All Forum Posts by: Michael Leffelholz

@Omar McKinnon

Welcome to the site lots of great info here and very knowledgeable people eager to help. @Darren Sager occasionally coordinates a local meet up for interested BP members from NJ. Hope we can meet at the next one. Best of luck

Michael

@Will Spruill

Did you ever think that your original post would generate such passionate responses-both for and against turn key providers and maybe (rightly so) taking @Marco Santarelli and Norada to task.for their lack of oversight. Any way, Marco seems to be very forthcoming and it sounds as though Norada is trying to do the right thing.

@Sharon Tzib I am intrigued by the question that you posed to @Mike D'Arrigo regarding whether a turnkey provider should be marketing D Class properties to its clients. It's an interesting question but at the end of the day as long as the property is not being marketed as something it's not by the turn key company, I say let them offer it. Every investment has risk and high risk investments get marketed/sold everyday.The ultimate responsibility is with the investor to determine what level of risk they can tolerate. Of course, the investor should be adequately compensated in the form of a realistic return for that risk. The Latin phrase Caveat emptor comes to mind. That said, if a turnkey company is deliberately marketing a property as something its not that's unacceptable and they should be taken to task for it. In looking at Norada's web site they have many properties that are indicated to be in A and B neighborhoods. Maybe they are and maybe they aren't. I have yet to see a property marketed as being in a D class neighborhood.

People are easilly blinded by the lure of fantastic returns. This is absolutely not a criticism of anyone who has posted here- it's human nature. Just look at the list of names of those who were swindled by Bernie Madoff. Many very successful and well heeled business people. Also some who sadly couldn't afford it. If something seems too good to be true it usually is.

In the interest of full disclosure, my partner and I have been discussing going the turnkey route for our buy and hold strategy. Neither of us own real estate currently (other than our own homes) but neither of us are real estate novices. These providers serve a niche. They aren't for everyone. Will's experience will give us further food for thought.

Continued success to all.

Michael

@Brian Prince

Welcome to the BP community. Its a great site with a lot of info and some very knowlledeable people. You can certainly learn a lot here but with your background (very impressive) I'm sure you can teach people a few things as well.

All the best,

Michael

@Andrew Tisdale Selling land maybe one of the "tougher" things to market and so a quick sale is probably not realistic. There are too may unanswered questions which @J Scott and @Bill Gulley eluded to. What is the land zoned for? Can it be rezoned for a higher better use? There are costs associated with obtaining approvals that you would need to know. You could potentially have some issues with the creek that passes through both parcels that could impede development. Rather than sell the property, is there an opportunity to lease the land to someone who could use it to farm thereby creating a potential income stream for you?.

Good luck

Michael

@Will Spruill I am sorry to hear about your problems. Would be interested to know what kind of due diligence you did prior to investing regarding the property manager and market? Was the management company Norada or a local company recommended by them? What kind of communication was there between you and the property manager when the problems started to arise? You indicated that these were C- and D neighborhoods. Is that what was represented by the turnkey seller. As you go "down market" in terms of neighborhood the expectation regarding the quality of the tenant would need to be adjusted. I guess the fact that you had the AON rent protection is a good thing but find it very disconcerting regarding the installation of a felon by the property manager which voided the coverage on one of the units. That would seem to be something that with minimal screening would have been learned. Any recourse to the manager for their negligence? Also not familiar with the process so I am going to ask a question (that I probably know answer to) but does the manager discuss with you potential tenant candidates prior to leasing?

In your opinion, what is the reason that the rents that you are now getting on turnover so much less than what was in place when you acquired the properties? Did you just rely on reps re rents made by turnkey seller or did you conduct your own investigation? If so, did it support the rents in place at closing.

Again, sorry for your difficulty but for anyone considering a turnkey investment we can learn from your experience.

Good luck going forward.

Michael

@Jerry W.

@Bill Gulley comments are spot on. Its been great that up to this point you had the ability to go to one banker and get a final decision "on the spot". Its something that most people have likely not had the benefit of enjoying. Whether the bank has changed its policies and wanted to not leave the risk assessment in the hands of one individual or that your credit expsoure at the Bank has taken things to a new threshhold is another possibility. My experience (commercial RE) as a lender has always been approval by multiple individuals with different levels of signing authority or a credit committee. The level of approval is tied to the exposure and the risk rating assigned by the bank.

Regarding PFS while banks require them and look at them you have to recognize them for what they are- typically unaudited numbers prepared by the borrower that offer a snapshot in time regarding their financial picture. How that picture is painted as Bill stated speaks a lot to the individual. It's the bankers job to try and get behind the numbers. Even with a non recourse deal as to payment there are guaranty's for standard carveouts and other bad acts ie fraud, misaapplication of insurance proceeds, rent securrity deposits etc. At the end of the day you need to really know your borrower. That is why at least for me a great real estate deal with a "questionable borrower" is a non starter.

Thanks Sant. What kind of pitfalls have you experienced that have prevented closing? Have they been property related ie apparisal issue, environmental issue etc. While it can and does happen, to have 10 deals die and you be out of pocket so much in fees seems strange. If I may offer a suggestion, I ask for a good faith deposit when I issue a term sheet to a client. Although not a commitment it lays out the salient bsiness terms and general legal requirements that are expected between the parties. The client signs the term sheet ( indicating that they and lender are "on the same page" and returns it with a check to cover the third party costs ie appraisal environmental and property condition report. The important thing is to find out whether the terms have been vetted internally at the bank. If not, no monies should be spent until after the bank has gotten its credit approval.

Regards,

Michael

@Kunal Doshi

Would like to get the benefit of your insights and expertise regarding New Brunswick and which markets in middlesex you think offer better opportunities. Your intimate knowledge of the area being an agent and former Rutgers student offers a unique perspective. Are there issues with investing in New Brunswick that you find troubling. On the face of things, the drivers of demand would seem to be there?

Thanks again

Michael

@Sant S.

Congrats on your purchase. Would you be willing to share who your lender was?. Unless the rapid amort is something you wanted, I would say that you may have been able to do a little better on the amort. Debt service on a 20-year schedule takes a big bite out of cash flow and just increasing to 25 year schedule makes a big difference.

All the best with your investment.

Michael

@Kunal Doshi

Welcome to BP. There is a lot of great info on this site and members who are very willing to help. Are you familiar with the market in New Brunswick? Would seem to be a good market for potential investment with the presence of Rutgers and the hospital.

Best of luck.

Michael