The Fall of Queens Land Ave., The MultiFamily Elephant In the Room.

The Particulars

Address: 1600 Queens Land Ave. Unit Count: 8 Unit break down: 2 BR, 1 BA

Unit SqFt: 650 Build Date: 03/07/1985 Original Sales Price: 50,000.00

Assessed Value: 477,300.00 Strike Price: 500,000.00 Contract Price: 481,000.00

Final Sales Price: 476,500.00 EST ARV: 750,000.00 Rehab budget: 60,000.00

Parcel size: 9,500 SqFt Contract Date: 02/12/2021 Closed Date: 03/19/2021

Occupancy: 6 of 8 rented, 1 moving out within 30 days of close.

Lease Status: 5 of 6 residents on month to month, 1 resident under lease till Nov 2021

Current monthly rental income: 4,265.00

Projected Monthly income post stabilization: 7200.00

Due Diligence Issues Found: Leaking roof over laundry room, Quest piping throughout, Parking lot in need of repair, lackluster accounting, old outdated leases, no real management present and a ton of deferred maintenance.

Front Matter

In what follows the names and addresses have been changed to protect the innocent, but the story is real!

When we started down this road what we found most interesting and most helpful were deal break down’s and the story behind them. Starting out this was both a form of education and entertainment, Pod Cast and write-ups are what sucked me into Real Estate Investing, it was my gateway drug. We found the stories intriguing and equally as hard to believe, guys just like us, in similar circumstances and life progressions getting it done, and getting it done over and over. I always said to myself when we get there that’s what I want to do, document it, get it all down, the good, the ugly and the hysterical…..

Unfortunately that’s the part I always forget, to sit down after its done, when its fresh in my head and get it all down before it becomes just another deal, before the intricacies and strategies of it all get lost, and before looking back it just all seems mundane. Back then we wanted to add the same kind of value we had received through those stories, I wanted to be able to document that, although nothing about the Real Estate investing Process is easy, it really is quite simple. It is attainable at any and all levels of life, and it’s worth the time money and effort it takes to get it done. As Neil says so eloquently “LETS GO”.

In our previous post’s and articles we detailed our process to find deals and owners, the front matter work, the inglorious side of the deal, the mundane research and numbers crunching to punch your ticket to the big game.

What follows now is what comes next, once all that work comes to fruition and you get “the call”. I tried my best to pen this from the perspective of the first deal as to not lose sight of the small mundane details.

Before I begin I want to give a little background on Queens Land Avenue, BulMac and Queens Land have a storied past. Queens Land Avenue runs more or less the entirety of this section of Norfolk, parallel with the beach of the Chesapeake Bay, its just a couple streets in from the Bayfront and its home to a mix of Single, Small Residential multi-Family and small to moderate sized apartment buildings (most of which were built in the early to mid 80’s) and in the middle of a wave of modernization, what was once the area to stay away from is quickly becoming the place to be.

Queens Land Avenue was where we decided we would cut our teeth when Liam, Neil and I moved into the Virginia market, it had everything we were looking for and as I mentioned properties were abundant. Thus far we had been pretty successful over all, however when it came to Queens Land Ave. we seemed to strike out at every at bat. Owners were longstanding and comfortable, values were all over the place, and the market over the last 18 months has been ultra-fast paced, properties are listed and under contract in hours not days, it seems people are just throwing money at whatever they can find. We had gone after, and struck out on no fewer than 5 properties on Queens Land, it was getting personal.

How we found the Property

AS mentioned above we identified this particular Area of Norfolk, Virginia as one of our target locations, a few of the factors that got us there were, the sheer amount of properties that met our criteria, the current path of progress in the area, its proximity to the Chesapeake Bay and its location relative to the many military bases in the area. We began “Driving for Dollars” in December 2019, it was at this time we zeroed in on Queens Land Avenue.

We then dialed down to a list of properties that met our criteria. From here we dug through public records to identify the owners of the properties, this yielded a mix of both private and company names. For the corporate owners we again dug through public records to try and find the actual owners of the LLC’s, corporation and trusts. Once we had the names, and addresses we ran skip traces to confirm, as well as acquire cell phone numbers. (Take a look at our pervious post’s and articles for a deep dive into that process)

With our list compiled and the data sorted out we started a direct mail campaign, this was followed up with text messaging. This owner received 3 mailings from us, and numerous text messages over the course of 1 year, and contacted us via phone for more information about 1 week after the 3rd mailer went out.

Initial Owner Contact

I received a phone call at 6pm on a Tuesday night, the man on the other end of the line owned an apartment building on Queens Land Avenue in Norfolk, he had “received a letter in the mail and was following up”. Unbeknown to him at the time, and to this day, Queens Land Avenue was my elephant in the room, so much so when I heard the address I could recall the color of the shutters and how many were missing. The call caught me off guard, and I was struggling to keep my nerves in check, we had another shot at Queens Land, I was not going to let it be in vein.

On first contact we gathered basic information regarding the building and the occupancy, expenses and income to verify it met our criteria and some basic background information on the owner. We spoke to the owner about who we (BulMac Properties) were, what our criteria was, how we do, and equally important how we do not do, business. The owner disclosed he got calls frequently about purchasing the property, however never had anyone follow up.

After the initial contact we went to work researching the building and the owners. We dug into property, tax and ownership records, and reached out to city planning. We did background research on the owners, searched through social media profiles, websites, and forums. We drove the property during the day, at night, during the week, and throughout the weekends.

Information we gathered during this process was as expected, built in the mid 1980’s, owner had held the building since new, held a 200k mortgage, had no outstanding violations or permitting issues. As far as owner back-round, the property was held in a partnership that was run by the original owners a husband and wife team (John and Jane), both of which were Veterinarians who ran a practice and lived in a neighboring city (on the other side of the Bay), both in their late 60’s to mid-70’s.

Follow up and Follow through

Admittedly we took a little bit more time then we should have with the preliminary work, and thus I did not follow up as quickly as I should have. This minor oversight at the time probably cost us quite a bit of aggravation and a little bit of money, it would also dictate the course we took later as we got caught sleeping at the wheel a little bit early on.

Prior to following up with the owner I received a phone call from the property manager (Owners son) stating they had received an offer on the property and wanted to give us an opportunity to make one as well, since we had been speaking with his father previously regarding a possible sale (unbeknownst to him), he was showing initiative and had been working with this other buyer unbeknown to his father, this was shaping out to get interesting. We arranged to meet at the property the next day to tour the exterior and two vacant units. Due to our delay in following up we found ourselves behind the power curve, and were now playing catch up and trying to outbid an unknown player, timing is everything and right now we were on the wrong side of it.

First Look at the property

Typically we are able to get all the information we need to find out if we want to move on a property without taking a detailed in person look at the property. Most times a drive by and a quick walk around will tell us all we need to know at this stage. The numbers either work or they don’t, Due Diligence will give us the rest. In this case, however, I wanted to meet face to face with the owner, I wanted to make sure he saw us as people, got to see the expression on our faces and was able to connect with us on a personal level. They were running a family business, so are we, this is an important similarity I wanted to capitalize on and make very real and personal, you simply can’t do that on a spreadsheet or over the phone.

Me and Liam met John Jr. “John” at the property on Saturday morning, I introduced John to Liam as my Brother not as my Partner. We disclosed the family and business relationships during the first phone call, after that interaction the word partner never came out of my mouth, it was simply my Brother, or my Uncle when referring to Liam or Neil. We went through our pitch of who we are and what we do and do not do much as we did with his father over the phone. Before we even looked at the building we started feeling John out to gain some background on motivation and expectations, John was not part of our research, didn’t even know he existed prior to his phone call the day before. He disclosed that his parents had been bitten by nonpaying tenants in a few of the single family properties they owned during COVID and were forced to dell at a loss, they were interested in selling and getting out of the building while it was still making money. He also disclosed that there expected price was $510,000.00, I assumed this was the high anchor, he did not however disclose anything about the other offer aside from its existence.

We toured the property and the two vacant units, we found them to be largely in need of deferred maintenance, and more or less a full rehabilitation as the building had not been updated since 1985. We also determined that the Laundry room facility was in desperate need of repair due to an unchecked roof leak, that had been repaired recently however was still very much leaking. John promised to reach out to the contractor and have them take care of the leak. Johns biggest concern was a “Hoarder” in one of the apartments, he showed us pictures of the unit interior, the tenant was what appeared to be a trash hoarder and really enjoyed the local pizza place, this would be an interesting problem to solve.

Of the two units that were vacant at the time one was supposedly 90% rent ready in Johns eyes, nowhere close in ours, the other had just been started for tenant turnover and had no flooring in place with the toilet residing in the living room, fun fact here is the previous (long term) tenant had died, John did not say and we did not ask if he was in the unit at the time of expiration.

We closed the meeting out with an agreement to give us to the end of the week before he moved on the other offer, in order run the numbers and to submit an offer or inform him that we would not be interested in pursuing.

Strike price

Before we can do anything we had to determine what we were willing to pay for the building, luckily we are very familiar with the area, and even more so with that specific street as I mentioned before. Looking over the rents the building was severely under market, one tenant had been there for 10 years and was still paying the original $625.00 monthly lease price. The most current move in was paying $750.00 which was $75.00 under market for the same size, condition, and layout. We had found a perfect comp if there ever was one, a building down the block was built at the same time by the same builder and also hadn’t been touched since the 80’s, the listing photos could have been taken in the building we were looking at, it was that similar. Our preliminary leaning was we could at the very least pull the $825.00 that they were getting a few doors down with little or no money in, however our target was $900.00 after stabilization. The current value on the building as we assessed it was very low, mainly due to the subpar rents and lack of maintenance we would have to buy a little bit of the future if we wanted to submit an offer that wasn’t insulting. We came to a strike price of $500,000.00 with a rehab budget of between $50k-$60k, for an all-in price of no more than $560,000.00 at this price point the margins would be slim, however they were in our criteria and would work for us and we should be able to pull the majority of the money out in 12-18 months after it stabilized.

Negotiation

This is single handedly what I love about real estate, my favorite part is negotiating the deal. Trying to figure out the motivations of all the players involved, identifying the problems, playing to those motivations and finding a solution that gets everybody what they want all the while keeping as much cash in my pocket as I can. If you have been following along with BulMac you know we have a rehab guy, Liam, a financial wiz, Neil, and me… the face and the mouth. This is where I make my money, and prove my worth.

Our initial offer would be low, the low anchor to counter his high, ideally I wanted him to counter himself prior to making an offer but we were on a timeline so I had to move first. We wanted to be aggressive out of the gate, so we sent a purchase and sale contract signed at $465,000.00, a few hours later I followed up with a phone call to John Sr. and left a message. I did not know yet but John would be the go between, an arrangement which I was not happy with initially but would work out in the end. John returned my call and thanked me for moving so quickly, we sent the contract on Monday evening vice end of the week as agreed, he also informed me that the other offer was “significantly” higher. John then told me the offer was $480,000.00, to which I immediately replied I was not sure if I could get to that number but asked for a couple hours to figure it out, had to “find another 15k to steal out of the budget”…

A little while later I called John back and raised our offer to $481,000.00, we talked it over and he was curious about terms. We agreed to all cash, 20k deposit, 30 days due diligence, no repairs and I sent the contract over. The next day John would tell me his parents agreed to the offer, at this point we had a handshake deal. John informed me that his parents wanted to have their attorney look over the contract before they signed, and we agreed it wouldn’t be an issue. Over the course of the next few days we hammered out terms, and verbiage of the contract, they were going to have their attorney make the changes and provide a draft of the proposal, we were not getting free legal services can’t beat that at a going rate of $350.00 an hour.

Fast forward to Thursday, we had been back and forth over some things but could finally see the forest through the tree’s all we were waiting on was the attorney to provide the draft for us all to sign. Que the music, pop the Champaign we were all fat dumb and happy, I had slayed the elephant in the room. 8:00 pm on Thursday my phone buzzed I received a text on the business line, it’s from John, it reads “I wanted to give you a heads up, the original offer we received just got updated to $491.000”. Well damn, so much for the handshake deal. I’m standing in Liam’s living room at the time and we get Neil on the line, emotions are pretty high at the moment, we talk through what should be our next move. Of the many options we came up we were stuck on three, 1) Rise the offer to $492,000, and start the bidding war. 2) Walk away and start over, let the elephant win, again, and live to fight another day. Or 3) Be aggressive, draw a line in the sand and stand by the $481,000.00, play from a position of strength and instill some fear of the other deal, after all it couldn’t be much “safer” then what we had proposed.

Motivation is a wonderful thing, in this case the owner wasn’t motivated by money, and throwing more of it at him may not have achieved our goal. Knowing what the motivations where behind the sale made our decision about how to proceed a bit easier, it also gave us some re assurance that it would work. The next few phone calls would be a tough sell and if we were wrong that would be the end of it, there would be no going back option 3 it was.

I called John back, I explained that we were not happy and that we were under the assumption that we had a deal at $481,000.00 which was 16k over what we thought the value to be. I explained that we did not believe that the 490K offer price would survive a banks appraisal and that ultimately they were rolling the dice and setting themselves up for exercise of the financial contingency at worst or a renegotiation of terms at best with the other offer. I talked him through the benefit of an all cash offer, with no repairs and as quick a close as you could get with no finance contingencies, appraisals or other nickel and dime fees and reassured him that we had every intention of closing this deal. I explained to John that I talked Neil off the ledge, however was given strict orders to get a contract signed within 24 hours or walk away, we were not going to get into a bidding war, this was the offer take it or leave it. I made sure John knew there was no more money to be had, and that Neil was to be feared once his mind is made up that’s that and if the ink wasn’t dry on the contract in 24hrs we were done. After that they would have to roll the dice with whatever contingencies and financial hurdles resided in the other offer, deadline was set for 9pm Friday evening. John told me he would let his parents know and get back to me……

I received a phone call from John a short while later, he apologized for the confusion, he had let us know about the counter before speaking to his parents about it. He relayed “My father wanted to apologize, and to assure us that they would be going with our offer”. He also wanted to make sure “Neil or Liam didn’t harbor any ill will, and that they understood what had transpired”. He then informed me once we got the verbiage worked out and that they intended to honor our deal. I thanked John, and let him know although I was appreciative and understood the situation he had found himself in, and there would be no hard feelings, Neil had issued an ultimatum, and unfortunately once that trigger was pulled the round was down range, the 24hrs was unfortunately no longer negotiable but I would do my best to keep the deal together and keep Neil and Liam at bay.

Keeping the deadline in place was a gamble, and a pretty aggressive move, however we wanted to keep the pressure on, we were still not sure the tactic would play out but what we did not want to do was get caught in a bidding war. We wanted to keep John and company focused on the deal in front of them and getting it worked out so they couldn’t shop around anymore or dig too deep into the other deal, we wanted to keep them wary of the financing contingency that I was hoping it had built in as well as any others that could potentially cause them issues. With our fingers crossed we awaited a response all the while hoping we had made the right call and read the owners motivation and assessed their problem correctly.

6:00 pm Friday rolls around, no word from John and we are starting to get antsy, with 2 hours remaining to the deadline it’s time to make a phone call. I call John, and no answer, I am halfway through leaving a voicemail when my phone starts buzzing, on the other end is John. “I’m trying to get it done in time” he tells me, we are in a good place. He goes on to explain that his parents both work full time, and will sign the contract when they get home but he’s concerned they won’t be able to, or know how to, scan it. He can pick it up and deliver it but not before the deadline, and more than likely not until the following morning (the trip to Hampton and back involves a tunnel that could take 40 min, or 4 hours it’s a crap shoot, and rush hour is not the time to roll the dice). I tell John to “relax and calm down, I’m sure we can figure out this problem”. I work with him on a solution, “have mom and dad shoot me a picture of the 1st page (sales price) and the signature page, we can get the hard copy tomorrow, but I need that photo by 9pm”. Again we wait, waiting to see if we picked the right strategy, waiting to see if the other player in the game will hold off a few more hours before making the next move, waiting to see if technology gets the better of mom and dad, nothing left to do but wait…

7:43 PM Friday 1 hour and 17 minutes prior to the deadline, the phone buzz’s to let me know I have an email in the box. From John it reads, “Doug please find executed contract attached, please excuse the order of the attachment mom and dad had to try and figure out how to use the scanner at work”, I click on the attachment that downloads at the speed of freshly rolled paint drying and when it finally opens (what feels like hours later) I find a fully executed, signed and dated contract. The contract however is scanned upside down and backwards, but it’s all there as best I can tell. We have a contract for Queens Land Ave! Que the music, pop the Champaign, we made the right call. Liam and I are walking around Home Depot when the contract comes in, I let Liam know then jump on the phone to call Neil. Neil answers and we talk about Mailboxes or some other obscure, insignificant item I happen to be in front of in the aisle for about 15 minutes before I give him the oh by the way “signed contract’s in”, I then send him the upside down and backwards contract for prosperity. When I got home I send the contract to the printer, re arrange it, scan it back in and reply to John “thanks John, let’s get this thing to the closing table, attached is the right side up scan for your records”

Monday morning we send the contract off to our attorney, my POC is a Paralegal named Laura, I have used her on a number of deals in the past and there is no one better, the firm is not the cheapest but Laura is a work horse, once it’s in her hands I can focus on everything else. Laura sends me the wiring information for the Ernest Money Deposit, we agreed to 20K, the seller would deliver the Due Diligence documents requested upon verification of the deposit.

Pennsylvania had just been hit with a pretty significant ice storm, and the roads are mess. Our Due Diligence started upon execution however the seller side was not going to send anything or allow access until the EMD cleared, Neil however plays super hero, braves the ice and snow that is the frigid Pennsylvania winter and initiates the wire transfer later that day, and again we wait…..

Due diligence

Tuesday morning Laura confirms receipt of the EMD and we are off to the races up until this point we don’t know what we don’t know, this is all about to change. Over the course of the next 30 days we have to learn everything there is to know about the parcel, good, bad, or indifferent. This is the time to start pouring over financials, schedule and conduct inspections, research business and city records, review service contracts…. The list goes on and on. Now is when we make sure your deal stands on its own, that the building is or is not what you thought it was and that you can meet your end goal. Neil and Liam hop into action here, inspecting every inch, going over every document, scrutinizing every digit and looking at every transaction, expense, lease and contract constantly running numbers and weighing the pros and cons. In this particular deal it is our 1 and only contingency, our only way out if something doesn’t look or smell right, we have 30 days to figure it out and the clock started on Friday, John delivers most of what we ask for almost immediately upon verification of the EMD, he is proving to be quite the asset.

Liam, Neil and I come up with a strategy, and figure out who will be doing what, we will stick to our Standard Operating Procedure on this one, we all have our swim lanes, I will be the sole contact to John, to keep it simple but also to further build that relationship, John still owed me a favor for holding Neil at bay through the contract negotiations, and I intended to collect. Additionally I wanted to keep Neil and John insulated from each other, keeping a healthy fear of the over bearing New Yorker, a part that when and if we needed Neil was prepared to play. I would also deal with the legal side, the LLC formation for the holding company, establish a street address, generating all the operational forms, leases and administrative tasks.

Liam would oversee and schedule all the inspections, contract work, and get started on figuring out what the re-hab budget would look like and keep us on timeline to make sure we knew all there was to know prior to the DD expiring. Liam would also ultimately be the one to call whether the properties condition and scope of work would fall within the criteria we had set.

Neil would focus on the financial side of the house. Securing funds, arranging transfers, evaluating insurance needs, securing policies. He would also be the one pouring through the financials, evaluate the standing contracts, continuously running all the numbers to make sure we were in the green. He was ultimately responsible for researching, analyzing and figuring out if the deal had enough financial merits to proceed to closing, making sure Liam’s rehabilitation budget aligned with the projected market value of the building, and that we had an exit strategy to pull the money back out within the 12-18 month timeframe we had set.

Neil and Liam are the heavy hitters during due diligence I find myself as the supporting cast, a role I’m happy to play at this point and let the stress bleed off a little, should be smooth sailing from here either it works or it doesn’t. The plan was to have Liam and I meet John at the building and do a full walk through of the building, to include the roof and attic. We would look at everything then come up with a list of contractors we would need to bring in and investigate further no need to bring in more than we needed. Liam is no stranger to re-hab, and can more or less spot a problem from across the street, so when he thinks we need more eyes on there is never a question, conversely if it passes in his eyes then we are good to go. I’m pretty sure he was a home inspector in his past life, the one the agents refer to as a deal killer.

We meet John for the full walkthrough and Liam’s inspection, first up the hoarded unit. This unit had been keeping me up at night, I was not looking forward to dealing with the Hoarder, nor did I really want to go wading through trash (and God knows what else) first thing in the morning. We had been strategizing how to fix this problem since our first meeting with John after he showed us the photos. John unlocks the door and takes a step back, “After you” he says with a grin, Liam and I walk in and to our surprise it’s been cleaned up, looks like the after picture when that T.V. show is over, it’s by no means “clean” but it is 1000 times better, not a single pizza box to be found and the tub and sink are clear and usable.

The remainder of the units were rough, a lot rougher than we had hoped for but honestly about as much as we were expecting. Drywall tape hanging from the pop corned ceilings, holes in the walls, one apartment in particular looked like Swiss cheese, with holes in drywall throughout the unit. The running theme throughout however was what appeared to be a lot of plumbing repairs, all the walls behind the toilets had plywood patches, it seemed they resorted to plywood as an access panel and you could see various cut outs that had been made behind just about every fixture, some repaired and plastered over, some not. Walking through the last unit, I was inspecting the water heater, it looked to be about as old as me, there was a 2 foot by 2 foot section of drywall missing behind the water heater at the floor to provide access to the back of the tub surround, flashlight in hand I’m going in.

Liam and John were in the kitchen of the unit, I crawled into the void out of morbid curiosity really nothing more, as I shined the light on the mismatch of plumbing repairs it hit me “FUDGE!!” only I didn’t say fudge, I expelled at a volume much higher than anticipated, the mother of all curse words, the biggest of F bombs had just been dropped. There in the spotlight of my trusty flash light it stood in all its infamy, the one thing I hadn’t thought to ask, the one thing I hadn’t expected to see, the one thing thus far that may give the elephant in the room that is Queens Land Ave. the opportunity to live and fight another day. Quest, or polybutylene, everywhere the whole place was piped with Quest... all stop, Houston we have a problem.

Polybutylene, or Quest, plumbing, for those not well versed was the better mouse trap of the late 70’s, 80’s and early 90’s. It was marketed to contractors, plumbers and builders as the new wonder material for plumbing, it was cheaper and easier to use then copper and it would last forever. The idea was great, think modern day PEX, a system that was cheaper, easier and quicker to install, however the execution missed the mark. The great idea that was Polybutylene piping would soon turn into a ticking time bomb, it wasn’t a matter of if it would leak but a question of when. There would be class action lawsuits, the manufacturer ordered to pay millions to have homes re-piped, and the topic of just about any article on the internet that concerns these pipes. You see Quest was in fact great, all the way up until you flowed water through it, turns out the chemicals used to treat the water supply across the country also deteriorated the pipes from the inside out, and since all the fittings where clamped on, as the pipes and fittings deteriorated (making the inside diameter larger) the fittings began to leak, the pipes became brittle, they soon ruptured and Quest (polybutylene) pipes became but a sad footnote in real estate and plumbing history and the bane of the existence to many a Real Estate Investor….

Now that we are all caught up, back to my elephant in the room and his now little brother that as it would turn out is completely piped inside and out, from the meter through the slab and to the faucet in Quest pipes just waiting to explode. I alerted Liam to what I had just discovered we then dug deeper and found it all the way to the slab and coming out of the city meters. We knew then at that moment we had a problem, we however did not yet know the size or scope. The rest of the walkthrough comparatively went well from that point, found a still leaking laundry room roof that john had promised to have repaired, the telltale signs of a cat living in the attic, determined the sewer needed to be scoped, stair treads made out of particle board that had long ago seen their best days, and the ever present smell of a green leafy substance that is not yet legal in VA throughout the building. But again compared to the plumbing issue nothing to be concerned with just yet.

Call a Plumber they said, it’ll be easy

A quick search on the google machine and you will find that polybutylene piping is the devil, after looking at dozens of articles and hundreds of sites it’s easy to determine that the average cost of remediation is narrowed down to somewhere between 3 and 50 thousand dollars. This proved to be completely useless information, thanks Google. Over the course of the following days we reached out to no fewer than 2 dozen plumbing, drain and remediation companies to try and get an idea of what the worst case scenario was. I touched base with John and let him know the scope of the issue and that we may be in trouble, and put a call into Laura and put her on pause for survey and tittle work as this was starting to look like the beginning of the end.

Of the 2 dozen or so plumbing “professionals” we reached out to, 3 of them got back to us and scheduled appointments for quotes. The first one at bat, called us approximately 40 minutes after our appointment time,a three hour window, Liam was over the moon about sitting out in the cold waiting for 3 hours for no apparent reason. He called to ask us “when do you need me there”, “40 minutes ago” was the only response I could muster. Upon his arrival, 45 minutes later, we explained what we needed done, a full re-pipe from the 2 meters to the units through the slab as well as a separate quote for re-piping the interior. We then showed him around and he took some measurements, then he told us he wasn’t sure if his company could handle the work “we only have 16 plumbers” he said. A week or so later they would get back to us with a quote to run 8 new lines from 8 new meters, to be provided by us, at a cost of $20k which was not at all what we had requested, we called and requested another quote for what we actually needed. Here we are 2 months later and no updated quote, they do however call every week to ask if we are ready to proceed with the meter replacement…

Plumber number 2, after rescheduling a number of times they showed up, we walked the walk and talked the talk 15 minutes later he was on his way with a promise of a quote the following day. 2 weeks would pass with no quote, when Liam followed up he was told, repeatedly, “we are working with our suppliers to get you the best price”. Apparently they were accomplishing this via carrier pigeon because it took almost three weeks to hear back. The quote came in during the final hours, the last quote we received, at $30k for the whole job, they didn’t split it as requested but at this point we were happy to get anything.

Plumber number 3, showed up on time, early actually, on the day he was supposed to be there ready to go, it’s the little things that make you happy. We went through the gambit again with him, he looked at everything, took some measurements and gave us a ball park of $30k with the promise of a quote in the coming days. Two days later we had a quote $46k in total with the outside work coming in just over 10k, finally a number we could work with. More importantly we had found our plumber.

Throughout this process we joked that we should get out of the real estate business and open up a plumbing company, this was purely in jest, however in all seriousness we would make a killing. Seems to be head and shoulders above the rest you really just need to show up when you say you will and give an honest price, with 90% of the cost coming from labor the margins have to be great.

10K was our magic number ironically enough, we had come to the realization that 10k was about all we were willing to “gamble” on the plumbing. Thankfully Neil is at the top of his game, took no time at all to figure in the risk vs reward, how much we could bear and come up with a number that worked. A feat which sounds pretty simple but at a point where every day counts speed and accuracy are the hero’s and that’s precisely what Neil provided. To expound if the worst case scenario was a ruptured pipe in the slab on day one, we were willing to proceed if the cost to repair was 10k or under, anything more we would have to re-negotiate or pull out. The interior quotes were more informational than anything else we had already had intentions and budgeted for re-piping the building as part of the rehabilitation, Liam took care of that in short order quest or not the interior was not an issue.

During the Quest quote fiasco we kept pushing forward with what we could in hopes it all worked out, we had called around to multiple plumbers to get the sewer scoped none of which could give us a price. The resounding theme was it was going to cost somewhere between $250 and $350 an hour for the scoping, the billable time starting when the Plumber “technician” left their building. Additionally there was a $75 (average) service fee at which time the “technician” would give us a rough estimate of the total cost. So in a nutshell we would have to pay $75 to find out how much more we would have to pay to have a camera run down a pipe.

So needless to say, if you want something done right do it yourself, Liam and I were off to Home Depot where we secured a rental sewer camera, easy peesy, we had scoped Single Family’s before, and we were just interested in the clean out to the street easy day a quick 45 minutes and we are done. Turns out this particular camera was about the cheapest one that you could find, however it should get the job done or so we thought, fully clad in coveralls we unload the drain camera and head for the cleanout. Here goes nothing, open the cleanout up and out comes about a half-gallon of last week’s meatballs running down the side of the building and onto the side walk, accompanied by a fantastic smell as well… just like mom used to make, yum! It took us about 10 minutes to realize we were in over our heads, the camera lenses was covered in excrement and we couldn’t see a thing. So we quit while we were ahead, admitted defeat and closed up the pipe. That was the easy part, affixed to the side of the camera was a big sticker “cleaning fee may apply”, that coupled with the half gallon of the finest blended poop on the side of the building and sidewalk and you have yourself a great day in the making. Again easy, all the way up until we discovered that the hose bib on the exterior of the building was merely for decoration and apparently as dry as the Sahara. Lucky for us one of the tenants had left some beach toys in the laundry room, to include a couple of buckets that has only a couple of holes, we disconnected a water line from the washer and cleaned both the equipment and the building bucket brigade style, with ice cold water and some rags. We were off to a great start in the inspection process, back to Home Depot to return the camera luckily we were way under the time limit so we got most of the money back. By this time we had met plumber number three above, placed a call and they came out early the next week and did a comprehensive scan for an agreed upon $200.00 flat fee, he even broke out the locator so we knew where all the pipes and fittings ran, and gave a us a clean bill of health.

Family Business

As I mentioned earlier the owner was “running” this as a family business, with mom and dad holding the tittle and John serving as property manager, maintenance and repair man as well as the landscaping company. The business however was not being run efficiently we would soon discover as we dug into the Due Diligence documentation. The leases were old and out dated, the oldest one being a decade older than the most recent, using the exact same form, no update to terms or rules nothing new for 10 years. Rents were under market, and hadn’t been raised throughout the tenancy, as the cost of living increased and the building aged they continued to bring in the same revenue. More than likely 10 years ago the building was probably doing well but today it was just about breaking even after maintenance, management and landscaping expenses. The contract for the laundry room had been in place since 1985 and was costing them more money than it produced, they got a 60/40 split after all of the contract holder’s expenses and fees, to make matters worse they were supplying the water and electric. The rest of the contracts were more or less the same story, old, outdated, and overpriced. This was about what we had expected to learn from the documents and we were good to proceed, identified the problem areas, strategized the fix, and had a plan to execute we were still looking good to close.

Insurance

Insurance is not an exciting topic, normally I wouldn’t even address it, it essentially is what it is, nobody wants it, everybody needs it, you find the best rate you can and you move on that’s really all there is to it. Neil is in charge of insurance, it’s in his lane and on his list, and he was actively seeking quotes. I am the boots on the ground in VA, with Neil being in PA, so I reached out to the local Real Estate Investment Group and asked for some recommendations, with the intent to pass the info along. About 3 seconds after I post the inquiry I get a response from Jimmy D. a local broker, also a member of TRIG. Then my messenger goes off, Jimmy asking if he can jump on a quick call, guy was aggressive, I love it, my kind of people, to which I replied absolutely.

I hit send on the message to Jimmy confirming that I can take the call, the mouse clicks as I release the button and the phone rings, again my kind of people. Jimmy is quite the salesman, and amongst other things also an investor who with his father holds 100+ properties in Norfolk. I am on the phone with Jimmy for an hour or so mostly just talking real estate, he takes down all the specifics about the property, the company, Liam, Neil and I and gets to work, this interaction transpired 2 days prior to the Quest bombshell. I hear from Jimmy about 10 times throughout the day and evening as he works to find the best deal, asking for more information, and just general chit chat back and forth.

The Quest bombshell hits, I jump on the phone and update Jimmy, he assures me that it is not the end of the world, although you can see it from here. I explain that I am aware of the issues surrounding Quest, that I know companies do not like to insure it, however that I would need to have it insured to be able to proceed with the deal. He again re-assures me that all is not lost and that it is insurable, at a price and that he will get back to me. At the same time Neil is working with another local guy, he can also insure the Quest no problem his quote would come back at 5K a year with the Quest covered, deductible for plumbing 25K… So then Quest isn’t really covered then is it? Jimmy gets back to me later that day with a quote from Nationwide at 6K, little pricey, or I guess a lot pricey, I ask about the deductible…… he answers $1000.00, I say “no for the plumbing” he chuckles and says “yes $1000.00 for the plumbing”. I put Jimmy and Neil on a call, Neil being intimately more familiar with the ins and outs of insurance, just to make sure we are all on the same page the coverage matches what we need and that we are once again good to go. I hear back later that day from Neil, he had the same reaction, “Jimmy is our guy”. A little while later I hear from Jimmy, he tells me “Neil is awesome” I agreed and we made arrangements to bind the policy, this would be the first of many conversations with Jimmy he would prove to be an amazing asset. Done and Done, we are insured and have found our “insurance guy” as well as some valuable market intelligence from a guy that’s out there doing it.

The Closing table

With everything we need for due diligence checked off and our Quest worries behind us we can see the closing table on the horizon. We finished everything up about a week and a half ahead of schedule, we had promised the owners that we would do our best to get in, get out, and get to closing early if possible and we intended to honor that promise. We did however strategize this as well and still had some feelings about the Quest fiasco, I did not mention it previously but the owners were aware that the building was piped with Quest, as well as the problems that presents and although they are not obligated in VA to disclose this, we thought it would have been nice.

Throughout the whole process from when we discovered the Quest, and didn’t know what the significance of it was, through the remainder of the Due Diligence period, we maintained constant contact with John, I made sure to keep the plumbing issue in the conversation. We scheduled, and rescheduled multiple plumber visits, none of which John wanted to be present for, and I back filled him every step of the way even provided him with the 46K quote as he requested, he wanted to know what the cost would be, if the deal fell through and he had to have the work done to sell. Plumbing was always spoken about, I let him know we were trying to work the budget to include the added expense that it caused but “our margins were slim so I wasn’t sure”. There was no ulterior motive for this, it was a huge issue, as we learned more it was less of an issue, but an issue none the less and again we still felt some kind of way about it…

We came up with the strategy, although we were willing to eat the 10k for the slab work if needed and already planned on replacing the plumbing, we still had to find room in the budget for the 10k, we did not want to have to pull it all out of the renovation budget, so we proposed a solution. At the end of the day if they balked we would still close on time and still come out ahead, we figured it was worth a shot why not. We did not want to come out and ask for a reduction we certainly did not want to appear that we were trying to re-negotiate the deal in the final hours, and really we weren’t. The ask had to fix two problems, both ours and theirs, so we could help each other. Our problem was we didn’t budget for the 10k because we didn’t know what we didn’t know, their problem was they wanted to close early to alleviate their fear of being stuck with the building. Additionally they also did not want to have to start over with a $46k problem to solve on their own. We had to time this right, if I am going to ask them to help solve our problem I need to be able to solve theirs too. It’s only fair if I’m going to ask for something I have to be prepared to give something up it’s the difference between a negotiation and a demand, I needed to call Laura and find out what if anything I had to give.

Friday March 12th at 11 am, I placed a call into Laura to see how things were progressing, she assured me we were on track to close on the 29th. I then asked Laura “what’s the quickest you could get this wrapped up and on the closing table?” she paused then replied “if the seller gets me everything I need from their side we can close by next Friday” “Perfect I said, I am going to try for a reduction, plan on closing Friday” to which she replied “no problem, we will get it done” thus solidifying my previous statements regarding Laura and her team, second to none!

After hanging up with Laura I call John, this is 2 days prior to the end of Due Diligence, our last chance to back out of which we both are well aware. I tell John “ I have a Problem, I have been working my budget trying to find the 46k, I’m short, and up against the clock, I have spoken with Neil and Liam and they are steadfast in the budget, we are 15k over where we needed to be and there simply isn’t any more money we can pull in” I went on the explain “my marching orders were pretty clear, figure out a way to make the 46k work within the budget while still getting everything else done, or issue a termination letter prior to the expiration of Due Diligence”. John asked “what do you guys think you are going to do, we don’t want to lose the deal”. This is Just what I had hoped to hear, time to insert the ask, “I have an idea” I said to John “and I really hate to ask, but I’m out of options and I need help”. Then I laid out the proposal, “I am 5K short of where I need to be and I don’t want to walk away from the deal over 5k, I have reached out to my attorney and have them working to get everything together to close”. “I am assured that if your parents get them all the paperwork they need by Wednesday, she can get it closed by Friday next week”. John said “ok”, “What I need help with is the 5K, if you can give me a $4500 credit at closing I know I can get it done and have it closed as soon as the attorney gives the ok. We can have this thing done and signed by next Friday”. After a short pause John replied “I think we can do that, I’ll ask my parents later on this afternoon and let you know”. Back to the waiting game hoping we timed it right and made the right call…. Time will tell.

25 minutes pass and the phone buzz’s, its John he tells me we have a deal they agree to the credit at closing. We were now in the building for 1K under the city assessed value, we were happy, the sellers were happy, everybody got a win, que the music, pop the Champaign.

The following Tuesday I got a call from Laura she had everything done and all the info she needed from the owners, they were to close on Thursday ahead of our Friday closing. She asked if we wanted to close Thursday as well and we agreed, she sent us the closing disclosure, and the wiring instructions and set the closing for 3:30 pm on Thursday. Neil again playing the hero of the day gets the transfer rolling within 30 minutes of learning of the updated closing and final amount due, Laura confirmed receipt later that afternoon and we were all set…..

Thursday came around and Liam and I were off to closing, we arrived signed the docs and the attorney delivered the keys. On the way out we stopped and thanked Laura for the assist. The Elephant in the room that was Queens Land Avenue had fallen, the deal was done and closing went off without a hitch. Que the music, pop the Champaign time to celebrate, but only for a moment as that was the easy part. Now the real work begins up next is the rehabilitation, stand by for the next chapter of Queens Land Ave.

Lessons Learned

At the end of the day it all worked out, we learned a lot along the way, and we were able to prove some concepts we had been kicking around.

Follow up and Follow through are two of the most important aspects throughout all of this, in the very beginning follow up bit us in the cheeks a little bit and may have costed us some time and money (how much we will never know). This lesson was bought and payed for and will stick with us.

Due Diligence taught us a valuable lesson in slowing down and looking at everything, took a bit of a gut check and came to terms with the fact that we know a lot about a lot but we don’t know everything.

The negotiations taught us to leave emotion out of it, made some missteps early on that could have been avoided by simply being analytical rather than emotional.

Proved that motivation comes in many forms and the key is to be able to read the motivation and act on it.

Most importantly we proved, that even in this crazy market, deals are there to be found and taken down, on to the next big white elephant in the room.