Phase 2 Of buying Larger Properties

[Rich Weese]

Follow up to original post on buying Larger properties. I hope you enjoy, and feel free to add your thoughts or questions. Rich

http://www.biggerpockets.com/blogs/575/blog_posts/2615

[Louis Bergman]

Hey Rich, another great post!

Personally we will only purchase properties if we can use a so-called HUD Loan because it has the greatest terms around, but as a result there are some differences in approach.
I will try to avoid those issues in my comments, but there are some additional items to share for those who will use Rich's post as a road map for their purchases of Multifamily.

Our contracts have a standard 180 days to close with two 30 days extensions. That usually means that at some point some of the earnest money goes hard. But as these points are defined by us, we have no problem with that.

We have chosen a top notch national Professional Management Company to work with. They know that we always try to build up to about 1,000 units in a Metro market. That could very well be split between clients and ourselves, but that number gives them a solid base to send some of their better people out there.
In a good relationship they will even scout out new properties for you that are not listed with a realtor.

The PMC normally charges $25 per door to do an extensive due diligence, but we worked out a deal where they will do so for us for substantially less. So they go in as soon as the contract is signed and within 10 days we have on our desk an extensive list of repairs and deferred maintenance broken down on a per unit level. This includes estimates on costs and time to get everything back in shape.
As Rich points out in his blog, this is the best info you can have for your first round of re-negotiations.

As soon as we have preliminary agreement with the Lender on financing, a professional Inspection is ordered. Our Lender usually has a decisive say in the choice, and our mission statement to them is "Take it apart!".
This gives the history of the property, a history of the relationship with the City or County, structural issues, the works.

The next step is making the Seller understand that we are seriously considering walking away, but we're reviewing our options. Why? As Rich implies, you have to get control over the Seller.
Here's where a flurry of our people start walking in and out of the property while we maintain a hermetic silence.

What always happens next is we get a call from the Seller's representative with some kind of veiled threat that they will want to opt out of the contract.
But I'm sure Rich will more than cover the ensuing song and dance of negotiation in his next chapter.

I guess my main point is that you need a team if you want to play this game. Our fixed players are the Management Company, the Lender, our Attorney and at least one partner. Locally we add an Architect, a Contractor, an Attorney and in some cases a Partner.
If everybody does their assigned job properly, the final inspection is a breeze.
One last thought; if you like the deal you owe it to yourself to get "control" over the Seller.

Your money is made when buying, not in selling.