The Search for the 1st pt 2

SO NOW WE'RE IN ESCROW! WHAT TO DO?

If you haven't read pt 1 "The search for the 1st" check it out here: 

https://www.biggerpockets.com/blogs/10679/71273-th...

So I think I forgot to mention, I made the offer and got the accepted offer on this duplex sight unseen! Other than a quick walk around the building to look at the exterior, which looked in pretty good condition, I hadn't seen the inside. So during due diligence it would be imperative to find anything that might end up sinking me. 

We found out that the bottom tenant was in the process of being evicted, but no one could tell us where in the process they were, apparently the property manager couldn't contact the tenant. So we got to see the upstairs unit and the basement, and wrote in that the bottom unit would need to be viewed before we would accept the building (we had a "buyer's approval contingency". 

During the initial walk through we noticed some minor foundation issues, looked like the walls were sinking faster than the middle of the building, not an uncommon problem in St. Louis City, with 100+ year old brick homes. That wasn't really going to be a deal breaker for me. There were a few minor issues, random cracks, deferred maintenance the upstairs tenant claimed to have been notifying the PM about, but nothing had been done, and the water heaters in the basement looked old! Not to mention that the basement was apparently being used to store baby's diapers with "presents" in them! That was gross, but not a deal breaker. We told the seller that we needed to see financials, leases, and provided them my Estoppel agreement form to fill out with the upstairs tenant. We also said we would not close until the downstairs tenant had been evicted and was gone. 

FIRST ATTEMPT AT PARTNERING

So this brings us to January 10th....that fateful day. I went to a meetup put on by a BP member, and got to meet a ton of people, including an awesome guy named Naveen Reddy. A few days later I asked if he would be interested in checking out a triplex I thought was a great deal, but didn't have enough for Down payment, closing, and reserves to take it down myself. This was a huge leap of faith on my part, I'm comfortable selling stuff to people, I sold electronics in high school, and did 3 years on recruiting duty, so selling ain't hard to me. But this was different, I was selling myself, I have never asked anyone for this type of money, I figured we'd each need to put up between 20 and 25k all in including repairs. 

He said YES! To a meeting....He agreed to sit down with me and discuss the deal, learn more about me, and think about the deal. I used the BP Rental property calculator to run as conservative of numbers as I could think of and printed off the nice PDF to show Naveen at our breakfast the next day, January 20th.

THE MEETING:

We meant for breakfast and got to know each other better; goals, past experience, and philosophy for investing. After a while of talking I finally brought up the deal, it's important to remember when you're meeting someone who you barely know, that a partner is going to be more interested in working with a person than just jumping in because of a spreadsheet or even a (really nice) PDF. We probably spent a good hour talking about ourselves and feeling each other out without even mentioning the property, any passerby would've thought it was just two friends who hadn't seen each other in a while. 

Eventually though it's time, so I show him the numbers, using the PDF print out from BP. I showed him I was being very cautious with my numbers, cutting about 37% of gross rents off the top for vacancy/Capex/Repairs/PM, and adjusting what the seller said his rents were to what my research said the rents should be. He agreed the property had promise, and when I asked if he’d like to go in 50/50 he said yes! I was shocked, I was expecting a noncommittal answer of some kind, or a delay tactic, but he agreed right there. I guess in my time as a recruiter I was so used to doing grand presentations and having the applicant on the verge of saying yes, but when it came time to ask the question they'd answer with some half hearted response or "I don't know", "let me sleep on it". Here's a good hint for anyone new to partners and don't know how to get one DON'T BE AFRAID TO ASK THEM! Now that doesn't mean just blurt out to everyone you meet "hey wanna partner up?" But learn to gauge social interactions, and when the time is right: ask and ask directly. 

We spent about 30-45 min talking about specifics of how we would structure a partnership and then I called my agent and had him submit an offer for the 139,900. We decided on a pure 50/50 partnership, and I would property manage also taking the 10% for that once we got the place stabilized. 

So....what next? On to part 3! See you soon.