All Forum Posts by: Barry Ruby

@Allen Tracy Allen, send me a PM and I’ll send my worksheet to you

Hi Caleb, 

I prefer to draft and present a Term Sheet to a seller as a first step before generating a formal purchase and sale agreement. The Term Sheet addresses a number of critical deal points that are considered "deal makers / breakers". Many states consider LOI's and Term Sheets to be non-binding so, you want to make sure of the terminology and venue you are operating in.

My property purchases typically concern ground up developments which can easily take years rather than months to get to closing. Due diligence is conducted in a manner that creates a series of milestones that are a part of and lead to closing. Identifying the milestones and their timing dictates how earnest money gets posted and goes hard to meet the predevelopment program. Having the seller informed and "on board" with these factors is critical and can be satisfied with a well drafted Term Sheet.

Binding or not, I have found it helpful to necessary to get the key business points stated and agreed to before going to a formal contract. Doing so, saves time and fosters the early trust and understanding of the parties associated with the transaction.

Let me know if you are interested in drafting a term sheet and I can send you a draft template to guide you. In any event, you should also consider creating a critical path and budget to address your conduct of due diligence activities which should be used in structuring the terms and conditions of your intended purchase. I can send an Excel template to help you do that too.

@Jennifer McPherson the first action the owner should take is getting an appraisal. The property value is tied to the real estate and the cash flow potential of a sandstone operation.

It is possible that the 30 acres could support both land uses.

Once highest and best uses are determined, a price/value can be established and at that time, a commercial real estate broker can be engaged to market the property.

I lived in Lyons for 10 years and believe there is a viable residential market there now that could make sense for at least a portion of the property.

Good luck with this and please let me know if I can help you and the owner in any way.

Hi LaBreia,

I created a Market Research Checklist that may be of use to you. It goes addresses a series of Market considerations and assigns a score to each item that results in a total score that indicates the "health" of your project.

Feel free to send me a PM and I'll send it to you.

Site Control means that you have a signed purchase and sale agreement (PSA) that allows you to purchase and requires the owner to sell the property to you on terms and conditions that are fully set out in the PSA.

Prior to producing the terms and conditions, you need to build a critical path analysis (CP) that sets out the tasks you and 3rd parties will perform and relate them to time and money. You also need to do a high level pro forma to see if the deal works. 

The CP will guide you in framing a Term Sheet that you should present the owner/seller prior to drafting a formal PSA. Key elements to the Term Sheet are items such as; purchase price, due diligence period(s), the amount and timing of the release of earnest money, closing and cash at closing.

Please let me know if you have any questions on need help with the above.

Sean,

Use, development cost and value are site specific. There is always a chicken and egg scenario in play to determine these factors. You need to have site control before spending too much time figuring out if the intended use can get permitted and produce acceptable financial returns. However, how much time do you want to spend on something that turns out not to pencil? Your best best is to do a soft probe on both fronts. Confirm that the land is for sale along with its price and seller's terms. At the same time, identify and get in touch with key subcontractors to get a sense of their respective scopes of service, cost and timelines.Do the same on the permitting front.

You should use your understanding of the cost and permitting process to frame the terms and conditions of your purchase offer and the release of earnest money to meet the milestones dictated by project schedule.

Before you do any of the above, it is advisable to make your very first step to be to figure out the market value of the project you intend to create and deduct cost of sales and the % of profit you'd like the deal to generate. The remainder = the total cost the project can bear.

I hope this helps.

Hi Scott,

As a developer, I am always mindful of the fact that the closing of a property purchase needs to be contingent on the purchaser receiving ALL 3rd part approvals that will fully permit the project and allow for its construction and long term operation. All of my purchase contracts also condition closing on securing commitments for debt and equity capital needed to buy the land and to build the intended project.

Executing a ground up development can easily require a year or more to get permits and financing together. Listing the elements you need to solve for during a named due diligence period (like those you have set forth) is a good practice and should be prefaced by the words: "Such as, but not limited to" which will then include any other factors that have not been specifically cited.

In addition to citing the elements that define due diligence functions is the TIME needed to get them done. The most effective way to determine the time needed to execute these functions is to run a critical path analysis that lays the tasks out along with the parties that will be employed to do them and the processing time needed for the consultants you will engage and the city/town/county process they will be subjected to.

The critical path will inform you as to which due diligence functions are sequential in nature and or which ones can or should be run in tandem. For instance, if a permitting authority requires a package of information/data, you must factor the time required to create the package and therefore these two functions (creating and submitting the package and the time required to process and get it approved) are, by definition sequential. Other functions MAY be lend themselves to being able to be done in tandem "out of order" (like commissioning a full set of construction documents before preliminary approvals are in hand). Even though you may be able to save time by doing construction docs early, generally speaking the risk (cost and revisions) is not worth the reward (saving time).

Once a critical path has been constructed, it can and should be used to define the closing date which should be tied to x days or 1 month after a date you are comfortable and confident that all due diligence activities have been completed. The critical path can also be used to create the line items, budget and timing of the costs associated with executing the due diligence activities which basically forms the cashflow of the project's pre-development period.

Please DM me and I will send you an Excel critical path & budget worksheet that performs these functions.

Hi Albert,

Thank you very much for your candor and validating my very basic understanding of the situation. As I said, I consider my limited knowledge to be potentially dangerous but I chose to tell Paul about it because it seemed so "on point" to his questions and concerns. Your confirmation is appreciated.

Paul, One year ago, My wife and I bought a home and did a very heavy rehab on it and placed a VA loan on the property. The VA has a refi program that kicks in 6 months after original loan "seasons" Like clockwork, we started to receive a slew of unsolicited offers from 3rd parties offering us an opportunity to refinance the VA loan through a VA "Streamline" program which requires way less time and or documentation that is typically involved with an original VA loan.

We elected to work with one of the parties to do the Streamline loan which offered a very substantial reduction in our monthly payment (~15%). During the underwriting process, I learned that the VA offers a "credit" in the form of points. I also learned that certain institutions (like banks) are NOT obligated to pass on these credits to the borrower, while other entities (like certain brokerages) MUST inform and pass on the credits to the borrower.

We placed our loan through a bank and were neither told about or received the credit. Further, our Streamline agent, being a broker told us that had we be given the credit on the first VA loan, our payments under that original loan would have been pretty much the same as we are ending up with on the Streamline refinance.

Other than what is noted above I know enough about this to make myself kind of dangerous. However, I do know enough to understand that all VA lenders are NOT created equal. Please DM me if this holds any interest for you and I can give you the name of the Broker agent who can provide you with his opinion as to whether or not you have VA credits coming to you and if your Credit Union is passing them on to you or if they are keeping the credit a secret and worse yet, keeping the credit for themselves.

@Jimmy Rodas-Ramirez Hi Jimmy you are wise beyond your years.

Please feel free to contact me if you feel a need for information or direction. I would more than happy to mentor and help you in your journey if I can.