All Forum Posts by: Henry Clark

OP you’re approaching this from a selfish standpoint.  No LP or lender will want to invest with you if you don’t have financial skin in the game.  

You have to be able to sale.   Which means to look at it from the investors or lenders standpoint.  

For example.  Most lenders will want 200% loan coverage.  The collateral itself and your Personal guarantee.  If not yours then the current owner who wants to retain some ownership.  Especially if he retains 25%.  

If you did find an LP they should negotiate for more.  If they put say 30% funding in, they should ask for 40% stake.  This is for their increased risk.  Can you offer them that?  Again you have to come from their viewpoint to sale to them.  

You’re not ready for this deal.  Back up and start with smaller deals and develop your track record.  Can you in good conscience have other people risk their money based on your experience level?  Go to your family and ask them for money for this investment.   They know you the best.  

OP.  Agree with @Stuart Udis

You should look to your family and business associates and vendors.  They will know you best.  Not only do you have to sell the deal, more importantly you have to sell yourself.

Back to Stuart’s suggestion.  Do you have the background and track record in RE to sit across the Thanksgiving table or Xmas and confidently tell them how their $50,000 investment is doing?  

If not, start smaller with your assets and build a track record.  Read thru the posts on syndications.  There are many experienced GP syndicators who have failed in very basic financial and RE concepts.  

Some of the ground is too rocky for the tractor to disc and then plow rows.  So, we are using our skid steer with a stump spade to dig holes.  The guys can do it, but takes about 5 minutes with a pick and we will have about 3,000 holes to dig.  Even though labor is cheap, sometimes equipment is cheaper.

This ground with the "limestone" rocks will actually be better soil for the Teak trees versus straight Black soil.  The limestone frees up minerals in the ground so the trees can absorb better, and they grow quicker.  Their roots will break through the rock to find nutrients.

Once we get the seedlings planted (about $30,000 to prep, seedlings and plant), the property value will double in the first year.  Got to love Value Add approaches.

Slow progress on the house.  It has been the "Dry" season thus we have been working on our trees and clearing land on a new 89 acres we bought and need to clear to plant on. 

Back working on the house since we moved into "Rainy" season.  Guys are setting the Metal I beam.  Today we poured the Ring Beam the wood forms you see around the edge.  Will pull the wood forms off on Monday.  Then start to form the concrete roof or top floor.  The second floor will be an open verandah with the metal roof about 10 feet above.

The five high school kids made more than enough money to "pay" for their high school, uniforms, lunches and books.  About 1/2 the boy's quit high school after 8th grade since most of them will do manual labor and the extra 4 years of school don't add value, plus it costs money to go to school.  Costs about $800 USD per year for High School. Average wage rate is $2.50 per hour USD.  My guys really like having their sons working summer and weekends to help pay the family costs.  All of them are A/B students and some play on futbol teams.

Will build the roof next week.  Then pour the following week.  Then build outside Stairs going to the roof verandah and two porches and sidewalks. Still a long way to go.

Don't know if we will hit our Base house cost of $25,000 USD on a 30x30 house with two 10x30 porches.  Another $15,000 in hookup and water/sewer/electric costs.

Been trying to get the Electric in for over 1 1/2 years.  Finally moving forward.  3rd world country.  The money to get the electric poles and to the house will take a "funny" route to get the Electric company to install.  My contractor buddy down there said it is fine, just the way things get done down there.  Should have the electric to the house in 2 weeks.  Only need 4 poles installed from the street to get back to us.

My contractor friend said deals are starting to slow down for him since the beginning of the year.  He builds custom homes there. Fewer US, Canadian and British people looking to build down there.  Told him, from my view up here the economy is starting to slow down and get tight.  People are probably starting to hold back on RE investing.

OP.  Drive around your area and/or look at CREXI or Loopnet online.  Look for Commercial brokers.  Ask them to take a look at and give you estimates on managing it.  Or a large local RE firm.

OP.  Do you have the form of liquid Net Worth, a lender will take a Personal Guarantee from you for $9mm?

Plus @Marty Johnston notes tenants like CVS, Walgreen, Dollar General.  They have all closed stores where we are at.  Can you support not having a tenant for say 18 months, plus upgrading the property for the next tenant, beyond just the purchase cost of the property for say $200,000?

Say our Amort term is 20 years and your balloon is 3 or 5 years.  Can you take a 1.5% point increase in rates in 3 or 5 years?

Who gave you the NOI figure? Did you vet it? Can you still get insurance, or can they? Will property taxes go up in a year due to the purchase? What is covered in the NNN, especially CAPEX?

Although NOI of $897k sounds like a big number, it's not. Full $9mm at 8%= $720,000 per year, even before Principal and income taxes.

How will you cash flow the Seller Financing and/or meet their balloon payment in say 3 to 5 years when they want to exit?

Who reviewed the contract?  Realize this is a DOD contractor; but they should know how the game is played.  Our government agencies can get out of lease on a 1-month notice, even if it was for 5 years.  I would think the DOD contractor would want a similar clause.  My brother works for the DOD and lots of contractors were just cut, as part of the DOGE reviews.

Can you still get insurance, or can they? Will property taxes go up in a year due to the purchase? What is covered in the NNN, especially CAPEX? When they leave and they take out the paint vent out of the roof, who pays to fill the hole if this is manufacturing or processing?
Is the Aircraft Carrier they are supporting leaving Norfolk, or the FBI HQ moving, etc.  Basically, what is the long-term outlook for the DOD function they are supporting?

All of the above are possible to review and overcome. CRE is a different ballgame than SFH/MFH.

Personally, I would reach out to @Joel Owens and see if you could sell this lead to him.  Then he gets to vet and as needed find financing if it hits his wheelhouse.  

You could easily take a $1mm hit per year, if this fell apart.

OP

1.  Take it to an engineering firm.  This is going to cost you $150,000 on up.  Have them do a cost estimate also.

2.  Take it to an engineering firm.  Give them the footprints of the buildings and have them do the property layout, but not the building design.  Let's say it costs you $30,000.

3.  If you can't afford the above, you have to get dirty and learn.

a. Develop a checklist. Use the above lookup, to search CRE project posts. Read books, watch podcasts, join facebook groups, watch youtube.

b.  Work on Estimates on the property.

c.  At the same time find some contractors in your area and give them the footprints of the buildings and usage.  Ask them to develop a quote.  

Where I'm at this project would already not fly.  Minimum 2 acre lots.  Zoning would not be allowed for my type of business.  Would need to be what we call Highway Commercial to work in our one town and Industrial 3 or Commercial 2 with a Special Use permit.

Is your post stated backwards?

If not, you can take a crack at me.  On this post layout the deal.

OP, let's look at you specifically.

1.  Have you read all of the books, watched the podcasts, searched for the posts, joined the Facebook groups.?

2.  Have you developed a due diligence list, have you developed a financial plan and then tested it against 5 actual deals?

3.  Posted the above on BP and asked people to review them and ask questions?  

4. Have you done smaller REI deals to build experiences?

5.  "Then" you can look for a mentor or program.  At that point you will know what you are feeling you are missing the most.  That will help you determine the type of Program and the amount you are willing to pay.

6.  Or are you looking for someone to set the table for you at a 3-star restaurant and you just want to pay the bill and say whether it was a good experience or not.  Which is fine.  But then you need to invest thru Syndications, stock market, etc. where someone else will do all of the work for you.  Just be a financial investor.

The above will move you forward on your topic.

The problem is the squirrel squirrel and the shiny object syndrome. People look for what they want. Not all REI strategies work for all people , in all markets at all phases of their RE career.

I try to look at people’s backgrounds and prior posts to see where they are at when I respond.   Don't want to always start off with my $300 in my pocket, ramen noodles all week, roast a chicken on Sundays for a great story to show perspective every time.  We all have our background stories.   People want to skip that and they shouldn’t.

My risk tolerance level is far different at 30 versus at 65. Our investment strategy was totally different at 22 versus 30. The economies were different. Our REI knowledge was different.

People want to jump thru their REI learning and it can't be done. You have to get burned, you have to fail, you have to have bad deals or you won't learn. Many posts on how expensive Mentor training programs are. We didnt use them. We failed and learned. Say $50,000 for a Self Storage learning program. I would say that is cheap. If I mentored people off BP, I would charge $1mm and show them how to pay me plus make money for themselves on the deal.

So almost all of these posts and there responses can all be 100% right and 100% wrong for the individual OP or other people reading.    But what BP is good for is seeing different approaches and opinions.  

If I posted our Self storage investments in Iowa were the greatest in the U.S.  And someone from Texas or New Jersey said their market was better who would be right?   They would be right from a monetary standpoint.  I can make twice as much in Texas and 3 times more in New Jersey.  But we live in Iowa and maintain a 40 mile radius.   Our market is better for our situation.

Back to this post.

Both can be right. The underlying issue is not the initial investment comparisons. It's what do they do as their second step? Does the low appreciation market person take their higher cashflow and start a second REI deal? Does the high appreciation investment refi and take cash out to put into a second REI? Both can easily earn twice the net worth of the other strategy if they do or don't do the appropriate Scaling steps. That is the magic of REI investing, the Scaling multiplier effect. If you don't have a Scaling strategy you're done at 3 or 4 investments.