Syndication in Pittsburg, Kansas

[Matthew Bernal]

Investment Info:

Large multi-family (5+ units) buy & hold investment.

Purchase price: $635,000
Cash invested: $50,000

Flew all the way to Kansas to make a decision on this property. After lots of creativity, positive reinforcement, and not-so-subtle enthusiasm, I was able to convince the seller, also an investor, to bring me on as a partner to help him get this property stabilized and profitable.

The building needs a lot of work, but the value add brought on by the across-the-street location of a popular university, combined with an attached vacant lot, will make this project worth the effort.

What made you interested in investing in this type of deal?

I was interested in this property for a few reasons. The biggest one being that the seller, also an investor, was about as distressed as the building! While there were many factors that attracted me to the deal (location across the street from Pittsburg State University, rents drastically below market, an attached vacant lot with huge value-add potential, and reasonable sale price), what made me pull the trigger was the opportunity to turn a fellow investor's problem into an asset.

How did you find this deal and how did you negotiate it?

I have an outstanding network of real estate professionals who send me properties daily. What made this building unique was that it was owned by an investor, which made it simple to demonstrate that it was more valuable to bring me on as a partner than it was to sell it to me at a loss.

How did you finance this deal?

The seller had initially purchased this property by obtaining the total asking price from a private lender of his. So on paper, the unit is free and clear. I advised the seller that this detail gave him the power to adjust the sale price to a figure that put it in an incredibly favorable equity position, so long as his lender, also a long time friend, agreed to it. Put simply, it was a short sale without the bankers. The reduced purchase price qualified us for a 100% fix and flip loan.

How did you add value to the deal?

I added value by thinking creatively and boldly about how to turn this investor's liability into an asset.

What was the outcome?

The seller and I are partnered on this deal, and we have our first team meeting tomorrow.

Lessons learned? Challenges?

The lesson here was that even a great deal can be the one that pushes you past your limits and into burnout territory. When we burn out, mistakes get made and the people who took a chance on us lose money. The good news is that with a little luck, a lot of humility, and a willingness to remain hopeful no matter what, we can always make our way out of burn out and back into ball out.