All Forum Posts by: Henry Clark

These are all Due Diligence questions and they are all Local questions.

Can you slow the deal down, while still keeping it.  See if you can do a $3,000 earnest money deposit, even non-refundable for a 10 day period, normally 30 days.  Sit down with your local city code/permit group.

I'm not an SFH or MFH person. Someone with experience can probably go through the list and say which ones not to worry about. The one, I would be most hesitant on is your question about new construction as it relates to this property. Finance companies might be hesitant to finance a property with permit issues.

Your still in Seller financing.  No bank will want to take 2nd position on them as collateral.

Option 1:  Recommend, work with your parents since there are 3 properties, to Refinance with them first.  See if you have enough paid down (not likely, since you just bought in 2019), to take one of the properties out of their loan to you.  This property then is unencumbered and you can use it for equity on your next deal.

Option 2:  If they are nice (not a business concept), if one of the houses is worth $350k ($850k less $500k); see if they will release the lien against that house, if they are willing to give you a Zero % collateralized loan on the last two houses for the $500k debt.  Talk with a Tax accountant to make sure the IRS does not view this as a taxable Gift, given this is only two years later.  Or an avoidance of Inheritance tax.  Basically substantiate the price they sold to you was the same as third party appraisal.

Option 3:  Do a traditional loan, lets say at 25% down.  If $850k, then 25% = $213k collateral needed.  You would have $850k less $500k existing loan= $350k less $213k= $137k cash out refi. New interest rate would be %?? and loan term would be ??.

Option 4:  Same as 2 above, but 40%.  $850k at 40%=  $340k collateral needed.  $850k less $500k = $350k.  $340k vs $350k, you don't have enough equity to refi at 40%; and you would get $0 cash out.

Issues:

A.  If you refi to the $850k, will the three properties cash flow now?

B.  Will the next property cash flow support this added debt.  Assuming you get a Market rate deal on the 4th  property, it probably won't help support the added debt on the first three properties.

C.  Do a Risk analysis.  If you take on the 4th property, what conditions would have to occur to make you go under water?  Lets say you end up with 6 "Units" at the 4 properties, how many would have to not pay or be vacant to make you miss your P/I payments?  Just about 15 years ago, you could have bought lots of Florida properties cheap.

Make sure the added Cash can support itself.

CPA from a prior life.  Its hard to convey tone, in a text.  Turn the volume down on the below.  Just recognize I have been the good and bad leader/communicator in the below, that's why I can pass it on.

Lets reverse the question.

You are wanting to develop a Team.  Are you a good team leader? 

If it was Friday at 4 PM would you go to your team and say folks, we have to work till 10 tonight and all day Saturday and Sunday.  Especially, when you knew two months ago?

Your hitting them in the middle of Tax season.  No CPA will be responsive.  They must be dedicated to their current clients, because they are good "Team" members to them.

Recommendation:

File an extension and pay estimated taxes.  Then approach finding a "Great CPA" after tax season.  

Become a "Valued Customer".  I pay all of my vendors 1 day after I get their invoices.  And I drop off the payments personally, and say hello.  They like to see me coming. They are kept up to date on the progress of the projects and the other contractors.  When Mother nature kicks them in the ***, I let them know, I know its Mother Nature; and not them.  I don't bird dog them, if they have always delivered for me.  Don't make a ton of changes.  Don't go shopping out my business.

If I call them Sunday at 7pm, they are more than glad to talk with me, because they know it is something that will make their lives easier come Monday, or it something important to me, that can't wait.  I've only done this twice.

Sell them, you will be a good Customer.  The only way to do that is through your actions.

What are you looking for?  What are your objectives?  What price range?  What rehab work can you bring to the table?  etc. etc.  Provide this and we can give you more specific suggestions. 

The key recommendation is for you to do a deal, that your not suck with, has low risk of failure and $$ impact.  You have to start down the learning path without losing a lot.  This is your best learning tool.

Join a local BP group so you can go over deals with people that are further up the learning curve.

@Shawn S.  follow @Jonathan Greene notes.

type in Melbourne, Fl or other.  Real estate for sale.  Sort by your price range.  Look at who has the most listings.

As Jonathan mentioned, prepare a one sheet.  Who you are, price range, property type, neighborhoods.  You have to be prepared if they bring you properties to say yes or no within a day, subject to you doing a quick inspection of the property.

Can "you" do a quick inspection?  Do you have a checklist?  Or do you have a home inspector on call, that can get to you quickly?  If not, then you probably don't want to go this route.  As mentioned above, buying a lemon.

Can you do an analysis on a property in 2 to 3 hours, to see if it fits your objectives?

You need a process, so you don't overlook something, since your making a fast decision.

Have your numbers and financing worked out ahead of time.  Have your banker pre-approve you.

Know the type of property and the area you are looking at.

Other than inspection, put no conditions on the offer, other than 2 day offer.

Two objectives/options will happen with an MLS listing.  

a.  Either the Agent will have to split with the buyer agent, the commission.  Action- look to see which realtors are selling the most properties that you want.  Personally stop by and contact them.  Tell them the type of properties you want, at what price and what type of condition.  You have to be able to make an offer in 1 to 2 days.  This gives them the full commission.  Win/Win.

b. The agent will use the MLS to get as many potential buyers as possible and create a bidding war. Action- You probably don't want to be in a market or product type that you have to go into a bidding war.  Win/Lose.

@Christopher Porter

Look up my Checklist 101 post, so you have a list to follow.

Takes about 4 months from time of close to upgrade/cleanup from a worst case scenario.

1.  Load customer contracts into internet self storage software.  (two weeks, usually you have to call people for info, only takes about 2 hours to load about 50 people, if you have the info).

2.  Auctions and clearing out bad customers.  Each state is different.  Send auction letter 2 weeks, then put in newspaper 2 weeks, then auction 1 week.  Wait till they are past due.  Possibly 6 weeks from the time you buy.

3.  Clean up abandoned units.  Give them away, if they take everything.

4.  Security system- depends on contractor.  2 months.  Will physically take about 3 days.  You want to be able to view everything on your phone or pc.  Get alarms anytime someone enters the office, gate opens after certain hours, or if any alarm goes off.  You can have motion sensors on your cameras 24/7 or for certain hours that send you a message.  You can have underground vehicle sensors which work great.

5.  Fence if needed- depends on contractor.  2 months.  3 days effort.

6.  Electric/Lighting- depends on contractor.  2 months.  3 days effort.

7.  Load into Sparefoot internet system.  2 weeks.  1 day effort.

8.  Self Service system- find local person to sweep and reload contracts and locks.  See our youtube.  1 week to get your contract in order and develop a system, get inventory of locks delivered.  Personally, I would get a local property manager to handle.  Or preferably a retiree.  Try to go 100% autopay, no checks/cash.

9.  We operate 5 locations from in a 40 mile radius on my phone.  We do visit and reload them ourselves.  Have managed on my phone from France/Italy and Belize for 2 weeks.  Same time zone in Belize makes it easier.

10. Financing- Check a VA loan through SBA, ask for 0% down and 25 year term, go through your bank or credit union. This could take up to 6 months. SBA is backed up doing Covid PPP applications.

@Christopher Porter

Read my post, "Will they come?", to view your market.

Here is a tool to quickly analyze a potential Storage location or to analyze the strength or weakness of an existing location.

Your going to do the following excercise using Sparefoot and then Googling Self storage for a particular city.

Lets use Roanoke, VA; just because I just did that one for someone else.

Pull up Sparefoot for Roanoke, VA; then click on the Map in the upper left. As you move around to an area storage locations will pop up. Your looking for where storage locations are and are not. Then look at where the people are, based on the increased road marks.

Then Google "Self Storge Roanoke, VA". Do the exact same thing. Not all locations, sometimes only half use Sparefoot, thus we are doing Google, because most have a website. Sparefoot gives you pricing to do price studies.

See the large spot where there are few if any storage locations?  But there are tons of people.  Now go read my "Zoning, I3 right?" post.  And then go find a spot.  To either buy or build.  If I lived near there, I would pursue buying all of the locations and building about 3 more locations.

A.  There is not a town in the United States, that does not need more storage, or "you" can't competitively build more storage there.  Mom/Pop model.  One town we are in, we are waiting for some land next to us to be offered for sale to us by the contractor who I have talked with, they don't need it all for their purposes.  The major storage location is 4 miles out of town.  We out position them.  Sounds like aerial combat strategy.

B.  The reason I said the next 10 years.  Most Mom/Pop is owned by Baby Boomers.  I'm 60 and at the tail end of the Baby boomers;  and the chance my son takes over by the time I'm 70 is pretty low.  All of those locations will need to be sold in the next 10 years.  Never been a better time to get into the Storage business.  I would recommend you pick one area covering 40 miles (drive time); and get to know all of those owners.  And visit with them once a year.  Give them a way "out".  Buy out.  Seller finance (better return for them).  Management agreement with first right of refusal. Etc.

See our website youtube on Self Service.  Hook up with a local realty office to handle for you, if you move.

We do Self Storage development which might cover 18 months.  Use our local State Farm agent.  Relatively inexpensive.  Talk with your insurance company.  Might be cheaper out there, but I know them already and it only costs a couple $xxx bucks on a $1.5mm project.   Don't want to spend my time on a $400 expense, trying to save $100.

If your in Real Estate, talk with your team.

Second talk with your bank.  You should have a history with them.

Do a construction type loan, so you can roll the $15k upgrade into the loan, so you don't have to put cash in.  Then give tenant one month notice.