All Forum Posts by: Gabriel Graumann

@Joseph Bernal Congrats on joining the BP community. You have plenty of options, but I can only recommend based on what I've personally done. My first real estate purchase 15 years ago in Lake Stevens was a duplex with a 2 bed, 1 bath on one side that my wife and I lived in, and the other side was a 1 bed, 1 bath that we rented out to help cover a portion of the mortgage. I love this strategy for a first time home buyer as it sets the tone for all future investments. Living in one side and renting out the other keeps you very involved in the rental world, it speeds up the learning curve of working with tenants, managing leases, maintenance, reviewing contractor bids, and the whole process. It also involves your spouse which I'm a HUGE proponent of when it comes to investing. Far too many investors leave their other half in the dark which leads to problems in investing and marriage. Good luck!

@David Iniguez Employment controls growth for all areas. If jobs are being created in MULTIPLE industries, not just one or by one employer, the rest of the local economy reaps the benefits creating overall growth. Do your homework by tracking census data, jobs reports, and trends related to a 1,3,5, and 10 year intervals to see if a market is truly growing or not. Getting individual investors or members thoughts on a specific community is fine AFTER you have spent the time filtering the employment and growth data, but don't start with that. All you are getting is opinion without much if any actual research and data to support the opinions. If you liken it to stocks, I doubt you'd invest serious cash in a company simply because someone else said it was a "hot stock", you'd do you research to determine WHY it was a hot stock. Good luck.

@Joel Zwemer There are various potential issues to inspect varying by size of property, type of property, age, visible condition, construction type, location, geographical issues, and the list goes on. As both an investor and broker of 17+ years, I have personally bought properties with and without property inspections. For me it depends on what I intend to do with the property. If it's a fixer and I'm going to perform a major renovation, I don't tend to get a formal inspection. I can do this with more confidence as the son of a 40+ year GC who often looks at investment properties with me, and because I always budget for unforeseen issues. If a failed sewer line or other issue makes or breaks a deal, then it likely isn't a deal to begin with as the margins are too small. At least that's how I look at deals. Nothing wrong with paying money for those items though if you aren't well versed in construction, maintenance, and/or you don't have a good grasp on what true costs are for repairs if these items have an issue.  

@Keith Miller I'm not familiar with Wisconsin law, but my understand of traditional lending sources is that they are simply looking for who has the ability of repaying the loan. If the LLC is new and has no standalone financial history, a lender will require a personal guarantee from one or both of you when signing the loan. A residential or commercial loan can be used for nearly any property type depending on the circumstances, so it may simply be that this particular lender has a different criteria for defining their commercial loan products than other lenders. Sounds like you need to interview 5-6 more lenders to determine what your best options are.

Investment Info:

Other other investment.

Purchase price: $398,000
Cash invested: $23,500
Sale price: $775,000

Acquired unimproved land in single-family zoning w/intention of designing sub-division and building custom single-family residences.

What made you interested in investing in this type of deal?

My grandfather was a land developer which is where I got my start in the real estate and development industry 2 years prior. Having witnessed his process of buying unimproved, residential zoned land and walking it through the development process and adding value along the way, it seemed like a natural step for me to attempt the same.

How did you find this deal and how did you negotiate it?

This was actually a property that had been listed on the local MLS for several months prior to me seeing it. Upon walking the property it became evident that the substantial slopes made it a more challenging and costly development site and this likely deterred other potential buyers from pursuing it in favor of easier projects. We paid within a few thousand of the asking price and performing a 30 day feasibility prior to closing.

How did you finance this deal?

I borrowed 25% of private capital on from a relative on a 24 month term paying a set interest on the money 100% due on resale or refinance of the property. I brought in one partner who contributed the remaining 75%, and this partner was a GC by trade and had the capacity to build custom homes on the site. The partnership agreement was structured to split any profits on resale of the land or finished homes based on our 75/25 contribution levels.

How did you add value to the deal?

Our initial intention was to develop the property into 15-17 single-family residences over a 3-5 year period. We performed a formal site survey, topographical mapping, geo-technical analysis, and other basic engineering reports that would be required for plan review and the permitting phase of the development.

What was the outcome?

The substantial slopes dramatically increased the site improvement budget that would be required to develop the site. As my partner was not experienced in large site development and specialized in only the construction element of the project, we were not comfortable taking on the liability of a long-term, challenging site development of this scale. We opted to list the property for sale with the preliminary site designs completed and found a more experienced developer to purchase it.

Lessons learned? Challenges?

A couple primary lessons learned on this one. First, having the vision to see AND understanding what could be done with a property that numerous buyers overlooked caused me to act on this opportunity and purchase it. Second, having a skilled team was essential to walk the property through the preliminary design stages to help answer questions that future buyers would need to make a buying decision. Finally, knowing when to bow out was key. We were out of our depth on the slopes, so we sold.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I had a great RE broker who understood what I was looking for and forwarded me the initial lead. She sold it for us 1 year + 1 day after we closed on the purchase (for tax purposes of course). She ended up marrying another RE broker and she dropped her license and went to work with a RE services company following this transaction. Our engineer, Group 4, was excellent. My grandfather had used them for years so they were a natural vendor relationship for me to tap.

@Jared Boundy The lessons did provide an avenue to pursue other development types and have a better understanding of what it would take to make a deal work. I'll be posting a few additional projects before and after this one that may be helpful for others to learn from soon.

No profit on this one @Jared Boundy. Had I sold it immediately after construction rather than try to rent it out and hold it long term then I may have broke even. However, the reality was that the combination of acquisition costs, soft costs, development and holding costs, this was in the red by the time it was ready to occupy. As I wasn't actively selling residential real estate at this time, I gave another broker a shot at selling it and after 90 days or so it was still sitting there as the market started its free-fall in 2009. Ultimately I lost the property in foreclosure after a failed short-sale attempt and deed in lieu. A humbling experience to be sure. The vast majority of mistakes came on the front end by not understanding all of the possible outcomes, not understanding the local market, not understanding how sub-markets respond to changing cycles in the real estate. The costs weren't out of hand for the construction elements, but I under-estimated the soft costs and over paid for the land itself for the location. Also, I over-estimated the rents I could expect to collect.

Investment Info:

Small multi-family (2-4 units) other investment.

Purchase price: $98,400
Cash invested: $400,000
Sale price: $560,000

My first new construction project. Purchased unimproved land with intent to build a duplex. Took more time, more money and learned numerous lessons the hard way regarding developing land.

What made you interested in investing in this type of deal?

I was struggling to find a multi-family property that I liked so opted to try building one instead.

How did you find this deal and how did you negotiate it?

The deal was a referral from a broker who lived in the subject community.

How did you finance this deal?

Partnered with an investor for the acquisition funds needed. Paid the pre-development expenses out of pocket. Used a construction loan to fund the build-out that rolled into long-term financing that was activated upon construction completion.

How did you add value to the deal?

Took the property from raw, unimproved land to construction of a brand new duplex.

What was the outcome?

Unfortunately my timing and management of the first project was not great. Completed construction and lease up in the fall of 2008, right as the local market started to get hit hard by the recession. As a fringe market of the Seattle metro, we saw rental rates drop and we had one of the two renters lose their income source which triggered a string of negative financial events.

Lessons learned? Challenges?

Numerous. Learned the true cost of improving raw land, the time required to do so, witnessed the challenges of managing new construction from a distance, and the effects of a receding market on fringe communities. In summary, I didn't do enough homework on the front end and I relied too heavily on brokers and sources that weren't educated enough themselves on the process I undertook. Ultimately, I should never have purchased this deal and yet learned so many lessons that I may otherwise not have

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Unfortunately not on this one. As mentioned, the realtor who brought me the deal was a personal friend who claimed to be an expert in the market and also lived in the subject community. In hindsight, he was a newer broker who had early success due more to a hot local market but had zero history in unimproved land, development, or the construction process. I was new to the residential development business & didn't interview other brokers, talk to experts in construction, or perform due diligence.

Greetings,

I'm a seasoned real estate investor and licensed RE broker in Washington State. Primarily looking for any residential properties in need of minor rehab to full renovation or tear down. As an active broker I see everything that hits the local MLS boards, so not in need of any listed properties. I'm looking for wholesale opportunities, off-market sales directly with sellers, or other unique seller conditions.

Highest interest areas include Seattle and all communities along I-5 north up to Everett/Marysville, and most anything on the Eastside including Kirkland, Woodinville, Bellevue, Factoria, Kenmore, Bothell, and then all of the sub communities in South Snohomish county. I'll look even further north into Skagit county depending on the specific location and price point.

I pay wholesale and finders fees, so bring me your deals!

PLEASE NOTE: I analysis all deals using actual sale comps and current rehab costs for permitted renovations. If you don't know how to properly estimate the required renovation budgets and TRUE resale values LESS resale costs, I'm happy to assist and educate you. However, I see a LOT of ridiculous rehab numbers and resale values tied to Zillow and other online resources that aren't close to market and that's not what I'm looking for. Again, happy to look at all deals you've got and willing to pay reasonable fees at closing, but I'm educated and able to plug in real numbers. If the above applies and you've got a deal, send it my way!!!

@Laurence Obi  As John referenced you can use your state's online public records search to validate all of these items such as if the entity is current on their filings, bond amount, and by calling the insurance company directly. I would refrain from posting a name publicly until a judgement has been made by the courts, otherwise you put yourself at risk as others have stated. Too easy these days to jump to social media accounts to blast a poor performing client prior to allowing due process to run its course. Again, simply following good business practices during the interview, research and due diligence process BEFORE hiring anyone will save you 99% of the time from issues arising like the original post.