All Forum Posts by: Brad Gordner

50/50 is fair for everyone involved IMO. I just spent an hour and a half at my attorney's office today with a JV partner while creating the JV doc for this and other similar deals. I supply all the cash for purchase, closing costs, rehab, & holding costs while they supply all the labor. In the end we split 50/50.

If doing this with a friend make sure to get an agreement in writing with all the 'what ifs' figured out and covered.  This time up front will save everyone involved with potentially hurt feelings and pocketbooks.

I just secured a LOC against assets in a brokerage account. This way will allow you to benefit both from the money remaining in the mutual fund and the use of a large portion of the value. In my case I was able to borrow against 70% of the assets. Ask your bank and see what they have to say.

I agree with Bill, that there seems to be to many cooks in the kitchen and that could easily lead to hurt feelings/pocket books.     At the very least I would use contractors for everything and just split profits vs trying to calculate how much the work each one put in.  Who determines what it is worth?   How did they come up with that number? Unless the partner is a contractor with years of experience he/she may have a hard time explaining how a number came to be.  If the partners are not satisfied with that answer then it is a downward spiral from there.

Joel,

First of all, thanks for the feedback!

Because my plan is just to refinance (if I can't get perm financing to start) after the rehab, I didn't add in the property management fee since I would do that myself. If I did decide to get one, there is plenty of money for one.

I should have calculated it in value I sent off to the bank as the ARV. If I were to list I would not include the property management fee. In my area, most do the landlording themselves so when you see market values that are based on the income value approach they don't inlude property management fees.

As far as the aquisition price, it could be as low as $100,000. I chose $195,000 because it gave the deal 25% down and stretched my $50,000 so that I could pay all the bills the first year and then some as the apartments come on line. (yes, the seller is flexible and willing to be creative)

If I were to go with just 100k acquisiton and 185k rehab lenders tend to look at you funny when the rehab is more than the purchase price. The total on that would be $285,000 and my $50,000 would not be enough to get the deal done and pay the bills for a year.

With this additional information Joel, what are your thoughts on the structure? How would you possibly structure this to make better use of what resources are available?

Thanks for your time

Re: $380,000

·$195,000 for acquisition

·$185,000 for repairs

·Seller willing to hold 25% of total in 2nd position

·Buyer puts 1st year of mortgage payments and taxes in escrow at time of closing

Subject Property: S. Williamsport, PA 17702

Property Details: The building was bought as a favor for a friend with the understanding that the building would be managed effectively, up-kept, and the bills paid. None of that has happened and the bills only sporadically and late.

Property currently has a mix of 4 – large 2 bedrooms, 5 – 1 bedrooms, 1 - office space, 1 – retails space (currently a Puff’s Tobacco Store) with room for an additional 12th unit, a 1 bedroom. Currently the ‘friend’ and his family occupy 3 apartments and the office space (they will be gone), 2 – 1 bedroom are rented, and, as mentioned above, the retail unit is rented by Puff’s. The office space would be converted into 2 – 1 bedrooms.

There are many citations for codes violations from South Williamsport. Those would be some of the first things taken care of when rehab commences. In addition to these violations, there is just a lot of deferred maintenance in general as well as lots of trash removal. Utilities all need separated, apartments need updated, and new windows through-out.

Proposal: I have broken this project into 4 phases:

·Phase 1

§Fix code violations

§Update 2 apartments

§Finish 1 apartment (framed already)

§Separate utilities for all 3

§Rent apartments

·Phase 2

§Update 3 apartments

§Separate utilities for all 3

§Rent apartments

·Phase 3

§Update 3 apartments

§Separate utilities for all 3

§Rent apartments

·Phase 4

§Convert office space into 2 – 1 bedroom apartments

§Separate utilities for both apartments

§Rent apartments

After completion the building's owner will pay just taxes, insurance, trash, and house electric meter. Given those factors and the fact that it's located in a prime location in South Williamsport would support a CAP rate as low as 7%. 8% ($704,250) is realistic but for the purposes of this proposal I am going to use 9% ($626,000) as the estimated ARV.

4 – 2 bedrooms - $650 - $2,600 - $31,200

7 – 1 bedrooms - $450 - $3,150 - $37,800

1 – Retail (Tobacco Store) - $600 - $800**-$9,600

**Rent here is low and should be around $1,000 p/mo. Rents will be raised; I will include $800 in the calculations for the rent of the retail unit.

1 Month Gross Total: $6,550 x12mo= $78,600

10% (5% Vacancy & 5% Maintenance Reserve) - $655 x12mo= $7,860

Taxes, Insurance, Trash, Electric: -$1,200 x12mo=$14,400

Monthly NET income before debt service: $4,695 x 12mo= $56,340 / .09 (9% CAP) = $626,000

Assuming an interest rate of 7%, the aforementioned 25% down from seller, and a 15 year term provides us with a monthly payment of $2,732.44 which annually is $32,789.28.

NOI $56,340 / DS $32,789.28 = DSCR of 1.718

After the rehab we will have approximately $240,000 in equity, approximately $22,000 per year in the bank after all bills (insurance, taxes, income taxes, debt service), a renovated 12 unit building with all separated utilities, located in a desirable location in South Williamsport, and the bank will have a LTV of 46% after it's complete.

---------------------------------------

That's the proposal I sent to the banks. It would, of course, be slightly different the hard money route. But the end result would be nearly the same.

I have a 670FICO. It was over 700 beginning of summer but I applied, and got, 4 net-30 accounts for the other business but they still ran my credit and, as a result, crashed my score a little bit. I also have $50,000 to put in the game.

What's everyone's thoughts? I'm still fairly new to the RE game, so critique as harshly as needed! Always looking for more input on what to present and how to present it for best results. How are my numbers looking? Lenders, is this what you want to see? Investors, is this something close to what you send lenders?

I also send pro-formas with the proposal.

What I send for the experience section that some loan apps have: "In a seperate business I bought, rehabbed (had a GC but I bought all material and watched everything he did), rented, kept, and refinanced a 6 unit. Snowballed the profits + other cash into a 9 unit building in downtown Williamsport (8 apartments 1 restuarant). Bought a 3 unit this past July and a house to flip (I'm the GC on this) this past August which is nearing completion."

So I have 3 deals under my belt..a 3 unit, 6 unit, & a 9 unit. Currently working on financing the rehab of an 11 unit. So I'm getting decently familiar with commercial lending.

But this one building has been staring me in the face for a few years now. It's a 14 unit. I'm thinking it's time for a creative real estate deal. My first one.

He is asking $300,000/$21,429 per unit. It is currently at 100% occupancy 14 @ $5,695 p/ month $68,340 p/ year with expenses of $1,312 p/ month $15,740 p/ year:

Income from washer and dryer (only one of each currently working) about $100 a month.
Total Monthly Income: $5695 or $68,340.
Expenses are as follows per the owner:
water and sewer about $4800-5000 a year.
Garbage is $90 a month or about $1100 a year.
Insurance would depend on who your buyer uses but the current owner uses Ron Enders and his cost is $2000 yr
Common electric is about $100 a month or $1200 a year.
Gas meter for dryers is about $70 a month or $840 year.
Taxes are $5,600 a year
Total yearly expenses are approximately $15,740

Now that's his cost. If I were to buy it the mortgage amount would go up, I'd be at around or, most likely, over $3,500 for insurance. I put it as $5,000 on my pro-forma (our 6 unit is $2,900, 9 unit is $3,800, and 3 unit is $1,300....all replacement cost income protection). I also have Professional Management as well. It cash-flows well even with 12% going to the property managers.

So that's the meat and bones of the building. Here's the situation:

It's been on the market for nearly 3 years...owner started out to high ($500k). I've watched it drop $200k to where it's at now...which is my buying zone.

Owner is a teacher and coaches as well. Managing the 14 unit is a job by itself and he is out of time. His realtor said it best "Time...when you buy 14 unit...u buy a part time job. He coaches and teaches ...he just really doesn't have the time for it. He makes good money, so he's OK if it doesn't sell, but if he can sell it that works too."

So there it was. Could it be that I could be the one to solve this guys problem? His lack of time? Why not? I have property managers already....the numbers work for me already.

But what creative path to take? The owner has alot of equity in the building but the mortgage is sure to be above $160,000 so that would eliminate just the standard 'subject to'. I've read up on all the methods but can't decide on a wrap or lease option. I would want the lease option to be over 3 years so that would trigger the DOS clause just as the wrap might. We would be in a position to refinance if need be but I'd much rather not at this point.

I haven't talked at all about possibly doing a creative deal with the owner or realtor. I want to have my plan of attack well thought out first.

Here is my initial thoughts (please feel free to dissect):

Ask if they would be open to sellign subject to the existing financing with the seller holding a second. IF NO,

Ask if we could lease the whole building from them with an option to buy at $300,000 for 3-? years. *how do I figure out what that lease amount might be?*

Any thoughts are much appreciated.

Good Afternoon Everyone!

I have been progressively getting more and more frustrated with my lender. They have really dropped the ball on the latest mortgage. Here is the quick rundown:

It's a 3 units ($675 per unit...it's oil heat and own pays but we will switch to gas after closing IF it happens).
Contract date 5/13/13
Commitment date 6/14/13
Settlement 7/3/13
Purchase Price: $75,000
Appraisal: $80,000

The current owner had it appraised last year and the bank actually hired the SAME appraiser so that process did not take long at all. So the bank has had the appraisal for 2 weeks now. The appraisal includes all the rent figures. It also has the list sheet which has the rent numbers. I also gave them a listing sheet along with the contract with the rent numbers. So as of today they had the contract for over a month and the appraisal for 2 weeks. Typical closing takes 40 days for us. I gave them 51 days in the contract just to be safe.

Keep in mind that we have loans with this place already and so have all of financial documents there already (we need to give them updated PSF and taxes every year so they are always up to date) so they did not need to worry about those.

BTW we have more cash than the actual purchase price of the building. Money is not the problem. And lots of credit as well so that is not the problem.

The problem is that today they call and tell me I need the rent roll. I should have given one but considering how EASY they are to make and the fact that I gave her a listing sheet with that on it. She got the listing sheet from appraiser on it. PLUS the appraiser made note of it! She had the REagents phone number, who in this case is actually the realtor as well. She should have known a few days ago she was going to need it if she couldn't figure it out herself.

Now the realtor/owner works 2 hours away and works 2nd shift (so he is there now) at the post office. I need an extension signed. Most likely I'm not going to be able to get it done.

So my real question is. Is there any recourse for me? If the seller wanted to be a d*** then he could walk away. The lenders laziness would have cause us alot of lost income. There have to be some repercussions. If not then there should be!

Thoughts?

Kurt you are not alone.

Multi-family is, in my opinion, one of the best RE investments. Multiple checks from one building. Buildings that, for the most part, always pay for themselves when taken care of properly! Our commercial loans are for 15 years at 5%! We even pay principal & interest on the down payment to our one partner! It still cash flows! And in 15 years they will be paid for! And you'll have all that equity and alot more rent monies for you to access. (unless you're like me and will continue to leverage all available equity and cash into more units)

Make sure to have a reserve account!

And for god's sake, get a property manager!!! Tenants will drive you crazy and call you at all hours of the night.

Save your valuable time for putting together deals and growing your business.

I recommend getting a PM, great RE accountant, have PM send over reports monthly to the accountant, and get a great lawyer.

I would start with family and friends first. Then reach out to investors in your realty groups.

I just recently acquired my first property, a six unit in Williamsport, PA. I did it through creative financing. I have lots of school debt and less than desirable credit.

I guess I should mention how I structured it so you might have an idea on how to approach an investor or family.

I had shown this half remodeled 6-unit about 5 different times (i'm a realtor) and everyone thought it was to much work. It was listed at the time for 72,000. After while I found it on craigslist for 55,000! So I went and took another look at it. I knew this would be the perfect first deal. Bought as it stood with 3 of units rented it would be at a 23% CAP rate...but then if fixed up it with 6 units rented it would still have a 23% cap rate. I don't care who you are, a 23% CAP rate is a nice way to start out.

I tried the seller financing route but they weren't going for it. So I started talking to family and friends....and friends of family. I actually just told everyone I knew that asked me to find them real estate deals that I might have a deal for them where they could get 14% on their money as well as a 1/3 of the business. I just got lucky and one of them latched on to the idea and we ran with it.

We actually got a 105k loan to buy and remodel with. My partners supplied the downpayment (21,000) to the company at 14% amortized over 30 years with a call in 3 years(balloon payment). They also got a 1/3 stake in the company.

We are currently about half way through the remodel with 3 units rented, 2 pre-rented. and another that I feel will pre-rent soon as well. This is mostly thanks to the Marcellus Shale in our area. It has driven up the rents and have made affordable apartments a hot commodity here in Williamsport.

Once finished we will have a 6-unit apartment building for a whopping $105,000 that brings in $39,600 per year but with the vacancy rate I figure we are looking at 37,000. We pay water, sewer, and trash only.

The deals are out there. Sounds like you've found them but you just need to find the person or persons that can help you acquire it. Don't be afraid to give them a large percentage of the deal. you have to remember that you aren't putting any money of your own into the deal so even if you had to give them 70% of the deal to make it happen it would still be worth it. I'm not a fan of giving out big percentages but really the first deal is everything. Once you have that you have overcome the biggest hurdle. The next deal you can negotiate better rates if need be.

just my two cents.

You are correct sir! Yesterday would certainly have been the optimal time to invest. That's not to say today still isn't good. There are still deals to be had, though, not quite as many as there used to be. But there will soon be a housing shortage (already, rentals are very hard to find) and with that we'll see more investments coming to build more housing.

I'd be more than happy to keep you informed on whats happening and what deals are around. Just send me a message with your email address and I'll keep you up to date! Also, go to www.Agent570.com and you can search if your bored. Either way look for my email!

If anyone else would like to keep up to date on what deals are around in Williamsport, PA just message me your name and email. Thanks guys! Look forward to working with everyone.