All Forum Posts by: Erik Bollinger

Please let me know if I should fork this and post it as a new thread. 

It seems like a couple of people have said that I should have gotten sign off by a lender prior to submitting my offer to the seller. I know when I purchased my residence I went to a mortgage broker to get prequalified for a loan based on my credit score, assets, and income. I thought commercial real estate was different than residential because the loans are generally bigger than people can pay for without the income from the asset being acquired so the asset in question and the terms of the deal were crucial to getting financing. My belief was that commercial bankers wouldn't waste their time talking to every person holding a real estate listing, so I would need to have a deal in hand for them to take me seriously not just a report outlining a potential deal.

Are those beliefs flawed? Should I have gone to banks with the listings and my research prior to making an offer, and talk with the bank prior to accepting/posing a counter-offer? Or should I go to banks even earlier, and say something along the lines of "According to your website you state you do XYZ commercial loans for ABC reasons. I'm a new investor interested in commercial real estate. Would you be interested in working with me and what kinds of numbers are you looking for?"

Levi T. Your advice to build up a relationship and towards a deal makes tremendous sense. In my mind I was establishing a framework for future negotiations kind of like when I bought my personal residence. I can see the wisdom in your approach and will use that in the future.

Ned Carey I really like your idea of working for the owners until closing. That is gold.

Daniel Chang thank you for your feedback. I will keep in mind what you said regarding comparing similar businesses. Apartment buildings run about a 5-6 cap in the area. Which I was comparing against incorrectly as you surmised. I signed an NDA for another similar car wash in the area so I can't say much but it was clearly a worse deal in my opinion. I also appreciate your feedback about the numbers. I was trying to sell hard by trying to add every drop of value, and I've heard that mentioned as a benefit (deferring capital gains). I won't do that again because you're right that it was disingenuous.

Ned Carey thank you for your input. I didn't offer more for two reasons. I was lacking self confidence to ask the bank for a million dollars. $750k while still a large sum of money emotionally felt more attainable. Now that I have written that down I realize I need address that mental block. Secondly I have heard throughout my life that when something is too good to be true it probably is. By offering less I felt like I would be better able to manage the gotcha when it came up

I'm brand new to real estate investing. With my first deal I tried to hit a home run and I ended up striking out. In order to make the most from this failure I would like feedback on what I did wrong, and if my conclusions are reasonable. These properties are still for sale. I'm not linking directly to the properties because I'm going to quote their response to my offer, and I don't want them to feel like I'm singling them out. If anyone wants the contact info for the seller's agent I'd be happy to give them that information via a private message. Also to be clear I'm not asking for a partner on this deal, nor do I have any connection with the seller apart from pitching them a deal that was rejected.

The deal was for two car washes being sold by the same investor(s) that were on the market for over 2 months. The first car wash was listed at $495k with a NOI of ~$56k. The second car wash was listed at $695k with a NOI of ~$100k. I looked at those cap rates was excited, but I knew that ~$50k cash, and ~$25k home equity wouldn't cover a down payment. My thought was to offer $1M for both properties so I could put 5% down, and ask the seller to carry $200k at 8%. This would bring them close to asking price (counting interest + the fuzzy math of potential capital gains savings), and hopefully make the deal attractive enough so a bank would lend me $750k. Below is my letter of intent:

• 1.Purchase Price

• 2.Definitive Agreement

• 3.Closing Date

• 4.Training Time

• 5.Nonbinding

This was their response:

Firstly I would like to say that I sincerely appreciate the seller's candid feedback. Without feedback it is much harder to grow and learn from my mistakes. I asked my agent to thank them for their time, and let us know if things change in the future.

My big takeaways from this experience are:

• Don't assume a property owner is distressed just because the cap rate is 2x the norm of other commercial real estate in the area.
• While reducing taxes might be a selling point in some residential deals, leading with this to commercial investors is a turn off.
• Limit training time requests to the absolute minimum. My current mindset of 80 hours = 2 weeks of work isn't valid for people with a passive income mindset. Also people who sell properties aren't going to want to be involved in the property for an extended time. Even if it is just a short phone call for general guidance in case something major happens during business hours in your mind, the seller may interpret this as me asking them to drive to a location at all hours of the night.
• Before submitting an offer I need to make every effort to learn as much about the motivation behind the sale as possible before making an offer. Otherwise I may alienate the seller with an incorrect assumption.

What do you think I should also takeaway from this experience? What do you think I learned that was incorrect?