Posted over 10 years ago

Dealing with Larger purchases- pt 2

I'm not very good at this techie stuff. I had previously attempted to post a pt 2 and now  can't find it. I believe this is where it showed up as a post. I'm entering a Part 3 and wanted to have this one first. Sorry for any confusion. Rich.

Phase 2 of Buying Larger properties

Here is Pt 2 in its' entirety. Sorry, Rich.

Phase 2 of Buying Larger properties 
Posted: Sunday, August 16 at 08:16PM — Edit 
Thank you for the nice comments to this blog as well as PMS and personal e-mails. It is nice to know potential investors are paying attention. In response to Louis- Your comments were great and very helpful. Please feel free to add to this blog as wellas anyone else out there.

Not all lenders require the same terms. Our lender has asked us to deposit 100K into an account. We may use that to pay CAPEXS , but we must show the receipts and then replenish the account within a certain period of time. This is just good business sense in my mind.

My original entry dealt with the people and employee factor. This time I'm going to deal with the building factor and areas of concern. You must have persistence in finding out everything you need to know before investing your hard earned dollars. i hired a professional inspector to fully check out this building. I required my feasibility and due diligence period to be extended twice. When you make a deposit of $100,000, you want to make sure that before it is released to seller, you're happy with the building. I'll explain how you obtain these extensions in next entry. Remember, buyer is in control. Do the contract correct to allow that option.

I contacted 3 inspectors and asked for their cost, references and methods of inspection. You aren't able to inspect all 154 units. I selected a company that held several different licenses as well as great experience and references. The cost was $2950. He would inspect all roofs, stairways and exteriors of all 13 buildings as well as common areas, laundry rooms, a/c units and boiler rooms. He would also inspect 20 units of HIS choosing. All a/c units were divided into age of units. The lifetime of an a/c is approx 15 years.

Each of these units were inspected for safety, ceanliness, plumbing, electrical, code violations and functionality. There were MANY items found in all units that needed repair in these categories. Having this report, I went back to the seller and prepared a list of the items I'd require to be fixed. I offered 2 options

1. Leave $100,000 in escrow to guarantee the repairs I was requiring.

2. Credit me $100,000 at closing and I'd do the repairs.

Seller didn't like either option! They decided to have another Licensed Investigator review my requirements. He agreed with most. I'd picked a good inspector. They later came back to me and said they'd like to attempt to repair the items themselves. The professional mgmt company brought in their maintenance people from all the 1800 units they handle to do the repairs. I asked for an extension until Aug 13 midnight. Closing was scheduled for the 14th. My deposit nEVER bacame at risk, and that is a very important negotiating factor.

On the 13th, the physical inspection began at 9 a.m. I met with the sellers and sellers' agent before actually inspecting the repairs. We agreed that I needed to have ALL the units checked for items required to be repaired to my satisfaction. They had completed most of the items. It was time to re-negotiate again.

I'd be more than happy to discuss in detail or answer any particular questions on items that surprised me. I was also surprised at how much you can get AFTER the contract is signed if you do it correctly, imo.

The next entry will deal with the re-negtiation and also the original negotiation on the acquisition as well as the way to analyze a larger property and the characteristics to steer clear of, imo. I'm splitting this up to give adaquate time for any questions to be discussed as well as those that only join the site on certain days. I hope this is educational, interesting and motivating for you to someday do the same, if you haven't already. You enter rarified air, where the competition is less and the rewards may be exciting.

Submit any and all thoughts questions and additional advice. Rich, in Dallas tonight and on cruise ship tomorrow.

 


Comments (8)

  1. Wow, the comments here really add to the details already in the original blog post. Thanks to both Rich and Dory - Rich for the answers, and Dory for the questions that were asked. Keep up the good work.


  2. Thanks. :) I didn't know I could negotiate that too.


  3. When I get to the end of the time period, I simply say the following, " I need to extend the due diligence period due to....... or I need to cancel the deal to not have EMD at risk before I approve the repairs etc etc etc. If you already have financing approved, they won't let you walk! They don't want to start all over again. If the due diligence is done, but not the financing, then you do the same thing, just in reverse. The seller would rather extend the transaction 10 days and another 10 than start all over from scratch. Rich


  4. I also normally negotiate for both of those contingencies, but I've never tried to negotiate an extension of a deadline. Plus, I figured one might end up putting one's EMD at risk when requesting the extension of a deadline. However, I see that you also mentioned that you negotiate to keep both open until the day before closing. That's absolutely amazing to me, because I've "fought" with sellers--and usually have won--just to get a due diligence period of 45-60 days. Do you explicitly waive all of your contingencies together, or one-by-one?


  5. The EMD was not to be released until 2 things were completed. 1.Financing contingency removed. 2.Feasibility study or due diligence completed. I was able to keep those 2 things open until the day before closing. I didn't approve the due diligence until I was able to see which repairs were completed and what credit amount I would agree to. This didn't get approved by me until the 13th, and we closed the following morning- Aug.14 If you set up your contingency periods correctly, you'll never have your EMD at risk. Seller is not going to argue with an extension. I extended the due diligence FOUR times during the transaction. Rich.


  6. Interesting post. I'm curious how you kept your EMD from being at risk even when renegotiating the various deadline extensions.


  7. OK.


  8. I fixed the link and placed the post where it should be instead of the comments, Rich.