All Forum Posts by: Scott Krone

@Jason Brown  My mentor when asked if he regretted a deal based upon how much the other party did his response was, "If I agree to a deal, and I got what was expected, I never second guess it or resent the other party."  That being said, is your structure common - certainly.  If you second guess your partner, you are in essence not appreciating the work or effort they put into it.  If you are happy, your partner is happy, then it is a WIN WIN

@Brandy Carrero Sounds like a difficult situation. It is not clear to me if this is home was purchased for "business", "personal" or perhaps "both". If it is a business home, than it is important to understand the business structure, roles and responsibilities, etc. When there is a "capital partner" and a "doer partner", than I suggest you assign a value for each. Time is money and money is time/value. Both have value and need to be accounted for. Either way, I typically don't suggest funding a property with 100% debt - especially HML. Upon sale, both parties are then compensated accordingly.

If this is a residence, again what where the expectations.  If the goal was neither have cash in the deal, then who was responsible for mortgage payments, and other expenses.  So there is the initial costs and then the monthly "cash flow" expenses.  If you expected him to have all his cash in the deal, and you make payments, what was the projected payment for his cash?  If he expected to get all his cash out, why are you paying all the bills.

If both, then both situations needed to be worked out prior to starting.  Either way, I think it is important to work out the structure of a partnership before you enter one, so as to address both parties goals, challenges, and expectations.

@Simone Johnson  Glad to provide assistance and direction.

@Trevor Jones  The answer to your question is Yes.  The hold period is one requirement, another is  "substantial improvements".

@Trevor Jones  Welcome to real estate from the Chicagoland area.  Net working, due diligence, and taking time to get to know someone are the first steps in developing long term investment partners.  With respect to Opportunity Funds, keep in mind, one is required to make a "significant" improvement to the property in order to qualify.  So unless an apartment building needs a good deal of repair or remodeling work, Opportunity Funds may not be the most appropriate sources of capital.

@Simone Johnson With regard to a PUD (Planned Urban Development), most communities have one, two, or possibly two tools to guide you. They are the zoning code, community development plan, or possibly both. The community development plan identifies how a community would like to see their community change with respect to zoning. If there is not one, then the zoning code identifies the procedures for changing the zoning. That being said, it is not a given it can or will be changed.

The local Director of Community Development (typically within the zoning or planning department) should have a good sense of what the Zoning and/or community board/council is seeking, and if they are amenable to a change.  50,000 sf is just larger than an acre.  Without seeing the survey or the area, my experience suggest the only way to get both commercial and residential would be a mixed use condo/apartment structure (first floor retail, upper floors residential).

When going through the PUD process, the community assesses not only the concept, but also the development team to determine the likelihood of success. The team is typically the Developer, Architect and Contractor. In addition, a strong attorney who is familiar with PUD's is also important as the PUD will specifically state the program outlined in your submission package.

Our experience has varied from 60 days for an incredibly short PUD process with a zoning meeting and council meeting (where the use was approved but required updating) to 9 months and submissions to Architectural Review Committee, Zoning Committee, Plan Commission, and City Council. Being able to assemble a complete and thorough package to address all the requirements is critical. The zoning code should outline the requirements.

@Kevin Killen  Welcome to BP.  You are correct, in your first assumption.  

With regard to your second, I would encourage you to look at it from a different perspective.  "Granting" them something, they can produce on their own in of its self is not necessarily "enticing."  That being said, I would look to build relationships with them and learn what they are doing within their business as well as areas that they are seeing challenges.  In those areas, you can figure out if you can add value to them.  I think you will find more success, offering to assist rather than granting.   Perhaps they are looking to expand into a new market that you know, or can assist them with.  

Personally, I worked for a developer for 6 years working between 50 - 80 hours a week, just to learn as much as possible.  He wasn't holding my hand to guide me.   I was doing work to benefit him, and in doing so, I learned a tremendous amount.  In my mind, it was a win win.

Ask your accountant for the best tax practice.

@Adrienne Donner - The simple answer to your question, "Would I pursue this deal?" No. Not because it is necessarily a bad deal, but rather the deal does not align with my goals. We look for growth and cash flow. A rental duplex at a 6% CAP base case in that location is probably not going to appreciate too much. So, the answer would be no. If cash flow is your goal, then I agree with @Tim Herman you need to dig into your numbers to determine if it is a deal.  In order to due that requires more due diligence as well as an understanding of the capital stack with regard to equity/debt and partner splits.

So too early to tell.  If it smells like a deal, keep digging deeper.

@Kristen Nguyen - my business mentor likes to say, "Consider....the Best Case scenario, Worst Case scenario, and What Most Likely will happen." If you can live with all three, then proceed. Most tend to live only in the Best Case scenario world. So when you are considering a partner or the LLC structure, poses those questions to you and your attorney. What happens if this explodes in a good way. What happens when it explodes in a bad way. Do you have a means of addressing both scenarios. These are ways to ask your self - do you trust them, and how much do you trust them.