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?

[Lenza M.]

Originally posted by @James Wise:

Originally posted by @Lenza M.:

Yes, the video clearly shows there is a vacant unit, but it is from 3 months ago. My interaction with James is from a couple of days ago -- this hot property has yet to be sold. I asked James if the unit was still vacant and for tenant pay history and this is when I was told "All information that is available has been put in the video. If you are not able to make a buying decision based on what you see in the video then this property isn't for you."

Presumably in this case Holton Wise is the "****** pm" that does not have this info available...

 Nope....This is also not true. How long you plan on beating this drum my man? Spend your time trying to grow your business. Good lord.

Here is the exact exchange:

---------- Forwarded message ---------

From: James
Date: Thu, Jun 11, 2020 at 10:33 AM
Subject: Re: High End Quad; 7809 Franklin
To: Lenza

Again. All information that is available has been put in the video. If you are not able to make a buying decision based on what you see in the video then this property isn't for you.

On Thu, Jun 11, 2020 at 10:58 AM Lenza wrote:

[James Wise]

Originally posted by @Ben Leybovich:

This was entertaining :)

I did not watch the video. Life's so short, after all. 

@Lenza M. - James sells investment properties in Cleveland; TK. If you don't understand the implications of this, you should likely not be a buyer.

That said, James, as you know I play in the big pond. The rationale you put forward, that because this is not commercial, it's somehow different and expectations for disclosure should be lowered is flawed to the bone. Let me explain my thoughts...

The reason I buy communities and the reason I deal with Berkadia on my debt instead of a local bank is that both the asset and the process are more institutional, rational, and efficient. By contrast, small multifamily is a highly inefficient market.

You teach underwriting to the average, which is the correct way to do it. However, if I want to know the average rent per sq.ft., economic loss, insurance cost, or any other = line-item of OpEx for large multifamily in a given town, there are a number of statistical publications for me to reference. All of these things on an institutional level are much more trackable and transparent.

However, in the small stuff - who the hell knows. You have to be a local operator to really know anything. 

You sell TK investments to out-of-town folks. I would think you would go the extra mile and provide them with the trailing financials to help them make an efficient decision in a highly inefficient market. I can't imagine closing a $20M deal without a whole lot of disclosure. But, for a lot of people, a $50,000 deal is akin a $20M to me. 

 lol Ben c'mon you're just trying to stir the pot. You and I both know that you can't look at 1-4 unit properties and honestly believe that the standard of financial disclosure isn't going to be lowered from a 100 unit apartment building. Prior to you move out of Ohio when you were buying your iddy biddy singles and doubles for your seller financed portfolio you knew damn well the type of sellers you where dealing with didn't always have or provide historical data.....

Ben, while you're here let's chat playa......What about Joe blow duplex owner who's a disabled vet. He lives in the down unit of his duplex and he let's his step son stay in the up unit. He wants to sell so he can move to Phoenix and get a tan like you. Ben why don't you go watch the episode of my show in question. When you're done come back here to explain to Mr Lenza why the fact remains,  if he wants more info then I provided to him, then this property ain't for him.

[Dean H.]

All,

This is simple and not worth the discussion as its gone above. I own a decent size portfolio of professionally managed B- to C- properties in Memphis.

In my crazy little world of out of state investing its simple math. ONCE YOU GET THE PROPERTY STABILIZED YOU WILL NET 1/2 OF THE GROSS RENT.  If you are crazy enough to carry debt on them that comes out of your half. Notice above I said stabilized because what is considered a rehab in the real world is wasting bucks  on the streets I work. 

Crabby Old Man having a bit of fun

[Chris Seveney]

James, I think you are underselling your product, most people would of said that property with the toilet that looked like someone dumped a portajon on it would have been rent ready and turnkey with minimal light rehab required. Probably $15k max

Originally posted by @James Wise:

Originally posted by @James Wise:

Originally posted by @Ben Leybovich:

This was entertaining :)

I did not watch the video. Life's so short, after all. 

@Lenza M. - James sells investment properties in Cleveland; TK. If you don't understand the implications of this, you should likely not be a buyer.

That said, James, as you know I play in the big pond. The rationale you put forward, that because this is not commercial, it's somehow different and expectations for disclosure should be lowered is flawed to the bone. Let me explain my thoughts...

The reason I buy communities and the reason I deal with Berkadia on my debt instead of a local bank is that both the asset and the process are more institutional, rational, and efficient. By contrast, small multifamily is a highly inefficient market.

You teach underwriting to the average, which is the correct way to do it. However, if I want to know the average rent per sq.ft., economic loss, insurance cost, or any other = line-item of OpEx for large multifamily in a given town, there are a number of statistical publications for me to reference. All of these things on an institutional level are much more trackable and transparent.

However, in the small stuff - who the hell knows. You have to be a local operator to really know anything. 

You sell TK investments to out-of-town folks. I would think you would go the extra mile and provide them with the trailing financials to help them make an efficient decision in a highly inefficient market. I can't imagine closing a $20M deal without a whole lot of disclosure. But, for a lot of people, a $50,000 deal is akin a $20M to me. 

 lol Ben c'mon you're just trying to stir the pot. You and I both know that you can't look at 1-4 unit properties and honestly believe that the standard of financial disclosure isn't going to be lowered from a 100 unit apartment building. Prior to you move out of Ohio when you were buying your iddy biddy singles and doubles for your seller financed portfolio you knew damn well the type of sellers you where dealing with didn't always have or provide historical data.....

Ben, while you're here let's chat playa......What about Joe blow duplex owner who's a disabled vet. He lives in the down unit of his duplex and he let's his step son stay in the up unit. He wants to sell so he can move to Phoenix and get a tan like you. Ben why don't you go watch the episode of my show in question. When you're done come back here to explain to Mr Lenza why the fact remains,  if he wants more info then I provided to him, then this property ain't for him.

 And for the record. Ben is slightly wrong. I don't typically sell turnkey assets. A more accurate example of what I do is provide the turnkey experience to investors on assets that are not currently in turnkey shape. Mostly stuff owned by mom an pops......With Ben being as big of a fan as he is, I am saddened that he made this misstep.

[Michael P.]

Man that city is rough on the eyes lol but nice drone work

[Steve B.]

@Lenza M. There is a big difference between misfeasance and nonfeasance, you are accusing James of the former but it is clearly the later that occurred.

James isn’t taking you seriously, and given the fact you wrote a full price bogus offer you never intended to execute just to get more info makes your case even more flimsy. Clearly his selling style is incompatible with your buying style- move on.

[Account Closed]

Not a scam but if I was a buyer being treated like that by a seller, Id be walking fast. If James has enough buyers willing to buy sight unseen based on whatever numbers they can conjure up, good for him. Id look for more helpful sellers.

[Joe S.]

Wow. A lot of the responses were   
slick and worded with skill. This thread is almost as lively as throwing Dave Ramsey under the bus. 
I’m not cheering for @James Wise, however @Lenza M. you probably permanently burned a lot of bridges behind you on this thread of which you probably realize by now. Open charter assault can be a boomerang. There are players that you may want to deal with in the future that may be concerned that you would slander them from the rooftops over the slightest of offensives. 

[Mark Fries]

@Lenza M.

I think the 20 minutes I spent reading this entire thread was a scam....20 mins I will never get back...

[David Nutakor]

@Lenza M. I suggest you get in touch with BP moderators/administrators to remove your post from the site because it wasn’t your intention to use the word “scam” regarding your transaction with @James Wise. You should have settled this issue offline without most of us knowing about it. I wish you good luck on your real estate investment.

[James Wise]

Originally posted by @Chris Seveney:

James, I think you are underselling your product, most people would of said that property with the toilet that looked like someone dumped a portajon on it would have been rent ready and turnkey with minimal light rehab required. Probably $15k max

Originally posted by @James Wise:

Originally posted by @James Wise:

Originally posted by @Ben Leybovich:

This was entertaining :)

I did not watch the video. Life's so short, after all. 

@Lenza M. - James sells investment properties in Cleveland; TK. If you don't understand the implications of this, you should likely not be a buyer.

That said, James, as you know I play in the big pond. The rationale you put forward, that because this is not commercial, it's somehow different and expectations for disclosure should be lowered is flawed to the bone. Let me explain my thoughts...

The reason I buy communities and the reason I deal with Berkadia on my debt instead of a local bank is that both the asset and the process are more institutional, rational, and efficient. By contrast, small multifamily is a highly inefficient market.

You teach underwriting to the average, which is the correct way to do it. However, if I want to know the average rent per sq.ft., economic loss, insurance cost, or any other = line-item of OpEx for large multifamily in a given town, there are a number of statistical publications for me to reference. All of these things on an institutional level are much more trackable and transparent.

However, in the small stuff - who the hell knows. You have to be a local operator to really know anything. 

You sell TK investments to out-of-town folks. I would think you would go the extra mile and provide them with the trailing financials to help them make an efficient decision in a highly inefficient market. I can't imagine closing a $20M deal without a whole lot of disclosure. But, for a lot of people, a $50,000 deal is akin a $20M to me. 

 lol Ben c'mon you're just trying to stir the pot. You and I both know that you can't look at 1-4 unit properties and honestly believe that the standard of financial disclosure isn't going to be lowered from a 100 unit apartment building. Prior to you move out of Ohio when you were buying your iddy biddy singles and doubles for your seller financed portfolio you knew damn well the type of sellers you where dealing with didn't always have or provide historical data.....

Ben, while you're here let's chat playa......What about Joe blow duplex owner who's a disabled vet. He lives in the down unit of his duplex and he let's his step son stay in the up unit. He wants to sell so he can move to Phoenix and get a tan like you. Ben why don't you go watch the episode of my show in question. When you're done come back here to explain to Mr Lenza why the fact remains,  if he wants more info then I provided to him, then this property ain't for him.

 And for the record. Ben is slightly wrong. I don't typically sell turnkey assets. A more accurate example of what I do is provide the turnkey experience to investors on assets that are not currently in turnkey shape. Mostly stuff owned by mom an pops......With Ben being as big of a fan as he is, I am saddened that he made this misstep.

lol.....Well there's a reason I've sold over $200M and have cornered the space in the Cleveland market to the point where there is no real competition for the turnkey experience other than some random fly by night companies that pop up and shut down here and there. You know the type, they pop up here on BP for a couple weeks, advertise their product, usually try to create some threads attacking my business in an attempt to take some of my market share and then a couple weeks or months later they realize how difficult the space is and poooof......They gone.

[James Wise]

Originally posted by @Michael P.:

Man that city is rough on the eyes lol but nice drone work

 lol, as I always say.....It ain't always sunshine and rainbows.

[Kathleen D.]

@Lenza M. Thanks for sharing.  My husband & I had a very similar negative experience in Cleveland so it's good to have some public discussion on the topic.  I'm sure I'll get attacked now for saying this.  I would suggest leaving this thread.

[Michael S.]

@Mark Fries - I don't know, this thread has some interesting information and a bit of entertainment value to it.  So it's not a total waste of time.

Here's the threads that constitute a total waste of time:

1. "So, I have no real estate properties, no real estate experience, and no current properties I am vetting - should I make an LLC or not? Oh, I didn't use the search function to see there are 6,000 other threads about LLC formation."

2.  "Hi, I am new here.  My name is _____, I am ____ years old, and I live in _______.  I have no job currently, no capital to invest, and lease a 2019 Lexus; but I've a read a book about real estate and now I am ready to invest!  Anyone want to be my mentor?  Anyone know how I can get people to invest in my scheme without me investing any money whatsoever?  Should I buy OOS?" 

3. "I bought a house.  Now what?"

4. "I don't understand how to invest in Real Estate.  See, I read this book by Dave Ramsey..."

[Karl B.]

Is this a Morris bot?

Just kidding. I'm merely trying to lighten the mood of this thread. :-)

[Account Closed]

This was entertaining but I have a "market behavior" question...

I only buy distressed/REO/mismanaged, so I never expect to get any numbers except current rents. Heck with REOs I don't even expect to get leases... However, once I go to sell them, stabilized, I'd have no problems showing my T12s, insurance costs, etc...

Am I reading correctly that it is abnormal to supply that information (As PDFs/XLS, not talking in a video) to a market-rate buyer? 

[Brian Ploszay]

My opinions:

1.  Lenza, or any customer, is correct in asking for expenses and any other reasonable questions he has to analyze the investment.  Including asking specific questions about the video.

2.  I personally find that many investment brokers marketing materials do not show complete, nor correct financial information, correct expenses or assumptions.  I create my own reasonable due diligence checklist.

3.  Often, historical expenses just don't exist, especially if someone is selling a newly rehabbed smaller building.  Quickly disclose this if that question comes up.

4.  Without calling out Wise for any misdeeds, his marketing should accommodate and answer questions beyond the video.  Good sales techniques accommodate the customer. 

Wise has spent a lot of time marketing his product and building up a brand.  This post looks to be damaging in that he comes off on this thread treating this formerly interested customer poorly.  "How long you plan on beating this drum my man? Spend your time trying to grow your business. Good lord."

Protecting one's digital reputation is important.  Right now, this seems to be a juicy and combative thread that continues to grow...

[Dan Schwartz]

1) it only took one purchase to learn that anything in a listing is suspect until verified.  Not because of fraud/scam but because people sometimes quickly fill in the blanks and give information “to the best of their knowledge.”  Verify everything independently or risk-adjust the purchase price (which may not result in acceptance).

2) then I did tax returns for a season. 9 out of 10 people with rental properties had no records of their expenses and would just say, “put down $200 for that” etc.  They might not have been the type to be on BP, but they could certainly be the type that is putting their rental on the market for sale!

[Lenza M.]

Originally posted by @David Nutakor:

@Lenza M. I suggest you get in touch with BP moderators/administrators to remove your post from the site because it wasn’t your intention to use the word “scam” regarding your transaction with @James Wise. You should have settled this issue offline without most of us knowing about it. I wish you good luck on your real estate investment.

I think this thread is both instructive and informative so I would not be in favor of removing it. I do sincerely apologize to James for using the word "scam" in the title.

The instructive part is on two topics: (1) How are historical financials viewed in the market? and (2) Is 7809 Franklin a hot deal?

1) How are historical financials viewed? Should buyers want them and should sellers be expected to provide them?

• Universally agreed that you should regard any seller provided information with several grains of salt
• Also universally agreed that historical financials are a must in a "commercial" context
• There is disagreement on if "residential" sellers should be expected to produce trailing numbers. The debate can be summarized as: For smaller properties trailing financials have many reasons to be wonky, but many believe it is a good signal of transparency and (as @Ben Leybovich points out) this higher variance is exactly why due diligence on the leases can be more important for smaller properties.
• Line between "commercial" and "residential" seems to be driven mainly by number of units (i.e. is it eligible for FHA loan), even though many commercial banks will underwrite loans on residential properties with fewer than 5 units (especially at larger loan sizes).

Is 7809-7815 Franklin a hot deal?

• Using standard assumptions a property a Cleveland property purchased for $500k grossing less than $60k/yr in rents is is going to net less than $30k/yr. This gives a best case Cap Rate of 6%, maybe 6.5% with value of tax abatement. Quite low for the Cleveland market. If you watch the video, believe everything James says, and are very concerned about the panty thievery he discusses at length, then this still might be the property for you. 

[James Hamling]

@Lenza M. I am curious on a point of clarification for this entire thing, because as I noticed you most recently walked all of this back, yet close with a passive-aggressive reassertion of attacks towards @James Wise.

To clarify Lenza, you are aware James Wise is representing a seller's property? That it is not his own personal "turn-key" or "wholesale-flash-deal" property? 

Because I can find a very, very, VERY long list of investment properties marketed for sale at this exact moment with far FAR less information provided on them, including specific term of NOT providing any such financials, I see it literally every time I am building MFH comps, every single time. 

With the simple understanding that these are agency representation marketing/sales, James Wise is vastly raising the bar on information disclosure. If this is less than 100% perfect for exactly what you yourself would want to readily have, well welcome to a place I like to call reality, that's 98% of any deal I ever look into. In response I got into this habit of going to information sources and checking on things, getting direct information, asking area PM's what they feel rents are tracking on it, a whole bunch of stuff. I have heard a person a time or two call it "Due-Diligence", maybe look into that, could help maybe. 

And to a notion of "The Customer Is Always Right" and placating to such, please open a business and do exactly that and let us know how it works at your first bankruptcy. If the customer was always right Tesla's would be half the price, F-150's would be half the price, all rentals would have hot-tubs standard, and a maid, and wifi, and and and. 

[Joe S.]

Originally posted by @Lenza M.:

Originally posted by @David Nutakor:

@Lenza M. I suggest you get in touch with BP moderators/administrators to remove your post from the site because it wasn’t your intention to use the word “scam” regarding your transaction with @James Wise. You should have settled this issue offline without most of us knowing about it. I wish you good luck on your real estate investment.

I think this thread is both instructive and informative so I would not be in favor of removing it. I do sincerely apologize to James for using the word "scam" in the title.

The instructive part is on two topics: (1) How are historical financials viewed in the market? and (2) Is 7809 Franklin a hot deal?

1) How are historical financials viewed? Should buyers want them and should sellers be expected to provide them?

• Universally agreed that you should regard any seller provided information with several grains of salt
• Also universally agreed that historical financials are a must in a "commercial" context
• There is disagreement on if "residential" sellers should be expected to produce trailing numbers. The debate can be summarized as: For smaller properties trailing financials have many reasons to be wonky, but many believe it is a good signal of transparency and (as @Ben Leybovich points out) this higher variance is exactly why due diligence on the leases can be more important for smaller properties.
• Line between "commercial" and "residential" seems to be driven mainly by number of units (i.e. is it eligible for FHA loan), even though many commercial banks will underwrite loans on residential properties with fewer than 5 units (especially at larger loan sizes).

Is 7809-7815 Franklin a hot deal?

• Using standard assumptions a property a Cleveland property purchased for $500k grossing less than $60k/yr in rents is is going to net less than $30k/yr. This gives a best case Cap Rate of 6%, maybe 6.5% with value of tax abatement. Quite low for the Cleveland market. If you watch the video, believe everything James says, and are very concerned about the panty thievery he discusses at length, then this still might be the property for you. 

Nice job on the recovery:)

Blessings  

[Russell Brazil]

Originally posted by @Lenza M.:

Originally posted by :

So you think his listing is a scam because he rejected your offer on something that frankly you're not a qualified buyer for? @James Wise puts a lot of educational video up on YouTube. He also does A LOT of deals. Imagine his email box. He can't hand hold everyone to the end of a deal. 

All you need to know is the price & utility breakdown. Everything else is a variable that YOU need to do research on. Even insurance is a variable since there are difference in carriers, risk profiles, and portfolio size. 

No one here actually knows me. So, I see no need to take the bait on the personal attacks. I will simply disregard the comments on my qualifications or level of expertise. I want to stay focused on the issue at hand: when purchasing a $500k property is it normal and reasonable that the seller provide historical income and expense information?

Some replies here, such as the one above, point out that one can work out estimated expenses from the purchase price. This is true, but I think for many reasons it is prudent to consider actual income and expense information before closing a deal. To use the insurance example above, looking at what the existing owner is paying is a great check on if your estimate is correct. Historical expenses will also let you know if there is a significant recurring utility or maintenance bill that that the owner is responsible for: James' video does not mention if the units are individually metered for electricity. Payment history for existing tenants is important to see if they are actually paying the advertised rent. Additionally, in this case there is apparently a unit that has been vacant for many months (a fact James refused to disclose in our email thread). Determining exactly how long the unit has been vacant and why is certainly something to inquire about before closing the deal.

But the key question here is not if historical data is absolutely necessary to consider -- the question is why a seller would REFUSE to provide this information? There is no real concern about wasted effort "hand holding" many potential buyers. You only have to gather the data one time for every potential buyer. And it takes very little effort to gather since you have to do it anyway to prepare taxes. Many brokers include this information upfront so we know at least some buyers are interested in historical data. Is a reasonable seller really going to flat out reject any buyer who wants to see historical data? It seems to me that the only reason to take that position is if you have something to hide.

...or maybe this is not the seller's position at all. It could be that the broker just doesn't care if their client's "hot" property sits on the market for many months since they are busy making big bucks on other deals and will get paid the same on this one no matter how long it sits. A successful broker doesn't need to do what is in the best interest of their client.

 Ive sold over $75 million in multifamily real estate. Not once has historical expenses been provided in that for a 4 unit or less property. So, I would say no, that would not be a reasonable request from a seller. In fact, I dont think a single one of those sellers would even have that documentation. Its not til you get into the 20 or 25 unit plus properties that are you likely to see any sort of seller with the organizational ability to have tracked their expenses properly.

[Syed H.]

Originally posted by @Russell Brazil:

 Ive sold over $75 million in multifamily real estate. Not once has historical expenses been provided in that for a 4 unit or less property. So, I would say no, that would not be a reasonable request from a seller. In fact, I dont think a single one of those sellers would even have that documentation. Its not til you get into the 20 or 25 unit plus properties that are you likely to see any sort of seller with the organizational ability to have tracked their expenses properly.

Exactly, this guy doesn't know what he's talking about. In my previous CRE career, I've was on the sale and buy side of middle market RE ($10m-$150m deals, probably $500m worth of deals) and we had many deals with no T12; etc etc. People forget that many people build in a lot of expenses that aren't really valid to use in an analysis of a building's earnings. Also this is market specific. Here in NYC you will get laughed at if you ask for a T12 on deals that go into hard deposit immediately.

[James Wise]

Originally posted by @Karl B.:

Is this a Morris bot?

Just kidding. I'm merely trying to lighten the mood of this thread. :-)

[Brian Ploszay]

I disagree with some of the posts of this thread.  Sellers do often have some historical information about expenses.  Even for the smaller buildings.  Is it complete?  Usually not.  I always request and accumulate as much due diligence as possible.  I am flexible, but I find sellers (and brokers) to be somewhat agreeable to my requests.  Did this buyer lack experience?  Maybe, but if you're in the business of selling investment properties to beginner investors, then be prepared to hold their hand.