All Forum Posts by: George Bruton

One key item I have learned so far in my pursuit to build a real estate portfolio is finding deals takes time and energy, and to find great deals almost comes down to being in the right place at the right time.

With that said I found such a deal, I'm currently in escrow on a 9 unit property in California.

PROS - Fantastic location, Rents have not been raised in 15-20 years. Significant selling upside.

CONS - The building is very old and has been neglected.

Once I take possession of the property I can go in and invest around $50,000 for new appliances and small maintenance issues and raise the rents to current and it will cash flow $58,803 after all expenses. If we make some additional changes to make the building more efficient turning some 2 bedrooms into 3 we are confident it would cash flow around $73,000 and has the potential to be around $98,000.

The current interest rate is 6.5% and that is being carried by the owner due to the bank not being able to qualify the property due to the low rent roll.

Owner terms are 6.5% - with a 10-year balloon over 30 years amortized.

Once I refi I can save around another $1,900 a month.

The purchase price is $2,000,000 and other properties around it that will have the same cashflow are selling for $4,200,000- $4,700,000 but our plan is to buy and hold.

I know many of you will ask for more details and I have no issues answering those questions, but to keep this post somewhat short I'm going to jump right to my challenge.

I had budgeted $250,000 when I first looked at this deal and had no plans to tear down and build up. Still, do not.

The last item that is concerning is the property does not sit fully on a concrete foundation. The back part of the building has sunk into the dirt and will eventually need to be addressed by being lifted and pouring a new foundation. I have been given a very large range of what this could cost.

So my questions are these.

In the excel spreadsheet when you take in all the numbers the property looks amazing. Cashflows very strong and upside sales opportunity is significant. But with so many issues with the building what would you do?

1. Close - Fix little and enjoy the cash flow - Worry about the big items later or sell?

2. Close - Enjoy the cash flow but fix items over the long term and hold.

3. Walk - To much risk with so much deferred maintenance + the unknowns.

My overall question is: Does this much-deferred maintenance scare anyone or do you feel this is just part of the deal/process for opportunities like this?

I should add the owner is in their late '80s and as some here might have experienced it can be difficult to justify/explain/work with someone in the mindset of "I do not care".  I have tried to get additional drops in the price due to these issues and it is a nonstarter.

Thanks,

GB 

Not sure what state this is happening in.  But in California, a person/company can not charge that type of % and would be considered predatory lending and is illegal.  I believe the max is 12% or 13% and I sure other states have the same or similar laws. 

Ty, Why not just call the owner directly?   His contact number and name is right on the LoopNet listing.

A close friend of mine's family has a 11 acre plot of land in a large city in Southern California.   Back in 2008, Lennar was going to purchase the land for a housing development due to location(city) and it was directly across the street from a public elementary School.  Due to the downturn, that deal fell thru.    The family never sold and now due to a death in the family, the kids are discussing what to do with the land.   Being close to the family they asked if I would be interested in buying or working with them on developing it.  (something I know nothing about but I do have strong relationships with large developers who I could take the deal to eventually).

It is currently zoned for 1-acre parcels for residential and they just had the land appraised at $1.9 Million.    

I know the land would have to be rezoned to build significantly more homes to make it worth it, but how would one go about valuing the land? And valuing the land if the cost to rezone has to be included?

Essentially, I have the opportunity to work an off-market deal that could turn into a decent return if I can structure the land purchase correctly.    

How does one go about valuing the land?  Homes are selling for around 400-600k in nearby developments.  

They are open to seller finance or would like to be included in the potential upside of the development with their contribution being the land if they could receive around $300,000 up front due to the fact they are not financially well off and the cash would help them significantly. 

If anyone has experience with this What/How would you structure this deal and What would be your view on the purchase price of the land?

I would like to point out I understand development can take years and have no expectations for this to be built or completed in any short period.  

Thank you,

GB

Thank you for sharing Jason.   How many units are you looking at?   4plex?   Or larger buildings?

Our of curiosity what made you choose Allentown?   Some of my family is from Jim Thorpe and when I was visiting over the summer they where talking about Allentown etc.  Sounded like it has some positive momentum going on.   

Multi-Family? 

Best,

George

Thanks, everyone for the quick responses and information.    I apologize for the example I used comparing beach property to midwest.  It just happened to be a deal I was looking at before I wrote the post.    Let me amend that by providing the comparison of a 30+ unit in Riverside, CA for $5M+ to the Dallas, TX property for $3m.  

I can fully grasp and understand the bottom line is NOI and trust me there is no emotion involved when looking at these opportunities.

What I was looking for is to have better insight and understanding to your mindset and business decisions on why you might put cash to work in a state with the very high cost to acquire vs buy out of state were the dollar appears to go much further.    

From what Michael stated it sounds like it comes down to the time frame and potential acceleration of appreciation?  For me personally, the appreciation is great but not the first item on the checklist which is cash flow as we are planning on holding these investments for 20+ years. 

Best,

George

Hi Everyone,

I'm looking to invest in multi-family properties within the range of 2-5M.   I currently live in Southern California and have been searching for opportunities here but find that many deals are overpriced and make it a challenge to cash flow.   With that said after reading on this site and others, many contributors discuss deals in midwest and east coast that have very low door rate vs California.    There was a post I was just reading about investing in Indy and buying 4 plexs for under $300k.   I could only dream of finding that type of deal here.

I can pick up an 8 unit property near the beach for $2.9M currently.   If I take that $3M to Dallas Tx.  I found a 38 unit property for less than $2.9.  I understand rents would be lower on the Dallas opp. vs the Beach opp. but I would be making it up with units.   Clearly, there are big investors here in the California markets so there is money to be made.   But what would be the business case to stay and invest here vs outside in states where you get much much more for your $?     

I apologize if this is a basic question and I did try searching the forum with no luck.

Thank you,

George