All Forum Posts by: Brandon Hayes

Wanted to reach out to the BP community and get some opinions from those that have more experience than myself on this matter. 

I opened an Auto Repair Shop August of last year, renting one "suite" in this local commercial building. I started with 4 automotive lifts and 2 employees. I have about $60k into renovations of the office/waiting area and the shop itself. Since opening, I've rented a neighboring suite, knocked a wall out, doubled my shop space and my work force. Now I have 6 automotive lifts, an alignment machine, tire machines, etc, etc. 

Here are the current figures and what I'm hoping to do.

-I'm currently in a 5 year lease paying $1.35 a sq ft (approx $9k a month). I'm looking to expand again, another 3k sq ft or so in the same building, bringing my total rent to around $12k a month. 

I pitched an idea to the landlord to possibly buy the building, which would include the whole parking lot (which is desperately needed as we move 250+ cars a month), I'd get the remaining 5k or so sq feet in the building, and can start building some equity in commercial real estate. 

I come from a residential real estate mindset of "why would I continue to pay $12k+ a month in rent when I can buy a building and pay that or less on the mortgage, and be building wealth by paying down that mortgage, rather than that money making someone else rich by continuing to pay rent.

Here's the catch, he doesn't want to sell. He doesn't want that lump sum of money right now as he doesn't want to pay the taxes. So, I've pitched him the idea that I'll sign a second 5 year lease when the time comes, if a portion of my rent went toward the purchase of the building. Say $4k a month or so. Then, by the end of my second 5 year lease, I will have been his tenant for a total of 10 years, $240k will have been paid towards the purchase of the property (consider it a down payment), and I can then either secure financing and pay him the remaining balance on his $1.4M building, or, continue to make that $12k a month payment to him under an "owner financed" type contract, since he's so worried about the lump sum of money and would probably rather take the steady income.

Now, is that just absurd to ask of him? To ask him to essentially take $4k a month pay cut for the second 5year lease? He'd be guaranteed a tenant for the next 10 years, and, guaranteed a buyer for his building when the time comes. No flipping the property every couple years to a new business or going months/years with it unrented if I leave...

Or, should I just cut my losses and leave after my first 5 year lease, have a shop built, and be 5 years into paying down my own mortgage and have $600k or so already paid towards my mortgage at the new shop? (If my mortgage is $10k a month X 60 months, ill have paid $600k towards that new mortgage rather than just $240k towards the purchase of the current building I'm in). The current location I'm at really isn't bad. But It's an older building that will continue to need maintenance etc, while the new building could be built exactly the way I want and be fresh... 

I'm not sure. What are your thoughts/opinions?!

P.S. The main reason for the push of the 3rd expansion in a year, is not only that the demand is there, but that the landlord is a hoarder. He still occupies the other suites of the building I'm not renting, and the parking lot for those suites, and fills them with his "treasures". Oil totes, old aircraft parts, Junker cars/equipment, connex trailers, etc etc. Its very unsightly, when I've spent a lot of money making our lobby and shop very clean. It represents our business very poorly and our store front looks terrible. But I digress. Its an ongoing battle with this guy and id much rather just buy him out, or leave.

@Gabriel Amedee
This sounds like a great time! Count me in!

@Chris Arce

I had to revisit the "partnerships" chapter in Brandon Turner's "No (and low) Money Down" book to find the info I needed. If your partner is paying for the ENTIRE purchase of the house, it can be done and you can decide on the specific terms of the deal, whether it's an equity partnership, or a fixed rate of return partnership, or if you bring in a hard money lender to fund the ENTIRE purchase, you can bring in a partner only for their credit if yours happens to be poor, so you can qualify for the refi after the rehab and pay off the HML.

    BUT, the only way I’ve found to pull off a partnership where the partner isn’t providing enough to fund the entire purchase, but only the down payment, the mortgage must be in his name. So he’d be the one getting prequalified and therefore it’s his money in his account and not a gift as it would be if he gave me the down payment, and then I tried to get prequalified. 

    I hope I’m not breaking any rules posting part of Brandon’s book for other to see here, but it is a free e-book for pros so I don’t think it can hurt. 

    “Brian, a relatively new investor, located a triplex in his neighborhood listed at $120,000. He knows the property will make an excellent rental but has no cash to purchase the property. Brian knows he needs a 25% down payment plus about $10,000 to cover minor repairs and closing costs to make the deal come together.
Thinking creatively, Brian talks with Samantha, his aunt, who has been interested in investing in real estate for some time but has been too busy with her day job to jump in. Samantha agrees to pay the $40,000 needed to purchase the triplex and gets the loan for the property in her name, but both Brian and Samantha put their names on the property’s title. They obtain a mortgage for $90,000, and all the monthly expenses (mortgage, utilities, management, vacancy, capital expenditures, repairs, etc.) come to $1,400 per month. The triplex is rented for $2,400 per month, so each month, the two make around $1,000 in positive cash flow, which they split 50/50.
Someday, when they sell, they’ll split the proceeds 50/50 as well and trade up to a larger deal together. Brian was able to generate $500 per month using no money of his own, just creativity.“

@Kata Walters

Great info! Thank you!

@Wayne Brooks @Robert Nelson

Great info guys. Thank you. 
So let’s say I pitch the idea of an equity partnership. From what I’ve read, that type of partnership would be structured as such. My partner puts down the cash for the down payment and closing costs, and I take out the mortgage and do the work. Then cash flow and equity is split 50/50 or whatever other terms you decide. How does this work then? The partners down payment isn’t considered a gift at that point? Would the lender just need his bank statement then too so he can also be held accountable if the lender needed to go after someone to get his money back? 

@Joel Johnson @Brent Paul

Did some reading and you are correct. FHA allows family to gift a down payment. For example, you get married and your grandma gifts you $10k, you can use that towards a house. However, a underwriter can have questions on where the money came from and you'd be required to have that person fill out and sign a "gift letter". Conventional also allows family to contribute with a gift letter, but it's much less lenient. But it strongly states for an investment property, you can not use a gift as down payment.

I’m sure I can get more “creative” in my “creative financing”, but when someone is handing you money, and you can’t use it.... There’s got to be a loophole or something I’m missing.

I didn't pitch it as a loan and was very clear i had a partner that was helping fund the deal. Maybe you're right though, and I just got ahold of the wrong lender. I do have him pre-approving me for a FHA. Once my lease is up next October, I'll be buying a property for a live and flip. But would love to have a BRRRR under my belt before then.

If I can't use a gift, I'll just have to put in some extra work and save it myself. But I know there is a way to use "OPM" to get this deal done... Maybe I'll contact a HML and see if they'll fund it. It's a strong enough deal that I could refi and pay it back quickly...

I’ll keep researching and update this discussion when I find another answer.

Long story short. Found a great deal. Found a private lender to provide the 20% down to purchase the property. In the process of getting qualified for a conventional loan, was told I was unable to use a “gift” of 20% down from a friend or partner to use as a down payment. Now I know I’ve read a million times of investors using a lender to fund the down payment, then a hard money loan to fund a rehab if necessary.... and there’s got to be a better way then letting that money “season” in my account for 6 months to qualify. The lender would be out of his money for 6 months and the deal would surely be long gone...

What’s the best way to go about this? Have the lender get qualified and put the mortgage in his name, and the title in both our names? What if he wasn’t looking to be an equity partner but just wanted a percentage of return on the money he lent for the down payment? What if he had the money but not the credit? What strategy am I missing here? Thank you in advance for your time to respond!

Had a few questions on a property I found on Realtor.com. I clicked the “message seller” button and typed a quick message that I was interested in the property but had some questions. The moment I hit the send button, my phone rang, and a lady stated she was from Realtor.com and got my enquiry about the property. She started asking me a bunch of personal info and said she would then pair me with an agent of their choosing, and if I had an agent of my own I’d just have to leave them behind on the deal. And then afterwards, would transfer me to a lender of their choosing to discuss loan options and more specifics...

I was only asking to see if the property was still on the market, because it wasn't listed for sale on Zillow or other MLS sites, and Realtor.com had it listed as "on the market" for over a year.

I actually hung up before they got any personal info from me, but they call every 2hrs or so, so I blocked the number.

I have a few realtors in my network that are in the top 1% and have lots of referrals for me to use for other areas, but it got me thinking and now I’m curious, has anyone ever gone this route and closed on a deal? If so, how did things work out?

@Chris Arce

You’re reasoning is valid. And it’s a good strategy to recognize a market depression is right around the corner and wait for the right time to strike. The numbers don’t lie and it happens every 10-12 years. But just as it goes down, it will also come back up. People are reproducing at an alarming rate and they will always need a place to live. And in my current situation, I am looking to buy cash flowing properties. My wife and I just had our first child, a baby boy, and I’ve been hitting the books hard to get involved in this thing they call financial freedom. My first 10 doors is just the beginning. Once I can make enough cash to pay my bills, I can quit my 9-5 and pursue real estate full time and expand exponentially, while also spending more time with the family.

The reason a recession that may be around the corner doesn’t scare me out of investing today, is that I’m in it for the long haul. Investing is a marathon, not a sprint. I will hold properties long enough to see the market rise again and can make a decision on what to do with them when the time comes. But honestly, I don’t see a cash flowing property being affected much by a recession. I will owe X amount on the mortgage every month, and a renter will be providing enough cash flow to pay it down, and pocket say $500 excess every month. Sure the value of the property will drop, but I’m not looking to sell. It’ll keep on providing cash the way I want it to, no matter what the market does (if you buy in the right areas, ie good neighborhoods and up-and-coming communities).

On the other hand, if your goal was to flip properties, you don’t want a whole portfolio of $500k properties that are now worth $250k, and have no choice but to sell them for that price because you can’t afford to pay all the mortgages. People go broke during a market crash because they didn’t plan on how to weather the storm and wait for the sun to come back out. I’m hoping to be deep into the market and pursuing real estate full time when the market drops so I can scoop up some really good deals :)

@Chris Arce

Good question! Once it’s renovated, I plan to hire a competent property manager to help list it for rent, find tenants, deal with the signings of lease agreements, and he/she will be my boots on the ground while I continue my 9-5 here in south Florida. If a tenant has concerns, or if something breaks, they will contact the PM. The PM can call me any time of day if they want to know how to handle a certain situation, but over time, I’d imagine they will know how I’d handle it and take care of little problems here and there without having to contact me. As you can see in the analysis, there is a budget for maintenance, repairs, vacancies, and paying the property manager. As I build my portfolio, there’s no way I would be able to manage 10doors or even 20doors by myself. I’ve learned reading David and Brandon’s books that it’s best to treat it like a business. Know your strengths and hire help where you need it to make things run smoothly. You want to be purchasing an investment, not a job. Your time is much more valuable spent lining up the next deal, rather than worrying about remembering to call the handy man to go change the HVAC filters and batteries in the smoke alarms. This becomes more apparent when investing in properties that are 4 hours away or even in a completely different state. You want to invest in the best markets, wherever they may be.

For my first multi-family, I feel more comfortable being able to drive up there on a Saturday morning and physically see the property myself. See the neighborhood and surrounding area. Meet the agent, the contractor, the inspector, and the property manager face to face. I’m sure I’m going to make mistakes and learn a lot of lessons from this first deal, and will know how to go about doing the next deal better. But if you wanna get into property investing, you just got to buy a house.