Help me structure this deal

[dealmaker]

Well I may have just fallen into a multi-property deal. Without getting too specific, and using simple numbers, I'll show you what I'm up against and see who can help me out here. For those of you who haven't read many of my posts here's what I do: I ALWAYS buy for cash, have for a long time now, and then I seller finance to the next guy. Low down payments, not too bad of terms and I make a few hundred on document charges as well. My loans are 30 year amortization, 5 year balloon.

Here's the "basics" (quantity changed to make the math easier-approximate prices are real, remember this is central TX) of this deal:

10 houses, all currently rented, seller is a group of siblings who inherited and would rather have cash than be out-of-state landlords. For simplicity's sake let's say FMV on every one is $55K, 1/3 are in "go to market" condition, 1/3 need heavy cosmetics-maybe countertops-exterior repairs and painting, interior painting, the last 1/3 need (on average) roofs (less than $1,000) upgrade some baths ($350) and kitchens ($1,500). Not all of any one group needs everything

Sellers will take $45K each, adjusted downward for the repairs, on a TAKE ALL TEN DEAL That would make the entire deal about $400K. IOW less than a 2/1 tear down in CA.

I've only been thinking about this since this morning, here's what I've come up with so far, PLEASE ADD YOUR IDEAS TO THE LIST.

1. Hit my money market funds, possibly liquidate a bit of stocks and just do the whole thing. I know that the sellers don't want to put anything into fixing, they want to cash out, so I might swing a better price. Might even get the agent to reduce his commission to help make it fly, a $400K sale in his county would be the biggest this year probably, and he'd be getting both ends.

2. Offer 20% down, sellers carry. The problem with this is I'd want to sell some fairly quickly to cash them out, which means selling at the "retail" market to get paid now and foregoing some of my "seller financing" premium.

3. Get an option on each one. Offer each for sale to the tenants on my regular deal. Depending on how many takers, all ten would get me $20K, close the whole thing and parcel them out at my pace.

4. Bring in a partner to do them with me, 50/50. I've done some in the past with this person and while I haven't broached it yet I think they would. This definitely solves the money situation, but because of where they now live I'd be doing all the physical work, so we'd have to work out an equitable split based on what my labor is worth.

I ABSOLUTELY WILL NOT BUY ON CFDs, that might save some of you from posting that one. I really don't want to borrow money. Bringing in a partner from "outside" doesn't fit with my personality, I'm anal retentive and a huge control freak.

OK, class is back in.

The person who comes up with the best idea, whether I use it or not gets their choice of the following prizes:

Paint one of the picket fences, I'll buy the paint and beer.

Help me re-roof one or two of them. This is very valuable, lots of sun and fresh air, good physical workout and you'll learn to do a roof the CORRECT way. Most important from an investment standpoint you'll get to sit around during breaks saying to yourself, "man I'm glad I got into REI!"

Learn how to jack and level a post and beam house. You didn't think I was crawling under a house in TX did you?

Your choice on the prizes.

My problem is I never learned to do any of the "creative" stuff the gurus talk about, maybe it's time an old dog learned new tricks.

Let me hear it!

dealmaker

[Dan Auito]

Ohy! What a deal you bring to the table Frank.
It sounds as though you could conceivably scrounge up this amount of cash on your own, if that is the case I would offer them 10% less than what your currently thinking and tell them you'll close within 30 days just to see if they will bite!

I have some Australian investors that would loan you the entire amount but then you will lose some of the profit so I'm not sure you want to do that!

I just see this as buy the whole thing outright fast and for all cash at as low a price as you can get while also getting that commission knocked down a point or two.

What do the current lease agreements say? Do you think your owner finance program will work on any of the tenants who are currently in place?

Have you looked at each house to ensure termites haven't taken it to the demolish value?

Are they all in the same neighborhood, will they all be able to be given clear title, do you have any hold over non payers or real problem tenants currently in place.

I think financing will be an easy one for you compared to the over all correct evaluation and final sale price offered. Just a few thoughts for now.

I will be following this thread closely! It's also stuck for everyone to see!

[Michael Morrongiello]

2. Offer 20% down, sellers carry. The problem with this is I'd want to sell some fairly quickly to cash them out, which means selling at the "retail" market to get paid now and foregoing some of my "seller financing" premium

I like this option the best. With 20% cash down THEY are induced to finance you for the balance due. However have them hold the financing on each INDIVIDUAL home.

This way if you wish to sell for cash, wrap, etc. one, two, or three homes, etc. you can readily do so...

Michael Morrongiello
Author of the Unity of Real Estate & "paper" course

[Bill H]

Dealmaker:

What is your comfort zone? What do you feel best with?

Make the deal! I'm a lot like you....forget the "creative" and go for either "all cash" or "Partner".

A deal that I will remember for a long long time....Friend asked me to go with him to buy a building. The owner had been adamant he would not take less than $80,000....we went in...casual conversation...my friend opened up his briefcase, calmly and casually counted out $70,000 in nice new $100 bills onto the owners desk...owner was aghast...I was totally surprised...owner said, "You just bought a building." Deal DONE!

CASH TALKS...everything else WALKS. Figure out what you want to pay, Get the cash and go lay it in front of them...you will be amazed!

Partner...this is your call. I only worked with one for years and years. We both knew each other much too well and it worked to both our benefits. If this is your comfort zone...go for it.

Dollars and Cents...What makes the most financial sense? If you own it you control it. If you and the finance company own it you share control with them. Which way do you ultimately put the most into your bank account?

I am also a total control freak...if I am involved...I like to know it and feel it. Did you know that Al Davis of the Oakland Raiders only owns FIVE PERCENT, yep 5 percent, of the Oakland Raiders....BUT...he is the Managing General Partner....control...control...control. Look at the $$$ he has made for the partnership over the years....control...control...control.

Now if you can construct a deal with your partner like that....then go for it.

I'm not much on "Tie it up and play with it", "steal it if you can", "Get the deed and then worry about it", "I'll buy it if...", Never was one to "What If the deal very much," did our homework, made the offer, and let the chips fall where they may...go for the juglar.....either they will take it or you will find out for sure where the sleeping dog is lying.

The only "Fly in the ointment" that I can see is "How many is a bunch of siblings...and....HOW WELL do they get along?" Who is in charge of the bunch? Recently had to pass a good deal because three siblings could not agree. When greed and averice take over...common sense goes right out the door.

Good Luck,
Bill H

[Bill H]

Dealmaker:

PS...If you chose to take my advice...."Paint your own fence!...I don't like to paint and never did like beer.....been a Jack Daniels man for so long I got them working night shift.

Roofing is not my thing either...don't like the grit and grime.

Last but not least...where the hell is Central, TEXAS? Been to Dallas, Cowtown, ElPaso, Amarillo, driven across Texas several time east and west and north and south but do not remember being in Central, TX.

All the Best.

Bill H

[Dan Auito]

Hey Dealmaker I think you just met your match! A Jack Daniels wild Bill who don't take no partners or prisoners and pays all cash!

Man you gotta like that! :praise:

[dealmaker]

Wow Dan;

You called out the big guns. I read Michael M.'s stuff a lot over on another board, and Bill H. obviously has as warped a sense of humor as I do!

Michael's idea on 20% down and hold the notes individually sounds like the way to go, if I don't just pony up or bring in my (hidden partner) brother. He and I have done a half dozen or so deals together. Since he's in CA there's a vast difference between the value of our housing dollars. We trust each other implicity, neither of us mind getting dirty making money, and neither of us knows the meaning of the word "enough".

Bill definitely thinks like I do as far as negotiating. Back in the day I had a local agent that I did about 7 deals with in 15 months. We both made money and had fun too. Every time I walked into the office her broker would say, "here comes old LOW BALL FRANK". Typically if a house was on the market for $60K, I'd offer between $34 and $40K. My theory is you can always go up, not down. I've NEVER had an offer rejected! No matter how insulted you think someone will be, THEY STILL WANT TO SELL. As Don Corleone said, "it was always business, not personal".

Bill, see "Webster's"; "situated at, in or near the center".

If you take a map of TX and draw a straight line from Brownsville, at the mouth of the Rio Grande, up to the northwest corner of the panhandle, and another from Port Arthur (birthplace of Janice Joplin) across to El Paso, the lines will actually intersect pretty close to us. We live in a little town named Marble Falls, the next town is named Granite Shoals. You should be able to guess what the major industry here is.

We're an hour west of Austin, an hour and 10 minutes north of San Antonio, about an hour south of Ft. Hood, and about 40 minutes northeast of LUCKENBACH. Yes there really is a Luckenbach, TX.

OK, you don't like painting or roofing. It'll probably be next Wednesday or Thursday when I replace some of the blocks and beams. I'd suggest a one piece coverall and a "machete" or similar, just in case there's snakes under there! I'll supervise from a standing (ready to run) position. I'll have the GPS in my hand and a flight of either A7s or FA18s on standby for backup!

You did see the fine print that said, "decision of Dealmaker is final regarding winning entry, winner may not demur, decline or otherwise try to crawfish out of helping me do this scut work".

Frank

[Just Information]

This may or may not help but let me run down a deal that I did and this may get your creative juices flowing.

13 unit complex
Market Value 185K - Asking Price 200K
12 Units rented @ 315 ea. (rents due on the 1st)
1 unit to manager
He owed 50k @ 7% @ 333 mo.
Now the story:

Conv loan would be at 80% for 148K @ 6 1/8 @ 899 mo.
I would have an out of pocket of 52K
Not a bad deal if I wanted to tie up a credit line and come up with 52K

So I did a Sub 2/Lease option deal

I helped my customer find his pain and solved his need for cash.

He had no plans to make another purchase just cash out but if he did based upon his income level he would face a capital gain of 111K from the cash sale (see I helped him find his pain)

All said and done he would have to pay out to the state and the fed's 67K cash money at the end of the year (Pain again)

So this is what we worked out together.

I did a lease option purchase with him for 10 years based upon a 30 year term payment plan @ $1,468 with 5K down.
He agreed to credit the 5K towards the purchase and $468 of the $1,468 monthly payment towards the purchase.
So he gets a loan for 148K for 30 years @ 6 1/8 with a monthly payment of $899 pay's off his 1st and gets him mad money of 98k
So I pay $1,468 per month - my rents are $3,780 - so I get $2,312
This gets better!

At closing, I got $3,250 in security deposits
The next day I got $3,780 in rents as he agreed to
That's a total of $7,030
Less $5,000 down
I pocketed $2,030
This is what is called a no money down purchase under a lease option purchase under a sub 2 creative strategy.

I paid him more than it was worth - WHY? The lease option purchase credit.

So in 10 years what would be my pay off?

Purchase price $200,000
Down payment credit $5,000
Payment Credit $51,160
My pay off would be $138,840
Now the average appreciation value for this area has averaged 3.8% yearly.

I also increase rents $10 per unit every year.

This is the value of creative real estate investing!

Now since Dan is such a good guy and all I must have you provide him the benefits of helping since this is his site and I'm sure he would appreciate this award.:SM106:

I'm steppin in to give JOHN MICHAEL all the credit on this one, as if you didn't get enough in the deal above! Johnny the king of bling gets all the credit folks, I'm just glad to read along with the rest of the family on this one! :SM058:

[Tom Henderson]

Another approach besides the rolling option, would be to have built in discounts and/or release clauses in the notes. I am not sure whether they are carrying back the note as a blanket mortgage, or individually. If a blanket mortgage, definitely get release clauses. If the notes are individual, built in discounts will greatly add to your bottom line.

Hope this helps.

Tom Henderson
H&P Capital Investments LLC
214.575.8292
1.800.481.6588
www.hpnotes.com



Well I may have just fallen into a multi-property deal. Without getting too specific, and using simple numbers, I'll show you what I'm up against and see who can help me out here. For those of you who haven't read many of my posts here's what I do: I ALWAYS buy for cash, have for a long time now, and then I seller finance to the next guy. Low down payments, not too bad of terms and I make a few hundred on document charges as well. My loans are 30 year amortization, 5 year balloon.

Here's the "basics" (quantity changed to make the math easier-approximate prices are real, remember this is central TX) of this deal:

10 houses, all currently rented, seller is a group of siblings who inherited and would rather have cash than be out-of-state landlords. For simplicity's sake let's say FMV on every one is $55K, 1/3 are in "go to market" condition, 1/3 need heavy cosmetics-maybe countertops-exterior repairs and painting, interior painting, the last 1/3 need (on average) roofs (less than $1,000) upgrade some baths ($350) and kitchens ($1,500). Not all of any one group needs everything

Sellers will take $45K each, adjusted downward for the repairs, on a TAKE ALL TEN DEAL That would make the entire deal about $400K. IOW less than a 2/1 tear down in CA.

I've only been thinking about this since this morning, here's what I've come up with so far, PLEASE ADD YOUR IDEAS TO THE LIST.

1. Hit my money market funds, possibly liquidate a bit of stocks and just do the whole thing. I know that the sellers don't want to put anything into fixing, they want to cash out, so I might swing a better price. Might even get the agent to reduce his commission to help make it fly, a $400K sale in his county would be the biggest this year probably, and he'd be getting both ends.

2. Offer 20% down, sellers carry. The problem with this is I'd want to sell some fairly quickly to cash them out, which means selling at the "retail" market to get paid now and foregoing some of my "seller financing" premium.

3. Get an option on each one. Offer each for sale to the tenants on my regular deal. Depending on how many takers, all ten would get me $20K, close the whole thing and parcel them out at my pace.

4. Bring in a partner to do them with me, 50/50. I've done some in the past with this person and while I haven't broached it yet I think they would. This definitely solves the money situation, but because of where they now live I'd be doing all the physical work, so we'd have to work out an equitable split based on what my labor is worth.

I ABSOLUTELY WILL NOT BUY ON CFDs, that might save some of you from posting that one. I really don't want to borrow money. Bringing in a partner from "outside" doesn't fit with my personality, I'm anal retentive and a huge control freak.

OK, class is back in.

The person who comes up with the best idea, whether I use it or not gets their choice of the following prizes:

Paint one of the picket fences, I'll buy the paint and beer.

Help me re-roof one or two of them. This is very valuable, lots of sun and fresh air, good physical workout and you'll learn to do a roof the CORRECT way. Most important from an investment standpoint you'll get to sit around during breaks saying to yourself, "man I'm glad I got into REI!"

Learn how to jack and level a post and beam house. You didn't think I was crawling under a house in TX did you?

Your choice on the prizes.

My problem is I never learned to do any of the "creative" stuff the gurus talk about, maybe it's time an old dog learned new tricks.

Let me hear it!

dealmaker

[Jeffery (LCLA)]

most absolutely amazing thing. Paid above market value and still walked away with cash in hand. I really have to know how long it took you to come up with that offer. I ran your deal through my number analyzing spreadsheet and in 10 years you'll have collected $290,840 in income (that includes the current rent plus your $10 a year rent increase for the 12 rented apts). Your property will have appreciated to $268,624.28 and with a payoff of $138,840 that leaves $129784.28 in equity. WOW JohnMichael, you just opened a whole new level of thinking for me.

[Just Information]

Most investors run from the hard stuff or what they fail to understand.

This deal took several days' and yes I had to pay the accountant to explain the tax advantages and disadvantages.

The art of making creative deals is to simply fulfil customers needs, too many of us spend our time, effort on making deals all based upon a purchase price, and this just limits our success.

I have spent years and 1,000's of dollars learning and researching all that I can about REI and continue to do so as the more knowledge I get the more people I can help.

This deal gave my customer what he wanted and gave me what I wanted. The WIN-WIN.

Its called thinking out of the box and one must develop this talent over time!

I treat investing as a professional athlete; I'm always in training!

Jeff it's all about education and one simply has to ask themselves what am I willing to do?

Look at Walt Disney - a true failure - bankruptcy's - failed business - failed investments and yet look at the empire he has created!

It's all about the BLING baby!:SM123: