All Forum Posts by: Nick L.

@Shane H.

I guess my concern is more over the future performance of the properties than over the way you structure the deal. 

If the area is attractive and you anticipate that you will be able to fill the vacancies with good tenants at good rates and with minimal TI expenditure, it's worth figuring out a way to make the deal work.

If they are in a declining competitive position with aging buildings and no underlying land value, you are being offered what Warren Buffett calls a cigar butt. If the price is cheap enough that one last puff might be worthwhile, but I wouldn't pay Havana cigar prices for a discarded Swisher Sweets.

So far it sounds like the only evidence of upside is vague comments from the seller. So my overall impression is that you are venturing into cigar butt territory. 

@Jay L. You are not including soft costs. These typically run 20-25% of hard costs and include costs such as engineering, architecture and debt service. I'd estimate on the high side for your project since you will have broker fees to pay and some units will take longer than others to sell.

I would estimate your project costs at around $2.5m and you project total sales around $3m. If you had say 25% cash down, you would be looking at doubling your money.

As to lending and financing, I would suggest:

1. Build a pro forma, even at a high level

2. Call 3 or 4 medium sized commercial lenders and present the opportunity

3. If you have initial interest, option or buy the property and find investors

@David Fritch Congratulations on the deal!

> If anyone is thinking about going after a commercial property with them feel free 

> to contact me and I'd be glad to help.

I have wondered why auction.com maintains a sort of firewall between its residential and commercial auctions. What are your experiences on the commercial side?

@Jon Patzlsberger It definitely sounds like the township's lien is superior to the mortgage lien. Not sure how experienced you are in these matters but here are some ideas:

- Pre-negotiate with the township to reduce the lien in return for a cash payment. Then purchase at the first sheriff's auction and pay the negotiated amount. (Or a riskier version - buy at the first auction and then negotiate with the township.)

- Wait until the township forecloses on the mortgage holder, and buy it at the second sheriff's auction.

- Try to strike a pre-foreclosure deal with the mortgage holder to buy it for super-cheap, since they will get wiped out at the second auction anyway.

@Account Closed said, you need to have 50% control yourself or at a minimum be sure that over 50% of the units are controlled by investors. Otherwise you could end up with the board restricting rental usage or imposing unreasonable terms.

If you don't control the board, you also need to watch for lien priority issues. In some situations, particularly in super-lien states, condo/HOA liens are automatically senior to mortgage liens. That's a big sword that the board can hold over you.

Sometimes people buy condos with the thoughts of selling them off individually to owner occupiers. This can be difficult because the GSEs won't certify condo projects where investors own over 10% of the units. So your buyer pool will be very restricted.

If the block grant pre-dates the mortgage note, it will definitely be superior.

If it comes after the mortgage note, I would **think** it will be wiped out as it is not a tax lien. A good indication will be whether the local authority that issued the block grant is named as a defendant in the foreclosure suit. If so, I would say it is probably junior and will be wiped out.

But I wouldn't risk $16k on it without making sure! There are plenty of good RE attorneys in the state. Try Von Briesen, Reinhart or Whyte Hirschboeck. I'm sure one of them will talk to you for a few minutes for free.

Alternatively, call a title company and pay $100-150 for a preliminary letter. They will get to the bottom of the issue for you.

(Previously posted on a different forum but it fits better here)

I want to bid on a couple of properties on auction.com but without the expense of running title before bidding as I feel they may not meet the reserve. The preliminary title report provided by auction.com looks ok but obviously that's no substitute for running my own.

We all know QC deeds are toilet paper. In the fine print, I noticed the two major clauses in the link. If I'm reading them right, I can win the auction, order my own title insurance, and THEN either cancel the purchase in case of undisclosed defects or get a special/limited warranty deed from the seller. Sounds good, right? Am I missing anything?

Here are the clauses.

I want to bid on a couple of properties on auction.com but without the expense of running title before bidding as I feel they may not meet the reserve. The preliminary title report provided by auction.com looks ok but obviously that's no substitute for running my own.

We all know QC deeds are toilet paper. In the fine print, I noticed the two major clauses in the link. If I'm reading them right, I can win the auction, order my own title insurance, and THEN either cancel the purchase in case of undisclosed defects or get a special/limited warranty deed from the seller. Sounds good, right? Am I missing anything?

Here are the clauses.

Sounds like a good idea. You would have to do due diligence as to:

1. Environmental issues. There might be some sort of restrictions or required clean up after Sandy. At a minimum you would need a contingency for a Phase I.

2. Zoning issues. Ideally the lot would be grandfathered into whatever use you anticipate for it. But if not, you will have to go through zoning yourself or sell at a discount for your buyer to take the risk.

@Whitney Rekowski It's never worth doing the work itself unless your primary job is being a contractor. 

All the time, energy and sweat you put into the rehabs could be spent on more profitable activities like finding more flips, expanding your W-2 skills or building your liquid capital. In your case especially so, because it sounds like your husband's standards are higher than are needed. 

If you're putting in more work than is needed to get your target rents, then you're over-improving. In the Milwaukee area, renters don't expect perfect cosmetics - they just have to be slightly better than what other apartments are offering. The bar is so low that this is rarely a problem.

As to finding the right people, you just have to use trial and error. I've found great people from Craigslist, Angie's List, personal references, heck one is even my next door neighbor! Of course you can find terrible people that way too. 

Speaking for myself, I am willing to pay a certain premium to use a contractor who knows how I like things and can make intelligent decisions without me having to watch over him all the time.