All Forum Posts by: Jarrett Duncan

Investment Info:

Other commercial investment investment in Phoenix.

Purchase price: $490,000
Cash invested: $160,000

This property is a residential assisted living facility in the Phoenix, AZ metro. It is licensed for 10 residents and we have a long-term lease in place with an experienced ALF operator. We will also be putting about $30,000 of renovations/repairs into the property immediately after closing.

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

We purchased a similar property 2 years ago and have been leasing it to an ALF operator under a similar model. The "tenants" are typically elderly and so are very low-impact on the property. The lease terms are typically about 2x market rent for an ordinary SFH and the leases are typically 3-5 years in length so they provide much more stability and less vacancy overall.

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

I started reaching out directly to numerous brokers in the area over a year ago that had ALF properties for sale. I would introduce myself and tell them the exact model I was looking for to see if the property they had listed might be a fit. Most times, the seller owns the business and the real estate and wants to sell both. Through this direct contact I established a great relationship with a local broker who is well established in the ALF market and eventually brought me this deal.

How did you finance this deal?

We went under contract just before the COVID-19 lockdowns started going into place. At first, it seemed every commercial lender we talked to could finance this and we were just looking for the best terms. In the matter of a couple weeks, the commercial financing market completely dried up. We spoke to at least 20+ commercial lenders and kept getting the same answers: they either weren't lending or had drastically changed their terms. We eventually found one willing to lend at favorable terms.

How did you add value to the deal?

The difference in valuation between a SFH and a licensed and converted ALF is immense ($125k difference in appraisals in this case). We were able to buy below market value and by doing additional renovations/repairs to improve the quality and appearance of the facility, as well as getting a long-term lease in place with an experienced operator, we will add additional value to the property.

What was the outcome?

We are in the process of completing the final renovations and repairs and the tenant will be beginning operations later this month.

Lessons learned? Challenges?

The biggest issue we encountered was the financing, mostly due to COVID-19 and the tightening of the credit markets. You typically can't get residential financing on these type of properties since you're using a commercial lease, and not every commercial lender understands this type of property or can lend on it. Understanding the licensing and ALF state requirements for the property are another dynamic that you have to work past.

Congratulations @Pancham G.!  Thanks for sharing.  Best of luck with all your future endeavors!  

Hello BP,

I'm looking into purchasing a property in Sarasota, FL that is built on a large parcel and includes some vacant land.  My plan would be to subdivide the land and sell off the vacant lots at some point after closing.  I've spoken with the local zoning department and confirmed how the vacant land could be subdivided and for what use.  I'm just curious if anyone has any recommendations for brokers in the area who specialize in land sales/development?  I'm not familiar with land valuation and transactions so looking for someone with expertise in this area.

Thanks in advance!

Jarrett Duncan

Great, thanks for the recommendation Matt.  The eviction flow chart on their website is helpful as well.  I'll definitely give them a call.

Thanks for the response Teri.  I'll likely end up posting the notice like you said, just wasn't sure if it was necessary or not.  I inherited the lease when I bought the property.  I'm going to at least try to extend it into the spring time if possible.

Hello BP,

One of the leases on my duplex in Denver is due to expire December 1.  I had previous correspondence with the current tenant about 30 days ago and they stated they intended to renew on a new 12 month lease.  However, I've followed up with them numerous times over the last few days and haven't received a response.  

My question is if I'd need to serve them with a Notice to Quit if they have not vacated the day after their lease expires, or if I can begin the eviction process on day 1.  I understand I could let them continue month to month, but I do not want the uncertainty and prefer a 12 month lease.  My lease states the tenant will vacate the property at the end of the lease duration unless we agree to a new lease or I accept month to month payments, which I will not.  

I've spent a lot of time researching this online but can't find anything definitive on how to start the process.  I downloaded the Notice to Quit form from the state of Colorado website, but at the bottom it states "(1)No notice to quit shall be necessary from or to a tenant whose term is, by agreement, to end at a time certain."

I would imagine this means I can begin the eviction process the day after the lease termination without serving a 3 day notice but want to confirm.  The tenant could obviously vacate prior to this but I'm just trying to be proactive in the event they don't.

Thanks.

@Mike Cumbie Thanks for the feedback, I can certainly understand why realtors are choosing to do so.  My guess is that as more and more start to encounter the issues you outlined above, they will start to follow a similar model to protect their time and efforts.

@Caleb Heimsoth It's not about not closing, if I have an accepted offer I'm going to do everything I can to close the deal.  My concern is paying a retainer/hourly fee during the due diligence process when you might either walk from the deal if the numbers don't make sense (before making an offer) or get outbid.  This could lead some people to jump into a bad deal to justify the fees they already owe the realtor.

The two realtors I've come across that are doing this seem to be experienced and very well respected based on the research I've done.  

Hey guys,

I own a rental property in Denver but have recently been searching/buying out of state due to the price points and to diversify across different markets.  I recently closed on a 4plex in FL but had a less than stellar experience with my realtor.  I'm now exploring other markets and trying to build up a team, and I've encountered a couple brokers in both AZ and FL who require either a retainer fee or charge by the hour for their services (identifying, evaluating, walkthroughs, etc.).  Both credit this back to you at closing (against their commission), assuming you close on the property.  If you don't eventually close on a property, you forfeit that money.

I'm just curious if anyone else has worked with a realtor/broker under this arrangement and what their thoughts/experiences were?  I obviously understand their reasoning for doing this to safeguard against people wasting their time and that is definitely not my intent.  However, this is different from the typical broker arrangement so just wanted to see if anyone else has had experience with this and how it worked out for them.

Thanks!

Jarrett Duncan

Hey Ani,

I was finally able to arrange a workaround with my lender that allowed us to keep my partners name off the mortgage and thus off the title. I was then able to form the LP with myself as general partner and him as a limited partner, and took out an umbrella policy to cover my liability. 

In the future, I would recommend having your partner fund his portion into your bank account at least 2 months out so it won’t show up when you submit your past 2 months bank statements to the lender. This should hopefully prevent any issues with keeping your partner off the loan/title. 

Good luck, keep me posted on how things work out! 

Hello BP,

I'm wondering if anyone can shed some light on how they have structured partnership agreements in the past?  I'm trying to structure a deal on a 4plex I'm under contract on.  My partner is funding most of the down payment and closing costs as a limited partner. However, the bank is requiring his name to be on the mortgage since he is providing the down payment. Additionally, they are requiring his name to be on the title since he is on the mortgage. 

This is an issue because I was looking to setup a LP with myself as general partner and him as a limited partner and keep his name off the title, thus eliminating his liability, but this is preventing me from doing so. I also know we run the risk of triggering the due on sale clause if we try to quit claim the title to a LLC. I'd love to hear any insights/information anyone could provide that would help me work around this issue.

Thanks!

Jarrett Duncan