All Forum Posts by: Christopher Telles

@Brad M.is right you should require, not ask, for an estoppel to be signed by all the parties. 

If you want to buy this deal you know going in that you might have legal issues to deal with early in your ownership of this property.

Because you are dealing in a he said she said situation now the best way to cut down on any eviction or legal expenses is to get everyone's understanding of their position from them in writing.

Require that the listing broker prepare an estoppel containing known facts, as they've been given to him by his client, have s/he get the seller to sign the estoppel, and require s/he submit the estoppel to each tenant for signature.

Sometimes tenants won't cooperate and return a signed estoppel but the seller should and its on them to provide you full knowledge about the security deposit and the current status of each tenants rent. 

If you have this estoppel then you can provide it to your legal counsel if and when it may be needed.

The alternative is to threaten to walk from the deal unless the seller agrees to have escrow hold back this months full rent and the security deposits purported by the tenants to having been paid until such time as the landlord can leverage the tenants to comply in validating the information in the estoppel or the seller can produce documentation that supports their claim that no security deposit exists.

If I were in your shoes and didn't know exactly what my legal standing is as a buyer under a contract for sale or post closing as a landlord with allegations of existing security deposits from tenants I might be evicting before receiving any rents I would contact an attorney post haste to get sound legal advise.

@SteveVaughan advise has hit the nail on the head. You really should educate yourself using some of the resources available here in BP for little money.

To address your questions, visiting the property will give you a very good idea of what type of work might be needed, but I would also highly encourage you to seek out and hire a property inspector, and separately a plumber to inspect the plumbing, either before putting in your offer or through due diligence to ensure you don't go over budget on construction costs. That property visit will help you to start an apple for apples comparison of market sale comps which will help you establish an ARV.

More specifically, ARV is a partially subjective matter based on hard data points, but where it becomes subjective is how variables are interpreted differently by different people. Theres no way to teach comp review in a forum. You need to see, hear, and then listen to how experienced people in the marketplace review and analyze comps. In some areas values change signal to signal, in others its block to block, and yet in others its position of the property on the same block. It would be difficult to value a property for ARV if not innately knowledgable about the marketplace/neighborhood.

When those who are experienced in buying properties in areas they don't possess such knowledge of they will locate people/professional who are knowledgable in the marketplace.

Now going back to your original question, you are experiencing different interpretations of the variables in the sale comps (assuming they are actual sales) and its here where you as a real estate investor earn your money. 

My suggestion is you teach yourself how to "read" comps, all the data points e.g. price per square foot, lot size, bedrooms, baths, number of rooms, and how to categorize by distance from the subject property (a 3bd 2 ba home 1/2 mile from the subject in the same zip code might be a far cry from a similar home 1/2 a block away).

Go look at comps as an exercise. Look up the value of a 3bd 2 ba home in your city in a neighborhood on the north side of town, and then one similar on the south side of town. Try to drill down on the value for each comparing it to similar closed sales within the last six months. Then compare them, and their supporting comps, to each other. What do you see? Values that are similar in each area? If not figure out why. Did one home have a new kitchen? Maybe a new master bath? Did one have a pool and jacuzzi? How about new windows?

Now finally, how does the north side of town compare to the south side of town? I'd venture to guess you're going to find a different set of values. Yet, because of these variables, and sometimes because someone is trying to sell you, you'll find people will use the north side values to set value for south side properties (east/west, whatever your towns atypical designation might be). One more point, it might not necessarily be the north or south side of town, it might be the north or south side of a particular neighborhood.

In my old neighborhood a home on one side as opposed to the other side sold for as much as $750,000 more for similar types of properties. Data points, location, and similarity all come together when valuing real estate. 

 Well you actually could do this if:

1. You bought at a price that nearly any HML or private lender would lend on the property

2. You first knew what the HML's or private lenders guidelines where for a no brannier loan

3. You could demonstrate that the acquisition at that price using a qualified team to improve would sell @X for exit strategy #1 or in exit strategy #2 you could rent it @Y market rents and then refinance it using conventional financing.

Not easy when you don't have the experience, but you might find some lenders who will lend on it if the deal is sweet enough that their loan is soundly secure. 

As others have said, you'll more than likely need to show some reserves to cash flow debt and expenses even if you were to find a 100% LTC loan.

 Dude, just get that deal done, and title in your name.

If you're stuck on a couple thousand bucks give it to him and move on to the process of marketing.

 Tie the property up, and during your contingency period demand a discount. All they can say is no, you're already ready to potentially walk now so if you really wan this deal then its an option.

I don't recommend people typically do this, but when theirs a difficult seller or I feel like I'm getting brokered (either by the actual broker or the principal themselves) I've been known to take this tack.

 Transferring title from the trust to the individuals name may be as simple as taking the trust document along with the death certificate and any other supporting documents to a title company to record a transfer. As a potential buyer, you'll want them to buy title insurance for this transfer.

If the property hasn't moved through the probate court, if the estate is subject to probate, then that might create delays in transferring title.

As for a possible transaction, you didn't give any details as to your proposed transaction so its nearly impossible to speculate what you have or haven't discussed with the potential seller. 

First thing you'll want to do is make sure he does indeed possess title, or have the inexplicable right to title (get that acknowledgment title is transferrable from your title company if not done prior to your transaction closing) before passing any money. 

Next, if you haven't already done so propose a seller carryback with the payment of the back taxes as the downpayment.

If not acceptable then have option #2, #3, #4 ready for him.

 I'm not an expert in Dodd Frank or the Safe Act, and I'm trying to get up to speak on the possible issues as they relate to residential finance, we don't have these issues in commercial. 

Given what you've said you'll want to make sure this loan would comply (I think since its under 9 months it might) because there are restrictions on a ballon payment. 

I would suggest you search @Brian Gibbons posts here in BP for the terms "Dodd Frank" and "Safe Act".

Congrats on buying what seems to be a good value. Now, its time to start extracting that value.

Forget about the art gallery wine & cheese thing. If you want to due that then host something similar at your home. It'll have literally zero impact on you securing tenants.

As fare as converting the two upper floors into residential, I would say this might be the better option given its a sleepy town, and most sleepy towns have a difficult time filling commercial vacancies. 

It may come with an upfront capital cost, but the way to see if it makes sense is to compete an entire financial analysis of the asset. What would the NOI look like after you've rented the entire building? What capital cost would it take to get there? How does that added capital cost add/detract from the ROE across the investment?

The answers to these questions should help you see what might be the better option for this building. 

I'm unfamiliar with your marketplace, but an 18 month exclusive listing seems ridiculously long. Its not uncommon for some landlords to spend money on advertising, but in my experience that has only been from institutional type clients that had specific marketing initiatives they wanted to complete.

Have you interviewed several brokerages? For several thousands of dollars you could do an awful lot of marketing on your own.   

Yes you can have a double closing or what I've always referred to as a double clutch.

If you can't assign as @Ryan Dosseysuggested then you'll need to either be ready wiling and able to close all cash or find a transaction lender for the closing.

Keep in mind you will have cost in the closing so youmight want to let your friends know those costs will be passed on to them and recovered through the closing. That's assuming you're not intending to pay the costs on behalf of your friend.

What kind of "commercial investment property"?

What do you the need comps for?