Quote from @Michael Gonda:
Quote from @James Hamling:
What you describe here @Michael Gonda is the perfect scenario for Turn-Key offerings, right.
But you want to keep going for a couple decades, and mention interest rates. PERFECT! That all paint's 1 very nice picture.
How about we put it all together and evolve your position UP to "Bank". Offer the properties Turn-Key, to upstart investors, on seller financing (C4D).
Now, you've "evolved" yourself in things where your no longer involved in the operations or the operational expenses. Gained capital via the assorted down payments. Retained cash-flow. Profited from current rate environment. Can be structured in a way that you retain maximum flexibility in ability to refinance, sell notes, or utilize as colterol for future endeavors etc etc..
We all know the term OPM, and the profit potential of Other Peoples Money, well take a page out of the Banks playbook and tap OPL Other Peoples Labor.....
20% down, that's a fair bit of capital. And best part, it doesn't cost you a dime in interest, right. And, you have all that TIME restored, for other deployment.
Hi James
That's a really interesting idea but.... 1. I wouldn't know how to start on this and 2. it makes me a little nervous giving over our proprites to someone else like that.
But I see the value in the idea.
So how does something like this typically work? It seems to me that someone would be purchasing a business not just rental properties right? As the value of that arrangement would be above the appraisal amounts alone, someone would be purchasing the whole shooting match.
And then they would still be paying interest in the properties also. Would that be more or less interest than a typical bank loan? I would assume it would be a good bit more than a bank's interest rates.
This seems interesting but I would need to think it over a good bit.
There can be a lot of details to this, and one can easily get lost in the details but pull-back and keep vision of the fundamentals as it really is rather simple.
You'd be selling an investment property or properties to a buyer, value based upon what it is, turn-key investment property, and instead of going to a bank for financing, you are the "Bank" financing there purchase.
The details can be many, but all stands upon this fundamental basis.
Now keep in mind everything is negotiable, because this is where things can really get fun with math.
Say fair market value today is $250k, and a person doing DSCR will be around let's say 8% all said and done. Well, what if you say $350k but at 5%. Too many get tunnel vision on just the % and completely forget there is 3 factors to how the #'s wash-out; the rate, over what time, on what total amount. Yes, you can make a lot more doing a lower rate on a bigger amount. Or or or..... There is so many ways to spin the math it's almost endless.
When I approach these I start with looking at what it would cost one, the current fair market value, to obtain such a property. That's my base price. Now, I equate a value or "premium" for the benefit of the Turn-Key status, things are know, renter in place, things are done, we have removed theory and projections to provide a buyer a known, that holds value. What is the value premium?
Next, by providing financing option to buyer, again that holds value. What value do we assign this value Premium?
Now terms value premium, what value do we assign to the interest rate given? To the length of this conveyed financing? You mention long term, ok let's say 10yr which is a really long time, that certainty of a decade has value does it not, ok let's assign that value.
Now we ask, is this offering market viable? What do the numbers look like end of day?
As mentioned, it's changing one's seat from a landlord Investor to being a $-investor.
Yes, you could take on new financing, start doing that manner of things. your still a Landlord, still in those operations. This above mentioned strategy is a way to fundamentally change that picture, that is a kind of middle road approach. You are transferring various liabilities, namely maintenance and operations aspects from you too a buyer. gaining some liquid capital (down payments), while retaining control of assets.
Risks, for most part are similar to any tenant placed. The various "what-if" on neglect, just like with a tenant it's violation of contract terms and you take the applicable legal actions.
The biggest "risk" is them performing, because at end of term that means they complete purchase of property. And reality is, EVERYONE sells only question is when, ya never see a u-haul follow a hurst.....
So if you really wanted to, this is a potential option.
Or, you could just sell, now, today, standard sale. I think that's foolish given your position, but hey it's an option. You could sell now and try to 1031 into something "next".
Or, rearrange debt, refinance things which there is many options to this.
A lot hinges on what your desire for your next chapter is. Some just want to call it a day, hire manager, there happy getting what they got, paying down debt, that's it, done. Some others seek to 1031 into that centralized apartment complex and end there journey there.
What's your "next"? Do you like being a Landlord as you are now? Would you rather be the guy who facilitates the next best Landlords and profits from such? Or getting into commercial?
C4D is a very powerful land of investing few ever speak of because the barrier to entry is high for the "noob", and because fact is who want's to groom competion, lol. There is a reason Black Rock has an entire division dedicated to just selling C4D.
