All Forum Posts by: Leo Koo

Interesting.  

@Hal Thompson question - The law you quoted seems to be from Section 718, which is for Condominium Associations. I thinks Section 720 is Homeowner Associations. 

Reason I ask, I always thought there differing rules for each. So when one is looking at an "HOA" lien, it would need to determine where it feel first (COA vs HOA)... right?

@Ian Barnes Thank you. That helps put things into perspective. 

I guess the play would be to include this in a pool and blend with some equity notes. This would be a tough play either way.

@Bob E. Thank you for the response. I'm actually very interested in hearing more thoughts, if anyone else has some. I'm encountering these notes pretty often and as a reasonably new investor, this confirms some of my assumptions, but would love to learn about what other people are seeing on these assets. 

Also, what if it wasn't in bankruptcy? Would this change anything? I'm assuming you would:

- Contact homeowner (let's say no return call)

- Initiate foreclosure from 2nd (do you have to bring the Senior current? If so, when can you recoup this money?)

- Hope the borrower comes out to talk

- Decide if you want to proceed all the way to the foreclosure sale and take the property subject to the senior (i'm assuming nobody bids the opening bid which the 2nd would control). At that point..... rent? or is the strategy to do negotiate a short-sale?

@Bill Gulley

Valuation:

I'm assuming when you talk about "profits" you are talking about a measurement of cash flows (sometimes "incorrectly" referred to as EBITDA, but for all intents and purposes, the accepted measurement metric). Usually, businesses trade as a multiple of this cash flow measurement. Your business doesn't seem to have DA (depreciation or amortization), therefore EBIT (or Operating Income) would probably be close to the operating cash flows the business generates (however, need more info to tell). I would say that at below $1-2m of EBITDA, business tend to trade at the lower end of the 4-5x EBITDA for Enterprise Value (I would even venture to say in the 3x's). If there is any debt in the business that the buyer will be assuming, it wouldn't be unreasonable for them to net it against any cash and EV to come up with the Equity Value (the ultimate purchase price).

Regarding the "deal in the works," it's backloaded, so I would argue that it would be unfair, if the certainty of success is that high, that any contribution made by the deal be excluded for purposes of valuation (in fact, it should be annualized and taken into consideration).

You will also want to add back any salaries that you are paying yourself, as that will not be an item going forward. There are many other adjusting items to EBITDA to cover here (you can do a quick search online to get an idea).

A point often disregarded are the tax implications of selling your shares. You will want to talk to your accountant and think as to whether you are ready to pay that tax bill or you would want to gross that up with the sales price and have the buyer "essentially" pay that bill.

Structure:

If the sale is all cash, the buyer will usually push for a lower multiple. If there is a note involved, the specifics need to be understood (amortization, term, interest rate, paid in kind, recourse, PG, etc) and the seller should command a higher price. If you believe you were an integral part of building the business and therefore the future revenues of the company, you could also explore an earn-out (however, I would discourage this as I've never seen an earnout that worked out correctly - it's just a recipe for future lawsuits).

Figure out who pays for legal. Attorneys tend to over-do these transactions. If he's pushing for the sale, you might want to have him pay for the legal or split 1/2 up to $xxx (that way he's incentivized to control the attorney fees).

LMK

@Dev Horn Just like you, I love looking at data. Very focused on understanding Cost per lead and cost per deal. We have a CRM set up to track this and several spreadsheets. Agree on the response rate, I'm not interested in fielding non-motivated calls all day. However, I will add that starting out, we are learning to identify a good deal. Whether we like it or not, this takes practice. I'm sure that you will agree that after looking at a lot of "opportunities" a pattern forms. When a "great deal" comes in, it's so outside of this normal pattern that it's easily identified. I don't mind putting the work to learn what that pattern looks like and what to expect from these calls.

I do think you bring a great point point regarding specificity. I foresee us incorporating your thoughts on another mailer to these same leads.

@Manny Cirino Thanks for sharing. This is helpful.

Leo

@Joshua Dorkin Just tried this (login and pass for my fb account to access the BP app). looks like it doesn't work.

Also tried:

Changing my pass on BP

Using the fb username (leo.koo.75)

Any other ideas?

Leo

Hello BP community. New member, Leo Koo, in the Orlando FL area starting a real estate investment business in order to build wealth and establish passive income on a long term basis. Would love to meet some Bigger Pockets contributors as I learn more about this business.

I am a CPA by trade and not new to investing per se - my full time job is working for a private equity lender to lower middle market companies (debt + equity). Although, real estate investing will be on a part time basis in the beginning, my business partner and I are extremely focused on execution. His background is as a strong marketer, Florida GC and founder of an obstacle race event called Savage Race. We've known each other for years and have done business before.

We started by executing a direct mail yellow letter strategy to ~1,000 absentee owners a couple of days ago and got our first call yesterday. We plan to conduct this campaign for the next 6 months to those leads, while layering on a couple more marketing campaigns.

FYI - I plan to attend and join the local REIA meetings. Let me know if any of you attend the Orlando ones, would love to make some connections.

Leo

[email protected]