All Forum Posts by: Chris Newman

Hi @Kaitlyn Romberg

Welcome to Bigger Pockets! Be sure to set your keywords so that you can be notified when something local is happening. "Everett" and "Snohomish" are good ones.

And, welcome to Snohomish county. We're the last low-hanging fruit in the Seattle-overflow market and price appreciation here is about the same as Seattle's - around 12% - but with median prices about 2/3 of Seattle. Gentrification is now well underway and will run for quite a few years to come.

I invest in local rural land, primarily for its newly-transferable unused residential development rights and I'm just getting into The Note Game, particularly on the note-origination (Strategic Seller Financing) side. I like these because, besides being even more profitable than residential, they don't involve "trash, tenants and toilets." 

But, if I was playing with residential for buy-and-hold, I'd be doing student housing, i.e. room sharing, within walking or biking distance of fast-growing Everett College, at the north end of Broadway. Big SFR and duplexes, with minimal updating, can work fine for that and there are still plenty of opportunities here to add value. For rent values, check out local room sharing rates per bedroom (I've heard $700 - $800/month for a room with shared kitchen and bathroom) and work backwards from there to figure out if an opportunity caps out.

One thing to keep in mind is that many of these houses are over 100 years old and they've been used for rentals for at least decades. Everett has the lowest owner-occupied home rate (around 43%) of the top 20 cities in the state.

So, sellers could be simply getting rid of big future problems. You may also run into very old unsafe,, heating, wiring and plumbing w/lead, possibly even asbestos and PCBs.  So, until you learn how to assess properties (from BP articles), having a proper professional structural assessment is well worth the cost. 

If you have questions, posting them in the forums (with local keywords) will usually get you answers. Or, you can PM me and I'll try to help as I can.

best regards,

Chris Newman

I own a 14+ acre piece of land. platted out as four city blocks full of undeveloped lots. It’s located next door to downtown Everett, WA, just 30 minutes north of Seattle. I bought it as an investment in 2010.

Thanks to a pair of recent back-to-back windfall changes in local land use regulations, this land is now worth about ten times (or more) than what I owe on it - which is roughly $250k. I’m looking for three 25% equity partners and, due to some extraordinary motivation, know well that I’m leaving a lot on the table here.

There are two separate equity values in this property, which will both be realized when they are sold off into their respective markets: 1. The land’s value and 2, The value of its Transferable Development Rights credits, which are actually about 80% of the total equity.

It is not necessary to sell the land in order to sell the TDR credits, or vice versa. But, the credits need to be certified before the land can be broken up with individual lot sales.

I’ve made previous offers to sell a share in this land, with the same equity division and price, but those offers didn’t also include these high-value TDR credits. This post is the very first time that I’ve put it all on the line. The value of what I’m offering is now about 5X higher, at the same price.

There are variables that will impact the final two-part sell-off profits and nobody knows exactly what those will be until they clear escrow. But I’ve bracketed the total at somewhere between $3.76 million and around $7 million. I’ve spent years analyzing this thing down to the DNA level and that’s not a wild guess, but my best professional conclusion from the many local market economic facts. So, losing this deal right at the finish line means losing a LOT and that’s the source of my very high motivation.

For a couple of unavoidable reasons, in order to see this deal through to the conclusion, most likely within a year, I need to raise $250k in quick bridge funding in order to carry it through to the finish line of checks in the bank.

But, a quarter-loaf is still much better than none and even this will still put me on a self-funding fast track to doing many more of these deals. What matters the most is where you end up, not what it cost you to get there.

So, I’m now offering a 25% vested equity in the entire property, and all of its values, for a total investment of $83,000. Everything will be transacted within bonded escrow.

There are three of these quarter-equity positions available, through the LLC, which I own, that officially owns the land. This new funding will be first directed at 100% debt-elimination and then covering minor operating costs until the cashflow starts.

I would very much prefer local King and Snohomish county active REI partners, who can somehow contribute to help to move things forward to the final payoff. But, that's not mandatory.

Each of the three new joint owners can be either individuals or an investment group of its own. So, if $83k is still rich for your blood, I'll do what I can to hook together other BP members to work out their own sub-JV.

I’ll be keeping the remaining quarter of the ownership and, subject to the will of the majority, continue on as the managing member, leading the final cash-out stages. If there’s anyone more qualified to lead the deal conclusion than myself, I’ll happily let them take over. But, since I’m the original inventor of this newly-opened local land investment niche, with 5+ years invested into research, I’m not holding my breath.

I’m trying to keep this post very short, so I’m sparing you a couple of dozen pages of detailed economic analysis that lead to my value range conclusions, which I’ll be happy to share in the due diligence stage.

But, I should at least share an outline of how these double-down windfall profits came to be and what they mean in terms of economic values:

1. Surrounded by bulk acreage parcels that cannot be divided below the zoning’s normal 10 acre minimum, this property is actually platted out (in 1909) as four city blocks, that are filled with pre-existing individual legal lots. Thanks to some recent regulatory changes, these lots can now be broken up for individual resale without any further subdivision. This individual lot status has been verified with the local planning department.

Comparing apples-to-apples, on a per square foot value basis, small lots like these are both extremely rare and worth at least 4 times as much as bulk acreage that cannot be split up. I bought the larger property at the bulk acreage price.

Conservatively, at a bare minimum, if sold off individually for hobby uses, these lots should net around $700,000. But, I think that they can bring nearly twice this much as a permanent farmer’s market/agritourism commercial retail mall. That's a pre-permitted use here.

2. The second windfall was the launching of the county’s new Transfer of Development Rights program, with the Sending side completed in late 2013. You can download the county flyer on the program from http://snohomishcountywa.gov/DocumentCenter/Home/View/8118

This new “resource land conservation” program enables the owners of cheap qualifying Sending land, like this, to detach the unused residential development rights that they contain (in the form of certified credits) and then transfer them to high value urban growth Receiving areas.

This transfer is done through free market sales to end users, just like physical real estate. The final selling prices will be whatever the seller and buyer agree to, and particularly based upon the economic value that the credits deliver to the buyers. Selling terms and strategies will also impact market value and there are options there, too, which I won’t go into here.

The end-users/buyers will be developers who want to build high-density multifamily and mixed-use mid-rise projects in the new TDR credit Receiving wide-area rezone. This rezone has also been in the works for years and is just about to come online.

Presumably, this will all finalize on December 16, when the county council passes the final rezone resolution. That passage is what will spark into life the active market for these credits. i.e. This is some major land use regulation change in one of the hottest markets in the nation, we know exactly what’s about to happen and we know that the opening gun is just around the corner.

This TDR-side of the land equity is where things get really interesting: Thanks to the legal lot “ungluing” of windfall #1, the great abundance of small lots here also means that this land qualifies for an extraordinary number of TDR credits. Instead of what would normally be 8 Receiving credits, this land will yield 304 of them. That’s not a misprint: It’s 304 credits, that I fully expect will have a market value of somewhere between $10,000 and $20,000 each.

For a short breakdown on how TDR credits work on the Receiving side, please see https://www.biggerpockets.com/files/user/ChrisNewman/file/boosting-snohomish-county-multifamily-development-profits-or-increasing-affordability-with-tdr-credits

I'll let you do the math to arrive at an anticipated investment ROI, at both ends of the estimate range. To make it interesting, assume that my lowest estimates are still high by 50%.

What needs to happen once the land’s debt is cleared is to begin the TDR certification process. This will start with doing a minor boundary line adjustment on some of the smallest lots to bring them up to credit-qualifying size. Then, the straightforward 30 day credit certification process. I’ll do all of this work and pay the fees.

Hopefully, by the time that this is all wrapped up, I’ll also have some credit buyers lined up. Since I won’t see my big payoff, either, until the credits get sold, I’m working hard on this side, too.

Lot pre-sales efforts will also begin immediately. After certifying the credits, we can start finalizing the lot sales to commence the seller note cashflow that should total at least $8,000/month of interest-only, then ballooning in five years for the $700k or so selling price.

Ultimately, these dozens of 1st position notes will be equally distributed to the members to either keep, sell or play in one way or another. I plan to keep mine for the steady diversified cashflow from highly-motivated buyers.

What will lock in your participation will be 10% ($8,300) deposited into escrow, with 10 days for due diligence, before depositing the balance. As soon as all three quarter-equities are sold, we’ll push the button to close on everything. At the end of escrow, you’ll own a recorded 25% equity in both the debt-free land and its TDR credits. Then, we follow the agreed deal plan to its conclusion.

If you want to discuss this more, please PM me.

Thanks!

"The riches are in the niches." - Old REI aphorism.

If you're into (or would like to learn-by-doing) bulk-wholesale-to-single-retail land flipping, forced value appreciation and "Strategic Seller Financing," for significant secure ROI's through putting some cash to work, this is right up your alley.

It's not necessary to be physically present in the Pacific NW to work this deal, although active local investors are certainly welcome. All transactions will be handled through Chicago Title escrow, within an established LLC (which I own) that technically owns this land. I purchased it in 2010 partly in anticipation of some major local land use changes, which have finally happened, or are about to.

For Sale: Three-only subdivided full city blocks each containing 11 individual lots, within a planned commercial development that’s ready to launch. The individual lot status has been verified with the local planning dept. and there is no further subdivision necessary to break up these blocks into single lots: You just sell them off like any other real estate.

This is not useless junk land out in the middle of nowhere. It’s located in fast-growing Snohomish county, WA, less than 30 minutes north of Seattle/Bellevue (one of the fastest growing markets in the US), one minute off the main I-5 corridor @ downtown Everett. Very high profile, it sees 70,000 vehicles per day going right past the 1/4 mile of freeway frontage. Easy visitor access to and from both directions.

Proposed Permanent Farmer’s Market Development

The highest and best pre-permitted use here is “agritourism,” including a regional farmer’s market and there is no better site in western Washington for that than right here. You might also call it an “Agricultural Disneyland,” but cooperatively operated with 36 individual owners/operators.

For an extensive description of the property. the close-in location and the new farmer’s market development plan, please see: https://drive.google.com/file/d/0BwpQi-jIoigla0Y1Q...

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With the business income value of the lots, I expect that a $36,000/lot selling price will probably end up being cheap. But, for a reselling price safety net, there is also tremendous demand for, and almost no local supply of, small hobby farm lots like these.

For a 1/3 acre or so unbuildable lot, local market values range from $20,000 to $30,000, with few on offer. So, while the agritourism development forces some value appreciation, it’s not by all that much compared to the “normal” lot market value.

There are four blocks in total. I’m keeping the anchor “farm brewery” block on the west side of the graphic to also sell at “retail.” The more successful the adjoining lots are, and the more visitor traffic that they will draw and the more valuable my block will become. So, I have a vested interest in the success of the entire project and I’ll stay as involved as necessary until everything is sold off.

Wholesale priced at a net bottom-line of $83,000 per full block. (If $83k is still a bit rich for your blood, I'll be happy to assist in hooking together BP-based JV's who can share the individual lots within a full block. Please PM me.)

Years in the planning, this development is planned as an agriculturally-oriented commercial mall and it should quickly become a regional-scope agritourism draw. That potential was one of the main reasons why I bought it in the first place. The end lot buyers will be commercial businesses, with extraordinary motivation to keep their payments current.

After purchase, if you want, you can use/assist the cooperative marketing efforts for lots. Or else hold one or more lots off the market for appreciation, or operating yourself, or perhaps a full-block resale to a large buyer. It’s your land and you can do whatever you want with it, but you don’t necessarily have to go it alone. Your choice and there are benefits to each strategy.

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I know these markets, both local land and agritourism, very well and, when these lots are resold at retail with seller financing (@ 8%), I'm expecting that they will fetch at least a 3X ROI, with a minimum market floor value of about 2X. This anticipated profit margin is measured as the net originating cost of the seller note vs. the much higher face value that the sale locks in. No guarantees, of course.

With interest-only payments on the seller's note, you're looking at monthly cashflow of $239 from each lot. Because of the multiplier between the note's originating cost and face value, this should end up yielding an ongoing net ROI in the 16% - 24% range for as many years as you want, but without the headaches of trash, tenants and toilets.

You’re secured by a 1st position lien seller note on the land that you can keep, sell or play, either now or later. Eventually, the note balloons at the full face value of the profitable sale price and you receive a chunk of cash.

Or, your can strategically sell enough of the note's monthly cashflow to recoup your cash investment for recycling into more deals and enjoy the cashflow/balloon-cash later. Building a portfolio of these "sleepers" is one of my personal goals. This same strategy should work especially well with undervalued SFRs, essentially flipping properties as-is for a premium price well-above the ARV, but without any of the costs or hassles of the R.

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I’m know leaving a lot of near-term value on the table here. I’m doing it because I need to raise some fast bridge funding in order to “harvest” the 304 transferable residential development rights credits that this land also contains. These credits can be sold, starting next year, for literally $millions, and that’s my main profit center. These TDR credits do not come with the land sale, so you don’t have to worry about all those details.

My immediate challenge is the Catch 22 that I can’t get these credits county-certified and salable until I first clear the debt from the source land. That’s a total of $250k, which is chump change in comparison to the TDR equity that it will unlock for me. So, leaving a lot of equity on the table is relatively just a small cost of doing business to achieve a much bigger goal and I’m not complaining.

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As an extra bonus incentive, if someone (or a group) buys all three of these blocks in one fast transaction, I’ll throw in a 100% rebate of the purchase price. This will be payable when I’ve sold the first batch of TDR credits, hopefully next year. Since the credit sales will be the big payoff for years of hard work keeping this deal alive, I expect to spend all winter working hard to line them up.

I have more of these types of SSF deals lined up, too. Joining the party now also includes first option on participating in future deals.

To discuss this further, please either PM me or send an email to the address in the graphic.

Thanks!

Thanks all! I'm getting some great new ideas and advice. :-)

Hi @Stephanie Leeper

Welcome to the Bigger Pockets party!

I specialize in rural SnoCo land with transferable development rights and am just getting into the Note Game. But, if I was doing something involving residential tenants, I'd be house-hacking with student tenants within walking or biking distance of rapidly-growing Everett College. The general gentrification of Everett is well underway and the long term prospects look excellent, but there are many years ahead before the community seriously upgrades to its full potential. 

But, you need to get your foot onto the first rung of the REI ladder now and you can use this strategy to leverage your existing people skills, which not everyone has. I can't think of a better crash course in learning landlording than house-hacking, as well as earning higher net rents than ordinary rentals.

I've recently heard that room rentals in that area can run $600 - $800/month, so you can use some of the positive cashflow to save up a down payment for the next building. The nice thing about students is that they're ambitious, but low-income because they're young, not because they have life issues that are going to be more common in low rent areas like Everett. 

There are a lot of unrestored houses in the North Broadway neighborhood that can sometimes be picked up for under $200k. The more bedrooms, the better, of course. 

I'd sign up for a free Redfin.com account and they'll send you emails every time a new listing in your preferred area comes up. They'll also tell you when a bookmarked "Favorite" goes pending and what it finally sells for, which gives great insight into the current market conditions. 

Take your time before making a decision - look at a lot of listings to get a feel for the local market price/conditions and keep in mind that there's always another deal just around the corner. The really good deals don't last long, so you need to prepare to make a purchase before you even find the house.

One thing to really pay attention to in Everett, however, is the building condition. Many of these homes are up to 100 years old and some of them haven't been upgraded since Prohibition (alcohol, not cannabis :-) ) So, you could be looking at costly plumbing and electrical issues. You might even run into asbestos and PCBs.  

With Everett having the highest non-owner-occupied rate of the state's top 20 cities (56%), you'll also run into houses that have been used as rentals for decades, and possibly not that well-maintained. These aren't necessarily deal-breakers, but you need to factor in repair costs in the purchase price, and you can't go wrong estimating high. If you don't yet know how to spot potential issues, the best thing is to hire someone who does know for a professional opinion. 

BP is full of information on just these kinds of things, so plan on going on a learning binge until you get conversant. Most of the mistakes that you're likely to make have already been made by others and it's always better to learn those lessons second hand. 

There are also lots of people people here who are happy to answer questions. And, for many reasons, give back when you can, however you can.

For sure, as Brandon mentioned, be sure to set your keyword alerts, Especially "Everett" and "Snohomish" That will help introduce you to many of the other local REI players.

Good luck! If you have questions, please feel free to PM me.

Chris

Thanks @Crystal Smith! You win the prize, and my vote, for a practical new solution to no-assign issues. A 1.75% cost to close the first deal with independent funding, with an immediate flip to the end buyer, is certainly worth it.

I hope you don't mind, but I'll repost the link to Best Transactional Funding that you sent me: http://besttransactionfunding.com/

Does anyone else in BP Land have any experience with these folks or any other transactional funders?

Thanks for the ideas @Crystal Smith

I hadn't thought about a land trust entity. I'll dig into that option.

But, I seem to have lost the phone number for the "transactional funding store." Do you have it? :-) 

This will all be so much easier after I get some of my TDR credits sold. Then, I can self-fund myself into a coma. It's the between now and then that's the challenge.

Hi @Tom S.

You wrote: "Just curious, isn't the bank requiring Proof of Funds with the offer before they'll even look at it?"

I don't know. This was the first time that I even tried to make an offer on an REO.

It's so much easier working with private "junk" land sellers who are extra motivated. In another deal, I have 40 acres under contract on just an earnest money note. It will take about $125k to swing this one and it should comfortably return at least $500k in profits within a year, which I'd be more than willing to split. The sellers gave me 60 days of "inspection" time and when I needed more, they granted another 120. I guess I'm spoiled. :-)

But, you've got to play the cards that you're dealt. 

Hi @Adrien C.

Thanks for your comment. 

You wrote: 1) close on it yourself and resell

Not a viable option, for at least a couple of reasons. Did you read my follow-up post above?

2) if you can't do that financially and it's a good enough deal, surely there is someone you know who can help you close and they get some pie and you get some pie. 

This is an old meme that sounds logical, and I used to believe it, too. But like the Easter Bunny, has proved to be hollow for me since long before you were born. In my case, I have no living family and none of my friends are wealthy. Have you ever pulled money out of thin air, as must "surely" be there for the right deal? 

The main reason that I joined BP was to try to hook up with co-investors for the dozens of high profit land deals near Seattle that I'm drowning in and I've offered to share $millions in equity on another deal in my portfolio for literally pennies on the dollar to try obtain a small amount of bridge funding. But, after a year of trying every type of deal structure that I could think of, it still hasn't happened. That's why I'm bothering with SFR wholesaling to get through the next 6-12 months.

Thanks @Joe Villeneuve !

Actually, I knew of the LLC trick. I already own a property under an LLC, with a seven-figure equity that I won't be able to harvest for up to a year. I didn't mention this in order to try to keep a too-long post from going even further overboard.

Because of the high equity value, I don't want to co-mingle this property with others, as well as having new temporary Members coming and going. Tight bylaws would theoretically keep the risks of this low. 

But at age 66, my trust in almost everything that requires signed documents is growing ever-lower, especially when the potential for sharks is in the equation. There are lots of sharks in REI and lawsuits can be tedious time-wasters.

I can also see some potential SEC issues with frequently selling and liquidating temporary Memberships inside the same entity. While a simple one-shot LLC deal probably wouldn't raise any red flags, there are definite limitations on soliciting for new Members who would rotate in and out, as this would technically be. The last thing I want is having the Feds on my case.

However, the simple LLC trick would not have worked in this case. Two reasons: Time and Money.

1. Time: I learned of this deal coming back on the market through a Redfin email notification just after lunch last Wednesday, the day before the long Thanksgiving weekend. I immediately contacted my agent and said that I wanted to get an offer on the table to at least the listing agent by that afternoon, in order to avoid what would surely be a rush of offers on Black Friday and throughout the weekend. 

I could only hope that someone else wouldn't come in with a slightly higher offer and that my offer would be on the top of the stack for the bank officer to consider on Monday. That's when I learned of the bank's no-assign restriction and started looking for end-runs around it. 

But, it takes several working days to fire up a new LLC in Washington. If I had started the online process to form a new LLC that same day, it might not have even been completed by today, 6 days later.

Theoretically, I could have made the offer under an LLC name that didn't yet exist, with the expectation of getting it formally created before I had to prove it. Since this was a 10-day live-or-die window, in which time I also had to find a buyer, I could have probably gotten away with it.

But, that probably would have been criminal fraud, if only at the bubble-gum level, and I just don't go down that stress-filled road. I've got enough things to worry about without adding a fear of getting caught and I like sleeping at night. 

2. Money: In WA, it costs nearly $400 to launch an LLC. I wasn't kidding when I wrote above that I'm "all-in" with my current investments. We're living on peanut butter until I either find a JV partner or the final piece of TDR legislation passes and the market demand for these high-margin credits finally launches sometime next year. i.e. I don't have the $400 to spare on a purely speculative possibility, and an offer that might not even be accepted in the first place.

Wholesaling is a small sideline for me, not a primary investment niche in which I want to pre-invest a lot of time and money for what are relatively nickels and dimes. At least, compared to my main rural land investment gig expectations. 

That said, in the future, when I can afford it, or find a partner, I do plan to create a general purpose shell LLC just for occasions like this.

But, I am also looking to learn other potential ways around the no-assign restrictions. There will be more deals; there always are. And, the more challenging the deal, the higher the profit margin will tend to be.

The main goal, besides getting the offer accepted, is to avoid a double closing, where the title is passed on to the end-buyer in a concurrent escrow transaction. The added escrow and tax costs of the second selling and buying would pretty much wipe out the value of my bird dog fee. 

The more profit margin that I can leave on the table, the faster and easier the deal will be to sell, of course. 

So, are there any other possible workaround strategies that both end-run the no-assignment restriction and/or avoid double-closing costs?

My agent offered this idea:

"We may be able to workaround the no assignment rule with a nominee agreement where you would add on your consulting fee. The end buyer would "nominate" you at any time prior to close to close on the contract, and with that agreement, you can re-convey the deed without an excise tax. However, the escrow agent has to be flexible to work with this. This is different than a double close, but the end effect should be the same. First American Title can do this, but for a bank owned sale, the bank always dictates the escrow agent." 

I don't really understand the mechanics of this and am still awaiting further explanations from my agent. Can you shed any light on how a "nominee agreement" might work?

Or, maybe one just can't get there from here. The only real solution is to have gobs of money in the bank, which is certainly my near-term goal. As my grandfather used to say, back in the 50's, "It's no disgrace to be poor, but it's damned unhandy." 

But, I'd like to run down every conceivable purchase offer option to at least add them to my bag of creative-deal tricks. You never know when one will come in handy. 

Has anybody written a book/blog on the Art of the Purchase Offer?

In any event, this particular wholesale SFR deal is now gone: As of yesterday, the listing agent reported that there are multiple offers on the table.

I knew that this was a heck of a deal! So, I at least get points for being accurate in my snap assessment. :-)

Chris