All Forum Posts by: Nick L.

Just thought I'd share my experiences at the Milwaukee county sheriff's sale today.

I found a specific property I wanted in the Daily Reporter (newspaper of legal record) a few weeks ago. Right in my sweet spot neighborhood. Tracked it through to today's sale. I was so excited when the attorney released the bid amount on Friday at way lower than I would have thought! $43k bid with assessed value at $160k. 

On Friday afternoon and over the weekend I did all my due diligence (visible condition, title letter, city violations, outstanding utilities) and everything is pretty clean. I even called a city inspector who had been through the house and got an idea of internal condition. So I turned up at the county courthouse this morning with cashier's check and extra cash in hand to go up to $5k over asking. 

I've been to the auction before and know that most properties go straight back to the plaintiff without a 3rd party bid. The last time I was there in about 2010 I was unprepared and didn't understand the system yet. A house came up in my street which was at least $100k under FMV but I hadn't done any due diligence or brought any money. If I had been prepared I could have walked away with a steal.

So I sit there today for over an hour while property after property slides by with no interest. A couple of minor spats between rivals in the same patch but nothing too exciting. Rivals glare at each other and attorneys look like they're dozing off.

Suddenly my property comes up. The plaintiff bids $43k. I bid $10 over and there's silence for a moment. Could I have won it??? Then another guy bids $50k straight off. Someone else comes in. 5 or 6 people drop in and out of the bidding until it gets to $77k!!! I was so pissed!!

Maybe I was too ambitious by expecting to get a solid property in a solid area for $100k below assessment with no competition... but man, I am going to have to up my game! 

I guess the lesson to take away from this is that there is more capital and more competition than there used to be. You have to have a specific angle on a property or be willing to put up with title or condition problems that nobody else is... or compete with cash-rich guys who buy these things all day.

At least I didn't overpay, or even worse, fail to do due diligence and end up with a broken foundation and a jumbo IRS lien!

Have you tried an SBA loan? B&Bs are eligible for both the 7a and 504 programs. A good SBA lender with in-house packaging should be able to underwrite this without too many problems.

http://bbteam.com/2010/07/27/financing-the-purchas...

http://innfinancing.com/bed-breakfast-financing-lo...

Are you saying your client is being offered financing at 9%+ with 4-7 pts up front? That's nuts. 

I'm currently working on commercial financing for a smaller rehab deal in TX. Typical terms are a floating I/O note during rehab, converting to a miniperm at 5.5% fixed for 5 years with 1pt origination. Buyer puts 25%+ down and there may be a prepay penalty.

Your client will just have to dial for dollars. Call 5-10 local lenders of various sizes. For each one that declines, ask for a referral to another. By the time he gets through this list he will either have found the best terms available or figured out he is unfinanceable.

@Laura B. You can finance any kind of property as commercial if you want to. Usually it's preferable to finance them as 1-4 unit residentials, but if that's not available to you then commercial is possible. As @Daniel Chang said, you would need to give a personal guarantee even if the property is in an LLC.

I've financed duplexes as commercial before, and had approval to finance SFRs. But I have pre-existing commercial relationships with those banks. I don't know if they would do it for someone as a first investment property.

What is it about you or about the property that makes you think you can't get a conventional residential investment note? If it's just the fact that you want it in an LLC, I would strongly suggest just dropping the LLC, getting regular financing and taking out an umbrella insurance policy. It will be a lot cheaper and more effective.

@Alex Gaw I called the listing agent 4 or 5 times to go and see that property when I was in Austin a few weeks ago. Didn't even get a call back. 

I came to the conclusion that either the agent was incompetent or the seller didn't really want to sell.

@Carrie Hiner Judging by the MLS listing that was up a few weeks ago, it doesn't look too hard to finish. The shell seems to be done. Not saying cheap but not unmanageable either. Of course that's just going by the listing since I never got to see it in person!

I'm looking to move into cheap, high cash flow properties. They will generate much more cash flow than can be sheltered through depreciation. 

Can I maximize my deductions by daisy-chaining expenses between properties? So for example Property 1 generates $6k cash but can only depreciate $2500. In the same year, I buy Property 2 and put more than $3500 of repairs into it. Can the repairs on Property 2 offset the tax liability from Property 1?

@Dan D. Thought you might be interested in this comparable listing. Stated NOI >$1m, stated occupancy 86%, auction starting at $3.5m. 28% cap, what could go wrong????

Obviously, the tenants are about to leave and downtown office vacancies are super high at the moment. I'm guessing you would be lucky to break even - unless of course you happen to own a business that needs a lot of office space.

Try a portfolio note instead of GSE. 

I'm a fan of the ULI books in general. However I was very disappointed by the spreadsheets for one of their key books. I tried using the one for West River Commons and it was hopeless - full of hardcoded numbers that should be formulae, repeated entries instead of references, and embedded assumptions that are unique to that one analysis. In the end I gave it up as useless.

@Account Closed as I believe he is doing something similar.