All Forum Posts by: David Ronka

Just wanted to give an update to anyone who replied to this thread and is interested. We crunched the numbers and decided to make an offer. When we did, the seller was surprised that we were offering "$100,000 below asking." What?? It seems that he told us (on multiple occasions) the wrong asking price. It wasn't written down anywhere in his materials. We walked away. :)

We learned a ton in the process of evaluating the deal, especially from everyone who posted on this thread. Thank you all!

I'm very grateful to all who have weighed in on this thread. My partner and I looked at the property again today with an architect and builder -- potential partners and investors. 

I think our next steps are these: We are going to make an offer and get under contract (assuming the owner accepts the offer). We'll work with our attorney to draft a P&S that has protection that will allow us to back out for any reason with return of earnest money (of course, the seller's attorney may advise against signing such a P&S, but I've seen templates for this). After we have it under contract, then we will continue in earnest to find cash investors. We'll also evaluate whether we want to put our own money in and develop the property, and if so, we'll establish a LLC for purchase (with possible partners). If not, and if we find a cash buyer, we'll wholesale the deal. If all fails, then we will pull out prior to closing with return of earnest money.

I think the only risk here (other than the risk that we would assume should we buy the property ourselves) is to reputation if the seller isn't aware of what our plans are. So, we would give full disclosure with the offer -- that we are looking for cash investment partners (or buyers) and do not plan to finance.

And in the process we'll learn, learn, learn.

So, what am I not seeing? Can you see any other risks?

I like your attitude, @Adam Johnson! That's a great idea to kick the tires on dud deals to get into the mindset (and for me, learn what I don't know).

Thank you for your thoughts, @Sam Shueh. I've been to city hall and feel like I've got a good handle on restrictions.

Your perspective is colorful and helpful, @Amit M. Thanks for covering my a$$. :)

Thank you, @Adam Johnson. I do like the way you framed it: "What is it worth to YOU?" Of course, gaining the confidence to answer that question takes time and experience. Thank you for the example. It illustrates your point nicely.

@Brent Shields - Very good point. There is no ultimate protection against bad apples.

Thank you, @Pat G., @Brent Shields, and @Greg Dickerson. All sound advice. What I'm hearing is that I should focus on getting a buyer before making an offer. I'm new to this business, but in my other business endeavors, when I work with the potential competition, we sign a partnering agreement. Does anyone know of such a thing in the real estate world? For example, if there's a wholesaler near me who's more established and works with commercial property, I could see bringing them in for a split of the wholesale fee. But I'd want to bring them in to look at the property prior to making an offer -- to help in the valuation. And therefore the desire for a partnering agreement.

Pat G - Thanks for the advice on taxes. I went to City Hall and looked them up.

Brent - I like your simple rule. 

Greg - You really got me thinking about location. It's a potentially up and coming town center, but right now it's pretty sleepy, and I think retail would have a hard time of it. All of the towns in the nearby area have taken off and significant growth is happening. But it's anyone's guess if this town is in the growth trajectory.

Thank you @Greg Dickerson, @Adam Johnson, and @Henri Meli.

Greg - I appreciate your perspective about the seller's principles. That got me thinking, and I do think I want to do complete disclosure and transparency.

Adam - Very good point about location and also about using this as a chance to learn. It's certainly already been that!

Henri - We've only got one comp for that immediate area for $/SF and NNN.

Clearly there are a lot of unknowns here. What we really want is some help evaluating the property. Any ideas for who we might bring in to give a more professional valuation? And can we even bring someone on-site before making an offer and getting under contract? It feels a little like an unsolvable conundrum -- we need to bring someone on-site to help us determine the value, but we can't really have that kind of access until we put it under contract (for which we need to know the value). Thoughts?

Thank you, @Alan Johnson. Good question. I mentioned some factors in my post to @Alex Mao. Our read on the owner is that he's highly principled and mission-driven. We got the feeling that he doesn't want/need to maximize profit, but he wants it to go "to the right people." The deed is in the name of the church, so it's a non-profit. I'm not sure what that means for any profit that's made on the deal. It looks like he's got a $150,000 mortgage on it, and we think he wants to recover costs for some of the upgrades he's made along the way (septic, fencing, addition).

That's an interesting idea about and options agreement. We'll talk to our attorney about it.

I think the major source of nerves is first-time jitters. It's also due to the fact that we don't know what we don't know. And as newbies, that can be dangerous. As I understand wholesaling, there is very little risk to the wholesaler if the P&S is written properly. But we don't want to risk my relationship with cash investors by presenting a deal that's not well thought-out and viable.

Thus this thread -- seeing what more we can learn from this awesome BP community.

Thank you, @Alex Mao. You're right -- $10k wouldn't cover conversion. As I've looked around at similar properties in the area, build-out for commercial use seems to be covered by the tenant. There is indeed a vault, and I was planning on that being incorporated into the use (e.g. storage). The previous layout was a church -- pretty empty at this point.

Would you recommend getting a contractor or two into the space to give me bids for rehab (not knowing the ultimate use, rehab would be to get it to neutral?)? I'd need to do that prior to putting it under contract, obviously.

The pastor is retiring, and I believe has some looming health issues. It's been on the market  for about 3 weeks now (i.e. sign outside the building without any other advertising that I'm aware of). He's had interest from people who want to use it for a restaurant, but they're not purchasers (they want to lease the space). The location is a small town in New England -- 2 or 3 other businesses in the "downtown" with a strip mall about a mile away. But it's about 15 minutes from a few very popular and "booming" towns.

I was thinking of calling banks to see if I could get in and present the deal to the commercial loan officer to what s/he says about financing it (although I'd be looking for cash buyers). At this point in my real estate journey, I don't know what I don't know, so I'm looking for ways to get further into my learning curve. Thank you again for your response!

Full disclosure: My partner and I are complete newbies to wholesaling and commercial real estate. We had no intention of getting into commercial, but in the process of looking for residential properties to wholesale we came across a FSBO commercial deal. It's a 2,000SF former bank branch on an acre lot. Solid construction on a corner lot with plenty of parking. The owner (he was using it as a small church) took a liking to me and my partner, saying, "I like you. How can we make this work?"

I did a crash course in evaluating commercial property, and here are the numbers based on the nearest comps (in terms of potential lease/SF): Most recent tax appraisal: $240,000. Asking price: $230,000. He chose not to list with a realtor who wanted to price it at $260,000. No major rehab that I can tell -- I'm estimating $10k for cosmetics. EGI ~ $32,000 (based on triple net); NOI ~ $20,000; Cash on Return ~ 8.7%; Cap Rate ~ 7.8%; DSCR: 1.5. Zoning says it can be used as restaurant or recreation or retail with a site plan review.

There aren't many comps, so the numbers are rough. I have an attorney who can hold my hand through the process. I'm thinking I make an offer (below asking?) and then market hard to find my cash buyer. But this is my first time around the block AND IT'S SCARY to contemplate pulling the trigger! Any words of wisdom or encouragement out there? Heeeeeeeelp....

I don't have answers, Marlissa, but I'm very much interested in hearing what others have to say. I'm in the same boat!