Is Holton Wise Sale of Quad in Cleveland a Scam? (7809 Franklin)

[Lenza M.]

I have been following the Holton Wise properties for awhile and finally saw one that interested me a few days ago. I am very concerned this might be a scam after @James Wise refused to provide what I believe is basic information that should be given as part of a real estate transaction, and wanted to ask what you guys think.

The property in question is a Quadruplex in Cleveland located at 7809 Franklin Blvd and featured here: https://www.youtube.com/watch?v=TkFnuAaENwY

 After watching the video, I wrote to James to inquire about the cash flow of the place and he replied only: "All info on the building is in the video." After watching the video a second time and not finding any mention of expenses I again emailed specifically requesting information on costs of operating the building. He pointed me to episodes of his Real Estate and Analysis show for other properties here: https://www.youtube.com/playlist?list=PLWaflf0vPbEnQ4v3Eyvw9HlbY8T7ZNLQE

In all of these videos James has a breakdown of operating costs for the building so he clearly recognizes that this is important information. For example here:

After watching the video for 7809 Franklin a 3rd time, I pointed out that I could not find any of this expense information and requested that he point me to the timestamp of the information in the video in case I was missing it. No reply.

Days later I sent a follow up email asking if the vacant unit mentioned in the video had been filled and if he had 2019 or YTD income information for the property. I was told "Again. All information that is available has been put in the video." Apparently information on how often tenants are paying rent is unavailable?

So, while I usually like to be very sure of an offer before submitting it, I sent James a full price offer assuming that I would be able to get documentation during a contingency period. My offer was rejected in 10 minutes and I was told that no document contingency would be acceptable.

So, I am left a bit bewildered -- what I am missing here? It seems like if you are trying to sell an income generating property but refuse to disclose any information about how much income the property in generating, you are probably running a scam of some kind? I thought James was a respectable no-nonsense person? What do you guys think, is this normal?

[James Wise]

Originally posted by @David K.:

@Lenza M., except for taxes (which are actual), I believe James uses estimates and not actual historical numbers when displaying operating expenses in videos. In the example you post above, repairs, vacancy, and capex are all 5% of gross revenue. PM is 10% of gross, but I suppose that also counts as "actual" to the extent HW was the PM. He uses $1,800 for water/sewer as a default estimate for 2BD duplexes, and usually lists in insurance in the 900-range as well. 

So I can't comment on why it wasn't in that particular video you are referencing (modified from normal numbers on water/sewer and insurance to reflect additional units), but I am relatively certain almost all operating expenses in HW videos are estimates and not historical. If you scour a number of the videos, you should see that pattern hold up throughout. 

 Looks like you've been watching a lot of the content Dave. Thanks for the continued viewership.

Folks, let's take this thread and create a learning opportunity for a lot of you who are getting into this business. These properties, they are living, breathing and moving things......The subject property for example. It's got 3 tenants in it and a vacant unit. If you guys think there is some magic report you can read from past ownership that will tell how this property will perform for you, you are dead wrong. Doesn't work that way.

When you start getting into larger buildings that have been run by property management companies historical data becomes more important and a bigger predictor of future performance. Not here though. Not on stuff like this. There is a reason commercial lending institutions don't lend on stuff like this and it falls under residential financing.

You take a building like this 90% of them are privately owned and managed. These types of owners are cash to pocket folks. Sometimes they live in one of the units. Sometimes they keep rents low. Sometimes they leave units empty because they don't have time to renovate them due to their day job. Sometimes they are just lazy or inept. The variables are limitless........This is why we break down what a building like this would look like going forward based upon our experiences and management structure. Having sold over $200 Million worth of this stuff I can say without the slightest doubt that, that's the more accurate predictor of performance than what some Joe DIY did or didn't do.

It's not really as complicated as you guys may think.

You've got your gross income folks. From there you need to deduct your expenses to get an estimate on performance. Fixed expenses are simple

• Insurance
• Taxes

There will be slight variations in those, but more or less they remain consistent. From there you've got to factor in things that happen over the course of owning properties. These things swing with the wind ya'll. Especially when you've got such a small sample size. 3 tenants folks. One of them could get hit by a bus tomorrow....That's 33% of your data. Do you think that means the investment price has shifted 33%? If so, you're wrong. Doesn't work that way. 

As for these variable expenses I've listed some below. 

• Vacancy
• Non payment of rent
• Repairs
• Maintenance
• Utilities

If you'd like to get an understanding of this business you'll need to do what I told Lenza to do and watch the hundreds of hours of content I've produced explaining the intricacies of these variable expenses, what to look out for, why things shift, what bad tenants do, what good tenants do, how to reduce risk, why you can't avoid risk etc.....It's clear Lenza is lost on how this business works right now, if you're in the same boat as him you should check it out. I guarantee you'll learn a thing or two. And most importantly DO NOT do what it looks like Lenza is hoping to do which is valuate a property based upon a pro forma's drawn up by a seller. This is how you get ripped off folks. You need to understand the market, the tenant base and how these things work. In addition you need to do a 3rd party home inspection & get an appraisal. That's what's important. Pro forma's can and are manipulated daily. Not so much with appraisals and private 3rd party inspections.

And Lenza my advice specific to you as you try to get into this business is to speak less and listen more. Running around with no idea what you're doing and hurling scam allegations at people who've spent years doing thousands of transactions building multi million dollar businesses in the industry you're interested in isn't going to get you anywhere.