All Forum Posts by: Dan Brewer

Anthony - 

In the event you struggle with the financing, I can refer you to a fund that will likely be interested in working out a JV arrangement with you and provide the capital for the purchase. Just let me know if you want to pursue that option.

Gabriel - 

I have set up and managed many funds using a PPM structure.  Always happy to offer you advice and tips.  However, I cannot be of benefit for any fund set up outside the united states.  I strongly suggest you seek legal counsel to assist you in the creation of this fund who is familiar with the particular locale.   

Daniel, I focus primarily on the AL industry, and raise capital for key operators.  I only focus on the larger facilities, and not the trend we have seen lately with SF homes that are converted into small AL facilities.  However, I think they have merit.  I agree with @Joel Owens - its a business now, and not just a rental property.   I have seen various models, whereby you run the business, or you outsource the business to an operator that will manage the business and just utilize your facility.  And depending on the level of need of the residents, there can be some vey high start-up costs.  If you are going to do it, I recommend you commit yourself to it, and plan on multiple facilities.  Otherwise, I would not recommend it.  Its a significant undertaking.  It's very popular in the Phoenix area, and you can probably find some investors who have done this in that market.   Good luck!

Steve -

I have thought a lot about your post, and quite frankly, I dont think the financing you seek exists. I have been in the real estate investment business for 21 years, and on the private capital side for the last 12 years. (Ironically, I used to live in Omaha and am pretty familiar with the area - nice city!). I just think your terms are very agressive, even for a US citizen. You never stated the target interest rate, but by stating "no interest in hard money loans", I assume you are wanting very good rates. This loan does not exist in my eyes, nor did it exist in the crazy days of lending before the crash in 2007. Somebody please correct me if I am wrong.

I think the biggest challenge you will have is non-recourse loans with 25% to 30% down. I think there is no hope for that. Some banks will consider non-recourse, but they would be very agressive banks, and they would expect 50% down. And I agree with @Roy N. - 5 years is probably the longest term you can realistically expect. I have made a couple inquiries to resources that I am aware of to see if they would be interested in lending to you, and I will let you know if anything positive comes out of that. In the interim, I strongly suggest obtaining a list of all the commercial banks in the Omaha area, selecting the smaller/newer banks (they tend to be more hungry and therefore more liberal), and contacting their senior commmercial lender. You should do this prior to your travels to Omaha. That will help you be more efficient with your time there, and begin to establish a relationship, which is as important as anything when you seek to borrow $$.

Good luck, and I will get back to you if I can offer any help.

Let me provide some thoughts from a lender perspective. I provide capital for a company that provides a 30 year non-recourse loan product for SF properties. I also work with a large number of investors who invest in TK properties as part of their investment strategy. Overall, its a great investment class if its approached from the right perspective and the investor is well informed, has the right skills for the investment class. I particularly liked @Account Closed stated, property management is the key.

Its not uncommon for investors to approach me and ask me to help them liquidate some or all of their SF investment properties that they acquired through other channels (I dont market or sell SF investment properties unless I am doing it as a client service, and even then its rare). There are two common themes why these investors want to sell: 1. They were not fully educated and understood all the aspects related to SF investment or turnkey properties (they were usually out of town properties), and 2. They did not understand what they were buying - inadequate due diligence was performed.

The location of the property has such a huge bearing on the performance of the property (location, location, location!). The capital I provide to my lending clients is at-risk capital, and I have a fiduciary responsiblity to my investor clients, almost all of them common everyday people like us. So I am very particular of the underwriting process of the lenders. I utilze a tool that is available to everyone called RentFax. It allows you to enter the address of the property anywhere in the USA, and provides you and index score that encapsulates the relative risk of that property location. So if you are considering properties in areas that you are unfamiliar with, this is a tool that you want to use. It considers the same variables that you and I consider when we are looking to personally live somewhere - schools, crime, services, transportaion systems, etc. The better these variables are, the higher the index score. The score is presented on a spectrum, whereby a low score (denoting a highly volatile location) is represented in the red zone, and a high score (representing a relatively stable location) is represented in the green zone. So you know very quickly what you are dealing with regarding the location of the property. I call it "The Truth".

I do want to mention that a low RentFax score does not mean it is a bad investment. It just means its in a challanging location, and is likely to attract less desireable renters, incur higher vacancy, property damage, non-pay, etc. There are many investors who are very successful with properties in undesireable locations. But most investors are not, and that is usually the properties that I get requests to liquidate.

RentFax has been thoroughly tested and has proven to be very accurate. A leading insurance company now uses RentFax to underwrite their insurance policies on SF investment properties. All my SF investment funds require it's use. You can access it through my website (www.TheCapitalMan.com). Look for the tab at the top right corner called RentFax. I make no revenue from it, but feel its a such a valuable tool for my investors.

I recently conducted a seminar in San Jose, and had many questions from investors on turnkey or SF rentals, which was not the direct topic of the seminar. The discussion reaffirmed my belief that investors in this asset class need to be better informed. Therefore, I will soon be conducting webinars on the considerations of SF investments and how they should be evaluated and managed. If there is interest, just simply register on my website (name and email is all that is needed) and let me know that you are interested in finding out about this webinar when it is offered.

Thanks, Dan

@Jay Hinrichs Jay, you are very correct on one very key point - the operator is the key in assisted living communities. A great operator can take a poor facility and make it successul, and the opposite is also true - a poor operator can take a successful facilily and ruin it. I have seen both situations. Assisted living had its problems in the 1990's, and the market collapsed around 2000. Now everything is in the market's favor, and its white hot. Sure, you are going to see deals fail, just like any asset class. But it historically has one of the lowest failure rates of any sector. With stong market studies and seasoned operators, the risk in this class is very low.

Jilliene -

I spend a great deal of time educating investors on investing in real estate and developing their investment strategy. One of the very first elements of the strategy is for them to determine if they are/want to be a passive investor or an active investor. Then find the investments that support that strategy. Many investors tend to consider turn key rental properties as a passive investment, but I disagree. There is one true test to determine if an investment is passive: once you have made the investment, from that point forward, any activity made by you, regardless of the type, duration, frequency, etc of that action, has no bearing whatsoever on the outcome of the investment. Then its truly passive. We have one finite resource, and that is time. We have to be very judicious on how we use our time. Therefore, I strongly feel investors should secure as much strong, secure passive investments as they can, thereby preserving their precious time for those activities that demand it and deserve it.

In the stock market world, a popular passive investment is a mutual fund. The equivalent in real estate is a real estate investment fund. a well managed real estate investmetn fund can and should produce low double digit returns safely year in and year out - I know because I manage several funds and have for many years. I think a great passive investment today is assisted living. All teh stars hav aligned - the population is aging, few new communities have been build in the last 10 years, and the capital market collapse only exascerbated the problem. This as you stated is typically in the form of a syndication or pooled resouces. Yet it allows the everyday investor to get involved in a very hot sector at the right time.

I conduct regular webinars, and also travel for on-location seminars. I noticed you are in the LA area. I travel to the LA area frequently, I am happy to let you know next time I am in the area. Just connect to me if you want me to inform you of my next passive investment webinar series or when I will be in the LA area.

John -

If you want, email me the pro forma for this and I will be happy to analyze and provide my opinion on the numbers. There are just too many numbers flying around on this post for me to really get a good feel for it. My email is at the bootom of this post. Otherwise, good luck with your deal!

@Joel Owens raises many good points, and I tend to agree with them all. But if we accept the deal for the numbers quoted, and we just want to focus on what is a fair split, then I would tend to think that whatever the cost would be to have the property rehabbed by a third party, less the $550K he quoted, would establish the equity for the contractor. If that leaves you less than 50% ownership, then the deal is probably too tight and you need to move on to another deal. As part of the cost structure, you need to include a reasonable cost for your funds, because if you were able to get a bank loan, then you would have a cost for that capital.

Since I am a hard money lender, and have been mor many years, I will follow up on Joel's point and concur that I would not loan on this deal at the numbers quoted. Too much risk, too much rehab, too many things that could go wrong with little decent upside. There are better deals out there for everyone involved.

Ming -

I agree with @Cal C. for two reasons - diversify, and Canadian investment in the USA. I have many canadian investors that invest in the USA primarily because the USA offers better cash flow opportunties.

I also agree with @Gary McGowan - this needs to be tied to your investment goals and strategies. Short term, long term, income vs growth, passive vs active, tax implications, etc.

Sounds like you are tiring of the commute, and the propertty management responsibiilties. I sense that you would benefit from a more passive investment strategy, whihc I heaviliy preach for most investors. You can easily get 10%-12% annual returns that are very safe. Then you can go play golf or be with your family with the timefreed up.

I offer regular webinars on passive vs active investment. Let me know if you would like me to invite you to my next webinar on the topic.