Goldmine For Somebody
I've had my eye on (6) 8 plexes that have been on the market for a almost a year or longer. They were listed at 1.04 mil. then reduced to 999,000. That makes them 166,500 each. The tax assessed value on some is 175,000. This is not even close to market value. There is one other 8 plex in the neighborhood listed in the 275-280 range. They are brick, all 1br units and would rent easily at 300/month.
The kicker is that many units need rehab and is approx. 85% vacant, making it almost impossible to convince lenders to give financing with very little income at present.
I just found out yesterday that in October they are going up for ABSOLUTE auction. I had made a verbal offer to buy them all if the seller would carry a large 2nd until I could get them turned around and refied. He would not accept. He just wanted out with no chance of ever having to come back.
What are my options? If the seller won't finance, lenders won't finance on nonproducing properties, does that leave me with just trying to find alot of partners with alot of cash? Would a hard money lender loan anything on an empty building if the price was right? What about construction loan for rehab?
I have no doubt that whoever picks these up at auction will be sitting on a goldmine, either on the cash flow or selling them off after rehabbed and leased. My guess is at least a half mil. or more, depending on how quick they wanted to turn them. This is the type of deal dreams are made of, just have yet to find the way to pull it off. Another thought would be to wait till they are sold at auction, then try to buy them from the new owner if they would carry the financing.
I know there are alot of questions here. I'm not looking for every one to be answered, just hoping to open a brainstorming session. Thanks
Larry
Do a title search--what mortgages are on the property? You could take the property over subject to the existing mortgage.
My guess is that the mortgage is behind. Do you have the funds to bring it current? How about the rehab funds? How about funds to support the payments while you are rehabbing and trying to find a tenant.
This could potentially be a great property. In fact I am looking to do something similar with a single 8plex currently. It is just the basic process of kicking bad tenants out, fixing things, bringing good people in, and running the place well.
I think you can do well here. Just make sure you do your due dilegence. If the property has been sitting at 1mm then it likely isn't worth 1mm as-is. Make sure you buy it cheap enough.
myfrogger,
I have not done title searches but listing agent informed me that the seller actually built the buildings 30+ years ago. So unless he has gotten a 2nd or refied, there may not be the "little equity" to take over. Seems he gave 3 buildings to one kid, 3 to another, and there ya go.
If they were bought for the right price, there may be enough tennants in place to support the mortg. payments. Rehab would be done through lines of credit (6-12 months same as cash), one unit at a time, then filling the unit thus producing more funds for both. A cushion account could be had from a partner already in place. Small 1br, 1ba units with hardwood floors - would like to be able to do 2-4 units a month.
I have not seen all 48 units to determine extent of rehab. After I was told he would not carry any financing, I did not waste any more time. Seems he wants to 1031 to a piece of commercial property.
I think your $500,000 estimate is high if it sells for anything like the million-dollar asking price. More like $250,000. Even then thats not a terrible return for perhaps a one year hold. If it sells for a lot less than the million at the auction then you might have a winner here.
Finding a lot of partners with a lot of cash is a really bad idea. More likely you are looking for one partner with a lot of cash. Trick is that guy doesn't need you-- the broker advertising the auction is going to work pretty hard to try to find him too.
So what do you bring to the table to add value to the transaction? If you could put together a nice due-dilligence package with all the i's dotted and t's crossed including a complete construction budget, market analysis and marketing plan with exit strategies and if you were able to manage the renovation project then you could probably get yourself cut in for a piece of the action if you found an investor who wanted to be pretty passive. When in October is the auction?
commercialking,
Thanks for the input and you are very correct. What I would bring to the table financially would be small in the big scope. My value would be putting it together, allowing the investor(s) a hands off investment, managing, taking part in the rehab, just the project oversight moreso than the financial capability, though I could bring some. Again though, I agree with what you say, including bringing as few people in as possible. I was throwing that out trying to grasp at straws and looking for ideas.
Thank you
Oh yea, auction is October 6th
Short time to find somebody with that kind of cash. Even shorter time to try to put together a group. Have you checked with the broker/auctioneer? What ae the terms of sale. Since this appears to be a Private auction (i.e. not ordered by the court) they don't have to be all-cash if the auctioneer writes the terms otherwise. Call him up get a bidders package find out what the terms are.
I just bought a property at an auction like this. We had to come up with 10% of the minimum bid the day of the sale. 10% of the successful bid within 48 hours of the auction and the balance in 30 days or pay a $3,000 penalty for another 30 days. I even saw an auction once where a mortgage contingency was in the terms of sale (extreemly rare). The point is that its a lot easier to raise this kind of money on a 60 to 90 day time frame than 20.
It may help "sell" the idea of owner providing financing, if you arrange for note buyer to purchase not from him simultaneously at closing. I can recommend one, and I think there are several on this site. However, they may need more than a week to process. (ususally 2 weeks)
Good Luck!
That is a great idea that I wish I would have thought of sooner, which reminds me of why I belong to this great site. Thing is, had I thought about it sooner I probably would not have come here looking for a note buyer for fear of being construed as advertising or spamming and getting booted. Although my thought is that this forum would be the perfect place to ask someone to help complete a "deal in process". Perhaps a moderator could weigh in to see where we draw this fine line for future reference.
Since the auction is now only a week away, that would be a lot to try to throw together. I do plan on attending the auction just to see what they go for and perhaps ask the new owner if they are interested in flipping and financing to me....profit without ever touching it. We shall see.
Still, I love the idea and will definately put it to permanent memory.
LarryNut,
Check out the article that Mark and I wrote, as well as the article comments:
http://comm.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=629&mode=flat&order=0&thold=0
Unless I'm missing something here, I don't see why that would be against the rules for this Forum.
Nancy
Nancy,
Thank you. I read the article and I can tell that a lot of thought and effort has gone into this. I certainly hope that this forum makes it beyond the experiment stage. I think the best way to learn, next to actually doing it is watching a deal go together in great detail. It's like having 100 mentors at the same time. I hope others see it this way as well.
Just one more question since it pertains to this thread and then I will direct future questions to the article.
You said that you did not see anything wrong with this, but rule #3 says I cannot advertise or seek out clients,........
Does this mean I could not come here and say "I'm looking for a note buyer for......."?
Would the best way to go about it be to do a member/state/occupation search? Don't get me wrong. You have my full support, I just want to be on the same page. Thanks again for your input.
Larry
Larry,
One of the questions posted in a comment to the article specifically dealt with the issue of selling notes. Mark and I discussed it and this is reflected in his reply to the comment.
Nancy
Larry,
I should have mentioned above that the customer or client "fishing" prohibited by Rule #3 covers situations where people would be looking for people to buy their products or retain their services (customer or client in that context)--not a situation involving somebody's property.
Nancy
Thank you for the clarification and keep up the good work![ Edited by LarryNut on Date 09/30/2004 ]
Thanks Larry, I've been off-line with a down DSL for a couple of days but let me say that I think Nancy's responses in this matter have been exactly on the spot.
Thanks for your support of this experiment.
Larry,
What happened to these properties ??? Did they sell in October ???
I have been watching this myself because I was also curious how it would turn out. Something came up and I was unable to attend the auction but the MLS shows them in pending status. Once they close and they move to sold status, I will be able to see what they actually sold for and I'll post it.
Thanks
Just thought I would give you the ending to this story. It was finally posted today that the buildings sold for $770,000. That's $128,000 per building, $16,000 per unit. I have a 4 plex within site distance on same street that I'm selling for another investor priced at $159,000. Yes it is going to take some rehab and getting vacancies filled, but I still think these things could be a goldmine for the new owner if he manages it right. Of course everyone has their definition of goldmine. I have yet to make my first million, so to me the potential cash flow these things can kick out would be considered a goldmine. Can't wait till I have a little more leverage and capability. Cheers!
Larry nut,
It all comes down to the fix up costs. If fix ups are low than there definitely is some money to be made. What condition did you say these were in ? Did you go inside any untis?
Would this post not be a violation of the rules for the deals in progress forum, specifically rule 4? I'm asking because I have a similar situation I would like to post, but it seems to me the original poster does not have an ownership position atleats at the time of the post.
Yeah, Blackthotz, it was a pretty marginal call (I remember that Nancy and I had a conversation about it). A couple of things cut to Larry's advantage.
1) He's known as a legit guy around here and not one to abuse the priveledge in general which probably got him a little slack.
2) it was early on after the special Deals in Progress forum rules were established and we were trying to see what would happen.
3) He asked for advice rather than a partner per se in the post.
Larry,
I'm assuming you at least went to the new owner and offered to joint venture it with them? Bring your expertise and local presence to the table? Who knows?
Mark,
Thanks for having my back. I respect blackthotz concern but as you mentioned I have the upmost respect for this site and would never go there intentionally.
As to your question, I did not. To be very honest, I have been pursuing so many things in front of me of even greater magnitude I just haven't taken the time to look back. That was one deal. I'll find a better one tomorrow.
Larry
Forgive me if I offended anyone, but I was not posting to whistleblow on the original post, but only to ensure that I don't violate and to be clear as to what i could post myself regarding a deal. Thanks for the response.
No problem. And I, at least, am not offended, I don't think Larry is either.
Blackthotz,
At least you asked first. I have seen many who don't read the rules, just wing it and end up in jail or deleted before barely getting started.
No offense taken, nice to meet you, and welcome to the site.
Larry