with the financing. Just keep asking why we someone tells you no.

James, well done on the progress, focusing on outsourcing parts of your life/day job so you can free up time. Really smart.

Get a CPA to advise you on the zero interest seller financing. You may have to calculate the imputed interest and report it to the IRS (and to the seller). Zero between two parties if fine yet the IRS will not treat it as really zero.

Back in the 'old days', when interest rates were 10% or higher, investors would set up zero interest deals and inflate the price. The IRS figured it out and effectively banned zero interest. A CPA will know the current rules.

@John Corey great points.  Technically we are structuring at a 5% interest rate but by simply reducing the purchase amount to leave the seller with a final sale price of the 1,775,000, effectively getting 375,000 to the owner over a 10 year period and financing $294,629 at the 5% to yield what he wanted at the end of the day.  They key to this deal was figuring out exactly what the seller truly wanted by selling and figuring out a way to make it happen.

Originally posted by @Allen C Herring :

@James Johner Congrats James!! How did you find the owners addresses of the properties you wanted to buy?

 Allen, tax maps.  Most municipalities in this day in age have an online data base, most are integrated with mapping technology that allows you to simply click on parcels of land and it will generate this data based on tax records etc.  Depending on the suffocation of the owner and how the ownership is structured you may need to then dig into the the secretary of states website to search for the entity that actually owns the property and work backwards to try and find who the companies officers are, or who the registered agent is for the entity.  a lot of times you can then search the names that you find using white pages or people searches on google. Facebook, Instagram etc.  the internet is a beautiful thing!  It is hard to hide nowadays!

Originally posted by @James Johner :

@John Corey great points.  Technically we are structuring at a 5% interest rate but by simply reducing the purchase amount to leave the seller with a final sale price of the 1,775,000, effectively getting 375,000 to the owner over a 10 year period and financing $294,629 at the 5% to yield what he wanted at the end of the day.  They key to this deal was figuring out exactly what the seller truly wanted by selling and figuring out a way to make it happen.

Got it. Thanks for sharing publicly. I completely agree that when you really understand what the seller needs and wants, you can customize the solution. Due watch out for the imputed interest and the IRS reporting requirements. Some is on you and some is on the seller. Not hard to deal with. Just not 'interest free'. The tax will be regular income taxes vs capital gains (interest income vs inflated sale price).

 

Update on this post to keep it valuable.

We dug through all the records on this property and we were having a hard time justifying some of the expenses. Long story short, we helped the current owner expose some dishonesty in his management. This provided a HUGE forward momentum and trust between the owner and us.

Here is the new deal structure.

We will buy into existing property at 67% owner, keeping the current owner in on the deal as a 33% partner. Leverage the property under new ownership entity at 70% LTV, use this capital as the "buy in funds" current owner walks away from deal and collects his 33% for a set period of time and as agreed in operating agreement will give full ownership over once he collects final monies from agreed upon purchase price.

Financing will be Agency debt and renovation loan.

PP 1.4m

Reno budget $864k

All in cost 2.264m

ARV 3.9m

Equity created 1.6m+\-

CAP rate as basis 8%

Total cash out of pocket.....$0

Man I love this!!

Keep crushing it everyone. I will update once this all goes through! Hunting more deals now.

Originally posted by @James Johner :

Update on this post to keep it valuable.

We dug through all the records on this property and we were having a hard time justifying some of the expenses. Long story short, we helped the current owner expose some dishonesty in his management. This provided a HUGE forward momentum and trust between the owner and us.

Here is the new deal structure.

We will buy into existing property at 67% owner, keeping the current owner in on the deal as a 33% partner. Leverage the property under new ownership entity at 70% LTV, use this capital as the "buy in funds" current owner walks away from deal and collects his 33% for a set period of time and as agreed in operating agreement will give full ownership over once he collects final monies from agreed upon purchase price.

Financing will be Agency debt and renovation loan.

PP 1.4m

Reno budget $864k

All in cost 2.264m

ARV 3.9m

Equity created 1.6m+\-

CAP rate as basis 8%

Total cash out of pocket.....$0

Man I love this!!

Keep crushing it everyone. I will update once this all goes through! Hunting more deals now.

Thanks for the update. Well done on structuring the deal and making it a winner on paper. Next, your execution will solidify the value. Go, go, go. 

Congratulations on the updated terms on this property! Your due diligence has really paid off! 

Thanks for sharing such an inspiring story - in the current market no less! I'm in a similar boat, working full time and have already dabbled in two 2-4 unit MFH and am ready to make the move to a larger multifamily property in the hopes of being able to transition into multifamily investing full time at some point. 

Curious, what resources have you used to up your financial literacy, especially multifamily financing? I have the basics of REI down - what do I recommend a newbie know before heading out to make offers on larger multifamily properties? What kind of lenders should I be speaking to?


Love this creative deal making! Sounds like a win win for all. 

Curious how this will work- will current tenants stay and you will reno as they leave over time? Or will you remove them, reno then re lease out? 

did the money folks require a dp and reserve? with none of your own money in the deal where do those funds come from? 
will this cash flow once debt in place? 

I love hearing about deals but always curious about how they actually occur. :) 

And finally - what books do you recommend on commercial property financing? 



@Mary Mitchell

Thanks for the questions. We will renovate as we get turn over. We are bringing rents up to help clear out some units.

Cash flow...Yes. Every deal cash flows from the day we buy it and we only leverage 60-70% of ARV. No exceptions.

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