All Forum Posts by: Gabriel Graumann

@Justin Goodin It depends on what your goals for your investment career or real estate career are. If you are, or intend to be, a full-time commercial broker and wanting to move up in deal size and volume, it's a great designation to pursue. I was a broker for over a decade before I looked into it, and I should've done so sooner. As @Arn Cenedella suggested, the initial courses are in depth and can be daunting for someone who hasn't studied a college level math or economics course in a while, but in person instruction is helpful if you can get to a class somewhere nearby you. The time commitment is a real consideration too, and I would recommend setting a 2-year or less goal to getting it all done, because it will help to have it more fresh than not for the final exam. There are portfolio requirements as well that are necessary to qualify, so look over those to make sure your actual volume of work is in progress simultaneous to your studies.

In summary it's worth the pursuit if you want to enhance your abilities to broker larger and better analyze deals. Hope this helps.

@Michael Haas Great question, as not all are receptive to meeting in person. In this case the listing broker let it slip that the seller would be onsite to meet him "in an hour" so I simply asked if it was okay to meet in person with our offer instead of emailing it. They both agreed and the rest is in the story. Many of the deals I get like this are off-market, so that is easy as I'm knocking on the door or calling them directly. My perspective is this: most brokers are lazy (70-80% at least) and they "assume" the seller doesn't want to talk to anyone except them since they hired a broker. I believe this is a fallacy we brokers like to tell ourselves to make ourselves feel more important than we often are.

Our true value comes from making great deals happen that benefit our clients, so why not ask our client what THEY would like to do instead of assume it. I often phrase it in this way to other brokers, especially when I'm the buyer:

"Mr. Broker, thanks for talking through the details of the property with me. As the buyer myself, I can be incredibly creative in the way I structure a deal to make sure it takes into consideration all of the sellers objectives and still works for me in terms of how the offer is written. Now, I can send a written offer and then we go back and forth a lot until we ultimately arrive at something, but that costs us and them time and often money. Wouldn't it make sense if we simply met for 15 minutes and talked as a group so they truly understood how to many options I can provide them? You're going to be there, so you're not at risk of losing your client or getting cut out of the deal, and I'll leave when were finished so you can talk privately with your client."

Position it in a way that it shows you're not trying to get around the listing broker but actually setting him up to look good for finding such a great potential buyer. Just a thought. I'll be posting another deal I'm wrapping up from the Boise market soon where I employed this method and it worked out amazingly.

Who's actively engaged in daily rental arbitrage in the Phoenix metro, primarily in the Scottsdale/Mesa/East Valley markets? I'm putting a higher-end home under contract in the East Valley area of Phoenix and due to the location, size, and quality of living areas inside and out, I believe it's going to make a fabulous daily rental. We already have one group presenting us with an offer to sign a master lease for 4-5 years with the knowledge they intend to arbitrage it as a daily rental. They are presenting us with an offer to lease at a 20% increase over market rental rates, cover all expenses under $250, all other typical costs paid directly by them including pool maintenance, and give us 2-3 weeks of use annually (not holiday periods). We were "clients" of this group when we rented one of their houses for a month in April 2020, so we've seen them work a bit closer than many, and the house we are getting is an identical layout to the one we stayed in so we know the house very well also. It's in one of the most desirable, master planned communities also. 

QUESTIONS:

1. If you're in this space, what are the terms you've been offering to owners like me for the daily rental arbitrage opportunity?

2. Would utilizing a management company that handles daily rentals on my behalf present a larger return than doing one of these master leases, even with the additional liability and "business costs" such as furnishing, maintaining, utilities, etc.?

I'm out of state and we don't intend to live full-time out of this house for at least 5 years. Thanks in advance!

@Michael Morin unless there is something abnormally wrong with the property you intend to invest in, those fees are far above market for hard money. Keep shopping. If you have a solid plan in place for the invest showing a realistic ARV, rehab budget, timeline for repairs, present a good exit strategy, and you are getting the property at a price that makes all of the above a no-brainer, then you won't have an issue getting money for the deal. What it sounds like is that either you haven't presented a good enough plan to get good terms, or you haven't talked with enough money sources. As a comparison, here are the last three hard money quotes I was given for a North Seattle acquisition (all with a $600K acquisition cost):

Lender 1: 8.5% interest, 2 pts, 6-month term w/extension at same rate for 6 addition months, 10% down

Lender 2: 9% interest, 4 pts, 9-month term, 10% down

Lender 3: 10% interest, 1 pt, 6-month term w/extension at same rate for 6 addition months, 10% down

Happy to share more if needed.

@Christopher Hill thank you Christopher, your comment was exactly right. Any investor could have done the same thing I did on that one if they were teed up and ready to go. I was fortunate to be located so close to the property, and my habit of scanning the MLS each morning and evening was key to seeing this one before others got to it. Preparedness is key!

Investment Info:

Single-family residence wholesale investment.

Purchase price: $285,000
Sale price: $320,000

As I do with many of my potential fixers, I sent the listing to 5-6 investors including another investment group out of Seattle who had interest. We met the following day and were willing to take it on assignment, waiving all contingencies and close it within 13 days.

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

Large lot with shop, private location for being in the middle of the city, and plenty of upside for a BRRRR, fix & flip, or wholesale. I like deals with multiple exit strategies in place.

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

Property hit the MLS around 9:00am in the morning and happened to be just around the corner from my office. Toured it within 15-mins of it going live. It was listed on the local MLS and I was able to meet with the seller and his broker directly within 2 hours of the property going live. I had an offer in hand that with an 1-hr expiration. Whenever possible, MEET IN PERSON with an OFFER IN HAND.

How did you finance this deal?

Utilized cash on hand for the EM, but wholesaled the deal prior to closing so additional funds not necessary.

How did you add value to the deal?

Marketed the property to investors looking for a project.

What was the outcome?

Wholesaled the deal for $25,000, and because I'm a licensed broker and the deal was assigned, I remained the broker of record for representing the assignee/buyer and collected the buy side commission.

Lessons learned? Challenges?

No challenges on this one, but a lessoned that was reinforced on this one is "meeting in person whenever possible is helpful for humanizing the process." Sellers are people and they have a variety of reasons for selling, so getting face to face to discuss these and work through the emotions is beneficial most of the time.

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

I'm a licensed broker, so I represented myself on the initial purchase followed by acting as the buyer's representing broker.

Investment Info:

Single-family residence wholesale investment.

Purchase price: $285,000
Sale price: $320,000

Property hit the MLS around 9:00am in the morning and happened to be just around the corner from my office. Toured it within 15-mins of it going live. Intended to fix and flip, so I arranged a meeting with the seller and his broker one hour later. I had an offer in hand that I gave a 1-hr expiration time frame. Seller agreed prior to us leaving the property. As I do with many of my potential fixers, I sent the listing to 5-6 investors including another investment group out of Seattle who had interest. We met the following day and were willing to take it on assignment, waiving all contingencies and close it within 13 days.

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

Large lot with shop, private location for being in the middle of the city, and plenty of upside for a BRRRR, fix & flip, or wholesale. I like deals with multiple exit strategies in place.

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

It was listed on the local MLS and I was able to meet with the seller and his broker directly within 2 hours of the property going live. Whenever possible, MEET IN PERSON with an OFFER IN HAND.

How did you finance this deal?

Utilized cash on hand for the EM, but wholesaled the deal prior to closing so additional funds not necessary.

How did you add value to the deal?

Marketed the property to investors looking for a project.

What was the outcome?

Wholesaled the deal for $25,000, and because I'm a licensed broker and the deal was assigned, I remained the broker of record for representing the assignee/buyer and collected the buy side commission.

Lessons learned? Challenges?

No challenges on this one, but a lessoned that was reinforced on this one is "meeting in person whenever possible is helpful for humanizing the process." Sellers are people and they have a variety of reasons for selling, so getting face to face to discuss these and work through the emotions is beneficial most of the time.

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

I'm a licensed broker, so I represented myself on the initial purchase followed by acting as the buyer's representing broker.

@Isacc Lightbourn plenty of members have already posted responses, so all I'll add is that a cap rate is a "moment in time" valuation that is only as good as the data used to plug into the calculation. Often I see investors use cap rate as the metric by which they pair one investment over another, or assign a future cap rate to a future disposition of an asset. This is fine for general planning purposes, but often varies greatly from reality.

• 1. What if the income increases more slowly than anticipated?
• 2. What is the market is trading at a different value on the disposition date?
• 3. What if the expenses aren't recaptured and increase/decrease at the disposition date?

All of the above factor into what the actual NOI is of an investment at one moment in time, and everything beyond that one moment is theoretical and proforma.

@Dave Zirkelbach There are several ways to approach this, but to use the adage, start with the end in mind. If the primary intention is to position the property for sale, start by determining what the market is for the type of property and building you have if it was vacant, and also what the going lease rates are for the condition, material type, location, etc.

Once you understand the market value for the building and land, you can move towards structuring a lease that may improve the value of the property at time of sale. As a previous member shared, a short term lease may be preferable if it's a weak tenant or weak financials. The business may be full, but how the clean are the books? They'll need to show 3 years tax returns, historical rents, bank statements, credit, etc. so make sure those are organized and ready to go PRIOR to bringing the property to the market for sale.

Assuming the business is financially strong, compare the lease terms to market standard terms. Is there an escape or termination clause for the tenant that may let them opt out prior to the end of the 15-year term? Are there scheduled rent increases, and if so, are they market average increases? Is there a cap on NNN expenses? Does the property need management, and if so, is it factored into the operating expenses? I know you shared there the only CAM was property taxes. However, the lease should define who pays in the event of a structural issue (roof, walls, foundation) and major maintenance (HVAC replacement, parking lot repairs, landscaping, windows, siding, etc.). Knowing who is actually responsible for these items impacts the value of the lease.

Once all of the above is known, you'll be in a position to compare it to other net lease or similarly advertised investment opportunities to know what the going value is. The CAP rates should be similar enough to attract an investor.

If you aren't able to do all of the above, find a good commercial broker (preferably a CCIM) who has experience preparing a sale like this. Hope this helps.

Investment Info:

Single-family residence fix & flip investment in Everett.

Purchase price: $375,000
Cash invested: $77,500
Sale price: $520,000

First Whole Family House Flip

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

My brother and father were looking for a fix & flip opportunity close to where they lived and this house was within 3 miles for each of them.

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

Property was listed on the MLS. Multiple bid situation with a review date, so I offered an all cash, quick closing, and a bit over asking price if the seller accepted the offer prior to the review date.

How did you finance this deal?

My father, brother and I partnered to pay cash for the acquisition and renovation budget.

How did you add value to the deal?

Full renovation of interiors, plus new roof & paint on exterior.

What was the outcome?

Property came to market at the start of the Washington state "stay home" order due to COVID-19, yet we had numerous tours in person and virtual, ultimately selling at $520,000. Total net profit for the capital invested was 7.5% which was below our target, yet all things considered on the timing of the resale, we were happy with the outcome for my brother's first deal.

Lessons learned? Challenges?

Due to our quick turn-around on the flip, which was under 50 days for a full renovation, the property did not qualify for FHA financing as the property hadn't passed the 90 day market between our recording as the new owner and the time we came back to market. We had interest from buyers at a higher price if we would agree to take it off-market and/or hold the property for them, but we opted to adjust the price and sell it as the uncertainty of the stay home order impacted near term sales.

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

I acted as the listing broker. Utilized BKCO Title & Escrow work at a flat fee of $800 and provide exceptional service. Conducted a pre-inspection through WIN Home Inspections.