All Forum Posts by: Gabriel Graumann

@Esther Rivera love the idea of owning a property you also use for your business. As @Chris Seveney already shared, the easiest option would be to utilize debt to secure the funds for purchasing the property. Assuming the person you have in mind has the capital and credit necessary to purchase the property and meet the lenders requirements, that would get a deal done. As @Michael K Gallagher shared, there is some benefit to putting yourself in a position to be able to perform a sale-leaseback option or other refinance once the property is open and has the financial capacity to do so. However, the question to answer to know which path to take is really "what are you trying to accomplish with a purchase." If you're trying to control your rent, owning and not leasing is the method to do so. There are a variety of ways to find the capital to make that a reality. Location is key for your expansion as Michael shared, so don't compromise on location to afford price if at all possible. Ultimately, should the business not succeed or perform as well as you intended, owning a property in a strong location will be attractive to other users that you could choose to sell or lease to yourself. Don't put yourself in a position where you only have one exit strategy.

Greetings,

I own a turn-key STR investment in NE Mesa, AZ that my partner and I are contemplating selling. In summary, it's a 1,950 +/- sf single-level house in a nicer non-HOA community. It has 3 bedrooms, 2 bathrooms + bonus media room with a triple bunk that sleeps a total of 9 people. We purchased and completely renovated the property, inside and out, in September 2022. Heated pool, hot tub, large putting green, indoor/outdoor living spaces, bonus media room with arcades, and all furniture and appliances were new as of the fall of 2022. The house is fully decked out and it would convey fully furnished of course, along with any bookings in place at time of sale. Professionally managed for 18% by a local management company with around 60-70 properties in their portfolio (but no requirement to retain them). Currently one of the highest rated STR's on VRBO with 20+ 5-star reviews and a 99% score rating.

The property is nearing the 1.5 year mark on the bookings market, with an estimated 10-12% increase in peak 2024-2025 rates. There may be the potential for keeping in-place financing for the property, but it would depend on borrower strength and a conversation with the lender, but no requirement to do so. Straight, traditional sale. No owner financing or "subject to" offers please. Market for this layout, non-renovated and non-furnished STR home in the neighborhood comps in the $600-630K range. We would entertain a price in the $680-700K based on terms of the deal and closing date, and what booking income conveys at sale. We have item list for everything in the property, receipts for renovation, and all the financials that you would need to analyze the deal. Message if interested.

@Josh Phillipe Cote Hi Josh, how was the response to your meet-up last week? Did many people attend? I'm considering starting my own regular investors meet-up, but thought I'd check how a few other local ones were doing. I live in the Las Sendas community, but work off 44th St in the Arcadia area.

 @Sam Chicquen you don't have to know everything before you begin if you have the right team in place to cover the areas you are not knowledgeable in. Find the part you like and/or know the best, and fill the gaps with whoever is missing.

Question though, when I read your initial post it sounds like you're looking for residential subject-to deals. When you say commercial what product are you referring to? Despite what some online and even some BP people may state, finding subject-to commercial deals in the sense most people mean them are almost non-existent. If what you mean is a commercial building with owner financing, that can be found, but you're still going to need 10-30% of a down payment on average. Nearly all new commercial loans made over the past 15-20 years have acceleration clauses which force the full loan repayment in the event of a property sale, so the idea that you're going to take over payments on a commercial loan without the lender finding out are near zero. They get notified by title any time a transfer is initiated, and if there are liens, you would have to get it removed to transfer title anyway.

If I were starting over again, I would specialize in an asset class right out of the gate and become an expert at it. I would be hyper focused on one segment of my local market or niche so I would become the "go-to" guy for deals, thoughts, and perspectives, realizing it's a 30+ year play. Over time you'll be able to join in on deals you are brokering instead of just getting commissions, which allow you to grow your net worth while also collecting large fees. 

@Dawn MacMillan that is an excellent segment of the market that in vastly underserved in most communities (at least the ones that provide excellent care and amenities). I'm not quite sure if you meant your past rentals were used for adult care or not, so if not, it would be beneficial to start by reviewing the city/county code requirements for converting a residential home into a care home. The state licensing has also been mentioned already, so make sure that gets started as well as it takes a fair amount of time to get processed and approved.

Beyond the permissions and licenses though, start by surveying what the need is for Kingman by compiling a list of all the current homes available, vacancies, rates, services provided, and then drive by and tour as many as possible. This will provide you the insight as to what the competition is and where market share can best be achieved. Is it better amenities? Better staffing? Better location? Activities? Proximity to hospitals and professional care? Make your list of what is working and what is missing and then base your plan around a model that competes within that market.

My personal perspective, go for the high-end of the adult care market. You will be investing the same time and energy to hire and train staff, outfit the home, locate services, etc., so you might as well go for the highest ROI possible. You won't being paying higher staffing, food, medications, and amenities, so you might as well go for the highest ROI possible by attracting guests who want a high quality and attractive house. Having the largest and best positioned property in your market will set you apart from you competitors and leave a positive lasting impression on those considering your services. Happy to connect and assist if that is beneficial to you.

@Junior Francica Great questions. Beyond what a few others have already shared, the leases will likely be an issue for most lenders in the current market. Most lenders view a lease of 12 months or less as a potential vacancy as they is no guarantee that the tenants remain. If they don't gross income will be reduced which will increase their risk. What I'm seeing across the nation is much higher down payment requirements for office property unless you occupy 50% or higher of the gross rentable area. A more frequent LTV would be 30-35% in the current market.

A question I didn't see answered is why you are considering investing in commercial real estate. Is it just because you happen to occupy space in this building and want to "control" your rents, or are there other reasons? Have you evaluated this opportunity against other office buildings in this or other markets? While it might be a good deal for someone, it might not be a good deal for you unless it aligns with your overall investment strategy and how you need the money to work for you. Happy to connect if that is helpful.

@Sam Chicquen Have you shown anyone you're serious by investing the time/money to actually visit Atlanta, meet with brokers, wholesalers, attorney's, contractors, and sellers? If you have, and you still aren't getting traction, it's likely due to your presentation / value-prop. I know from experience that many industry professionals often overlook someone who looks super young or is considered a newbie if all they are contributing is a "plan" without some level of substance and resources. For instances, I get calls frequently from new investors stating they want to get into "investing" in a commercial deal and they are looking for a broker to work with. But when I start asking about their plan and resources, they turn out to only have a plan and very limited or no available resources. If you are relying on 100% others people's money, you don't live in the area you are trying to work in, and you need other people to do a vast majority of the work (ie. find the deal, fund the deal, close the deal), that will often hold back high producing vendors from working with you. They want to see that you have actual skin in the game. Can you call around and find the deals? Can you fund the initial deal or two yourself, then refi out later? Can you meet with vendors in person as/when needed.

Another question, have you posted this question in the residential forum yet? Likely a better spot for it with a wider audience of brokers and members in the residential space. Just a thought.

@John Underwood interesting, but arbitrary unless they are comparing like-kind vacation and STR units. Vacation rentals often have more bedrooms, while many STR's include studio and other small 1-2 person rooms. I believe the stats would show up much differently if they were to compare 100 vacation rentals of 3 bedrooms vs. 100 STR's with 3 bedrooms, in the same market. We have a short term rental a suburb of Phoenix and our occupancy outperforms the majority of the vacation rentals in the same area.

@John McKee this happens often enough as renewal or option periods approach. In essence, the tenant is looking for incentive to stay to compare against any enticements they may be receiving to relocate. Depending on the industry, relocating is very expensive, and especially so for those in the quick serve retail (QSR) segment. The average cost is around $500,000 just to move across the street, so unless there is a vacant and turn-key key former QSR for a tenant to relocate to that doesn't violate or infringe on any territorial limits or franchisee agreements, they likely aren't going anywhere whether you do or don't contribute to new TI's. When we have worked with long-term tenants requesting TI's as part of a renewal, we limit our contributions to items that truly benefit the property/space in the event they were to vacate during the term of the lease or shortly after. Items like HVAC replacements, wiring, and plumbing. Nothing cosmetic unless the LL is obligated to due it as part of the lease, which would be very rare for a ground-lease structure. As others have mentioned, any TI's given would need to be justified by the rents they would be paying (assuming an annual increase) and the length of additional months/years being agreed to. The longer the new term, the more we may be willing to contribute.

Finally, if you opted to give a TI credit, I would suggest structuring so the tenant fronts all cost, gets permits and final occupancy from the city, and confirmation that no liens have been placed against the property, and you get copies of all paid invoices specific to the work performed. Once all of that is completed, the tenant gets reimbursed for whatever amount you pre-agreed to either in a lump sum or over several months. It can take the form of a rent credit or just sending them a check. 

@Brent Thomas are you working with a commercial real estate broker? That's where I would start. A good commercial broker will already know that segment of the market, potential areas to consider and avoid, can pull you any report needed for traffic flow, densities, distances to major employers, ports, logistics scores, etc. Your broker will also be able to pull vacancy reports and heat maps showing where the greatest flex space needs are at throughout the Houston market, not just available land that is zoned properly. You don't want to invest in an area that is already saturated with the same product type you want to build. If you don't have a good commercial contact in the Houston area, reach out and I can connect with someone.