One yellow letter=9 home portfolio deal. I need structuring advice!

7 Replies

I sent out some yellow letters a few months ago that I'm still getting calls on.  A woman I reached about one property has a 9 home portfolio that her late husband was managing. She's not interested in messing with the properties and wants to travel and enjoy her retirement.  I've gotten a list of properties from her and the homes are all great rentals.  Some are month to month because they've been rented for years, and a few are newly signed 1 year leases.  Some of them are duplex and triplex conversions with only one unit rented and rehab still needed on the other units. 

Roughly, the homes are worth around $60k each.  That's an average based on some speculation and recently sold comps.  Some $40k, some $80k, but averaging around $60k.  There are a lot of moving parts.  A lot.  She stated in her email that she's willing to sell on terms for "tax purposes."  

I have never dealt with a deal like this and don't even know where to begin trying to structure the deal.  

Any advice that can put me in the ballpark of a down payment proposal and/or what sort of terms I should entertain would be great!  I'm going to talk to my real estate lawyer next week but BP has more collective knowledge that is equally, if not more valuable.

I'm looking forward to the replies!  

Thanks in advance!

terms, terms, terms is a great way to go. But you haven't said if there are any mortgages on them. Free and clear? Create your own notes on the properties. Offer to buy them all on terms, no $$ down. Will she do zero down? See if she will do it that way. It's all about how you structure the deals. IMHO don't give personal guarantees on these properties, and take ownership in an entity like a LLC.

She sounds motivated so I would see what she really wants. I would offer numbers below market so you have created instant equity.  Offer 10-20% below,  There isn't enough info here to get down to the nitty gritty. If you buy them all on terms I suggest you do it in such a way that your first payments are only made when you have each one rented, or you put a tenant buyer in. She could take part in that evaluation.  For instance, make first payment 30 or 60 days after tenant moves in. Then it takes the pressure off you scrambling to make the note payments. 

This is a great opportunity if it's done right. Good luck. 

@Blanchard J Ross

That's great advice!   I have only talked to her once on the phone and that was returning her initial phone call. I don't know about mortgages yet.  Once I know more, I'll update the thread. Thanks for the reply!  I hope I can make it work!

Originally posted by @Ryan Pemberton :

I sent out some yellow letters a few months ago that I'm still getting calls on.  A woman I reached about one property has a 9 home portfolio that her late husband was managing. She's not interested in messing with the properties and wants to travel and enjoy her retirement.  I've gotten a list of properties from her and the homes are all great rentals.  Some are month to month because they've been rented for years, and a few are newly signed 1 year leases.  Some of them are duplex and triplex conversions with only one unit rented and rehab still needed on the other units. 

Roughly, the homes are worth around $60k each.  That's an average based on some speculation and recently sold comps.  Some $40k, some $80k, but averaging around $60k.  There are a lot of moving parts.  A lot.  She stated in her email that she's willing to sell on terms for "tax purposes."  

I have never dealt with a deal like this and don't even know where to begin trying to structure the deal.  

Any advice that can put me in the ballpark of a down payment proposal and/or what sort of terms I should entertain would be great!  I'm going to talk to my real estate lawyer next week but BP has more collective knowledge that is equally, if not more valuable.

I'm looking forward to the replies!  

Thanks in advance!

To get a jist of the portfolio, more information is needed.

Based on the details in your post, I would say that you have the pleasure of many creative options, because the owner prefers a sale on terms.

If you plan to "hold" the properties; if you have good credit; and if you have an experienced real estate attorney, you could make a request to have ONE or TWO of the "better" portfolio properties quit-claimed to you. (You create the conditions/timeframe allowed of your offer.) Your quit-claim can be set to become "null and void" if your over-all plan of purchasing all nine properties is not completed. I would suggest seeking a loan through private lenders/hard-money lenders, or others available sources. 

1) You are quit-claiming one or two properties under conditional circumstance with the help of your attorney.

2) You get a loan from one or both properties to cover [loan costs for partial portfolio.] The loan will be value-based proceeds, not credit-based proceeds.

3) You obtain funds and close on (one, two, or three properties at a time) with owner over time, because she prefers terms.

4) Be sure to make small updates over time to the properties, to increase value to the properties. (This will help you better qualify for a loan.) Be sure properties have good, qualified renters paying the rent, so that your expenses can be paid as you progress forward. 

5) Be mindful of balloon payment options in combination with your different offers to ease the  acquisition process.

6) With terms, you can make an offer of "full asking price". The benefit will be based on how creative you make your strategy.

My suggestion here is a complex one; and you will need an experienced attorney on your team.

A Great Opportunity Is Knocking For You! I hope that you are able to receive it.

I hope that I have sparked some ideas for you.

This has been an information nugget.

Anthony

I got rental numbers today.  Met with the owner.  All are owned free and clear.  Total value approx $400k - $450k. 

Here's what sucks:  She wants 1/3 down and full payoff in 5 years. 

My cash position is basically zero and structuring this EVEN at break even with HML for the down payment given the rental numbers is pretty impossible by my numbers..but I'm not experienced running numbers like this. That's factoring a little vacancy and a 2% of home value for maintenance. I've got all the tax numbers factored but not insurance because I don't know what to figure.

How long can I get a hard money loan for?  I'm assuming the terms are short and steep and more geared towards flips. 

I'm really green here and this opportunity just kind of fell in my lap and I HATE to pass it up. 

What about trying to get it under contract and trying to wholesale the whole portfolio?  Do investors buy turnkey deals that big?  The rental income is $72k right now but some tenants haven't seen an increase in 19 years!  I know they're below market. 

Thanks for the wisdom!

@Blanchard J Ross

@Anthony Davis

Here's what I would do: get it under contract ASAP with a relatively long due diligence period (60-90 days) and market it in several ways: 1) debt or equity raise paying investors 8-10% interest or splitting up the equity with you taking x% for finding/managing the deal; 2) piecemeal wholesale (sell individual or smaller bundles of the properties; or 3) wholesale it all.

You can easily raise that down payment money if the deal is good enough. People are killing for yield and the very rough numbers you are throwing out make it sound like an 8-9 cap. If the complexity of the deal scares you, there are also plenty of investors that would buy a portfolio of that size and kick you a finders fee if the numbers are right. I would not even think about hard money on a deal like this. 

The key is that you need to get all of the information from the seller and put together a solid presentation with all of the due diligence done to make it easy for your buyers/investors. If you're looking to get into buy and hold, this sounds like a good foothold (not knowing anything about your market or even where Newburgh is on a map), so don't let it go for $5k or whatever wholesale fee you might be able to snag for the whole package. Complex deal to bite off if this is your first one but you can do it.

no investor is going to go with these numbers. Good luck for her trying to get over $100k down with a 5 yr balloon basically. 

She doesn't sound highly motivated to me. You may have to play a waiting game. Let her sweat for awhile and she can sit on her properties. But keep in touch. 

You could get her full asking on terms but you will have to explain to her that the way you make money is through the down payments, and /or the spread on the payments between what you pay her and the new buyers. You are going to have to get her down on the money she wants. Let's hope you are a good negotiator. 

alternatively you can neg a 90 day option and market the properties. 

See what the market will bring

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