update on previous thread I started

[Rich Weese]

I think this is the correct category for this thread. If not,  please go ahead and move it, Josh.

Several months ago, I placed a thread explaining I was getting ready to sell a 152 unit building in the Dallas area of Texas.  I received 11 inquiries that had bigger pockets as their base. I received several actual offers to purchase, but the potential buyers had been trained well on bigger pockets and were looking for an extreme discount. I even received one offer that was $4 million less than my asking price?

I am posting this as an educational opportunity for those that think they have to always pay a listing commission.

I advertised the property with the following information given to anyone interested:

I have received a request from you for information on the apartment building I own in Garland, Texas I will be selling. I am in the process of preparing all the paperwork that would be necessary for a purchaser to make a first round study of the property. There has been an immense amount of interest in property located in the Dallas area. I am not interested in listing with a single brokerage at this time.

There are plans to notify each contact that has shown interest in purchasing Texas property from me. I plan on using the website, bigger pockets.com as one of those avenues. If you check for my biography on that website, you will find two different e-mail addresses. I may also be contacted at one of those two addresses. The second addresses is for my book only.

My plans at the current time are to offer a one party listing good for 15 days. I plan to pay a commission or give a credit of 1.5%.  The asking price will be approximately $58,000 per door  or approximately $9 million. I will require nonrefundable earnest money. I will not be doing a 1031 exchange on my side, but will cooperate with the buyer that might be coming out of a 1031 exchange. I have owned the property for seven years and can verify $1,500,000 in capital expenses. This includes new roofs on all buildings, 50% new heating, air conditioning units, partial asphalt replacement, etc.

If I am not able to secure an offer in this fashion, I will then select a real estate company to list the property.. If this sounds of interest to you, please notify me with your contact information and I will keep you posted on progress. 

Thank you.

rich Weese

the first offer I received was at an offering price of $8,800,000 on the terms I had requested. The buyer did not approve the walk-through and this deal fell through. I actually had two back up offers in the amount of $8,750,000, also on the terms I had requested with $50,000 nonrefundable earnest money on offering date, followed up by an additional $150,000 nonrefundable earnest money at the conclusion of due diligence. the agent did agreed to a 1 1/2% commission or $131,250.

This property closed on Wednesday, July 5. I had purchased this property for $4,375,000 with 30% down. I have collected slightly over $1,900,000 in cash flow. The loan payoff was $2,600,000. I think anyone can calculate the cash returned on that down payment.

I consider this a success story and there were three different buyers trying to purchase this building and make it their own success story.

I want to thank bigger pockets for all the interest that was generated from this website. Bigger pockets is great and so is the state of Texas for real estate!

Have a great day. I go on a 20 day cruise with my wife on Wednesday to celebrate this event.

rich Weese

[Rich Weese]

@David Faulkner

Orange county is where I made all my money decades ago doing syndications in real estate. I purchased a large office building on Chapman Avenue in Fullerton near the 57 freeway and I was off to the races. Now to your questions.

1. I would say it was a combination of several different actions. I wouldn't say it had much to do with being a forced appreciation play. I think it was more a case of  finding and buying a great property to start with, continuing with the same management rather than reinventing the wheel, and continuing to be aggressive in rent increases.  I also have to admit I was lucky in two distinct areas. The city of Garland decided to develop a brand-new park directly across the street from my building's. It helped as a draw for the families that would be occupying my units. The second area  leads into your question number two.

2.I had made the decision when purchasing the building  to allow it to continue being a value add property for the next purchaser. I never did any extensive rehab, but only with the big ticket items that buyers look for. There was a very destructive hailstorm a few years ago. After negotiating with Lloyd's of London insurance, we received a settlement of over $1,400,000. It covered the replacement of all 19 roofs, as well as nearly 60% of the AC units on the roof of the buildings. Once the insurance took care of that, they also had to match the exterior A/C unit with the interior heating furnace unit. That was a nice bonus to me. When they started to replace the flat roofs, they realized additional damage that had occurred with the mansard roofs and that led them to discover that much of the sheeting around the mansard windows needed to be replaced and that led to all the gutters needing to be replaced, etc. I had enough money left over to take care of other items like asphalt, children's play area and signage.

3. There was no 1031 going into this property and I chose to not do a 1031 going out of this property. I had stated I would cooperate with the buyer that needed a 1031 as I sold this property but that did not come to fruition.  I am old enough to have seen several   real estate crashes in my lifetime and am now old enough that I don't want to have another one while owning multi-properties.. I chose to bite the bullet and pay the tax consequences on this sale and be positioned to use funds in other income streams  as well as be prepared for the next crash, if I chose to get back in. I felt I was getting a ridiculously high valuation and did not want to pay for another ridiculously high valuation in a new property.

3A.  I believe I have posted information on bigger pockets of a 1031 that I did nearly 2 years ago. I exchanged a 650 unit self storage facility in Bonita Springs, Florida for two large apartment buildings in Texas. I purchased 128 units in Grand Prairie and 164 units in Mesquite. The 1031, was truly an unbelievable amount of work to be able to get the pieces of the puzzle to fit in the time limits allowed by section 1031. That exchange was out of a free and clear property of $3 million plus in to nearly $13 million of property. I would have needed to do the same balancing act on this sale except it would've been to an amount of $20 million plus. I believe that gets more difficult as you increase that number and did not want $20 million worth of overpriced property, IMO.

4. On the two properties I mentioned in number three above, I maintained the same management, but was able to determine what the problems were with building operation  and fix it. Curb appeal was gigantic with both these and in less than two years I have been able to increase the rents 24% on one building and 27% on the other. That will increase the cash flow amazingly. There is no secret about picking good location also.

I agree there are lots of devils in the details, but I syndicated thousands of apartments back in the 70s and ownership and management was the same then as it is now. Good location, negotiation, management, oversight, and decision-making will work in any transaction. I was able to find properties in good economies and bad economies. I think experienced research can keep a buyer from making lots of mistakes. Experience is also a huge help.

I don't think I've left very many secrets in this reply and I don't think there is any magic pill. I have handled all real estate in the same manner and continue to be very successful with it.

Feel free to ask more specific questions if you would like, but I'm not sure I have very many more specific answers.

Good luck.

Rich Weese

PS. I leave in 24 hours for a 3 1/2 week cruise to Europe so my Internet time will be limited.