All Forum Posts by: Jeremy T.

A peer asked my to analyze a deal where they plan to build three condos and a storefront. After selling off the condos they would presumably keep the storefront? Or do people sell the storefront? Here are the rough numbers that were shared:

Total Size: 7,500Sq.Ft.

Buy: $350k

Build $850k

All in: $1.2M

Exit $1.4M + $175k storefront valuation

How do I know whether this is a good deal? On the surface, I want to tell them it's a very good deal because you have cashflow from the sale of condos plus a financing exit with the cash out refi on the storefront. If you've done deals like this appreciate your feedback.

@Linda B. when my business partners @David Ross and @Troy Sheets first sat down we wrote a 1-page strategy document for where we wanted to be in the next 1 year, 3 years, and 5 years. For each phase of our plan we included the following:

- expected ROI

- Cash involvement

- Target leverage ratio

- Pre-tax earnings

- Community reinvestment

Contributing to the community where we invest is integral to our success. Troy posted in an earlier thread our discounted rent program for an employee at a local NGO. I agree with @Carolyn Morales that we have to be smart about how we give back; if we give away for free we're likely to get walked all over, so instead we discount the rent by around 25% below the low end of market rental rates in this instance. 

Similar to what @Curt Davis is describing we also target all of our projects to be energy and eco friendly. In a flip we did in Philadelphia we probably paid an extra 8k just to upgrade the HVAC to ductless split minis that offer a lower carbon footprint. This same project, and how we spec out all our flips and our new construction projects target the same eco friendly design with features like tankless hot water heaters, energy start appliances and upgraded insulation. I'm not sure if we are going to pay for LEED certification but our projects target Energy Star standards.

Another idea I have been tossing around is the idea of offering a 10% rebate (or fixed dollar payment, e.g. $20/month) to tenants who subscribe to a wind/solar/renewable resource energy supplier. A larger new construction buy & hold rental project we are specing out may go all electric to reduce the lead time for having the gas company setup the lines, permitting etc. and this would make adopting the renewable energy credit program more feasible.

Many of these projects offer state, local and federal tax credits and we have to get smarter about those programs. In the meantime, what we are thinking about and doing just makes sense from a marketing, total cost of ownership, and simply 'right thing to do' perspective. We're probably not winning awards for the cheapest fastest build but I'd like to think we're having a good time and whatever, most of the time we usually come out ahead.

Good luck and looking forward to other people's ideas!

@Brandon Reynolds I hear you. You think big, follow the rules, and find you've achieved your goals either as planned, or in your case, ahead of schedule. What I would suggest from my vantage point of reasonably the same level of financial security (proportionate to being a little older) is to stay the course. Here's a few quick tips that I would offer specific to your situation (of course, as @Account Closed said this is an internet forum and we are strangers so take it with a grain of salt!).

1. Stay the course with your financial plan. You are starting off well with your retirement and your wife's retirement. Consider continuing this savings plan rather than stopping. Your wife should be able to contribute to a Roth IRA or a normal IRA or some form of retirement, you should be in a position to continue to do the same. Sounds like you are contributing to a college fund, suggest continuing in this regard. The downside of retirement is you're transferring control to other people to manage your money who invest in other companies whose managers are sometimes idiots. But for the most part, it becomes a savings account you can count on in the long term. Strongly dissuade stopping what has worked well to give you financial stability (retirement, good debt to income, liquidity) - and the banks would probably see it the same way.

2. Buy a house and manage the project. It clearly sounds like you have the balance sheet to take on a moderate single family home project. Because you have a good financial footing you can probably qualify for a 20% down, 100% rehab loan from a local community bank or credit union (or one of the bigger banks but they can be more difficult and time consuming to deal with). Use your expertise to choose an area where you can buy a fixer upper either as a flip or rental property. Spend some time driving the blocks and really try and pinpoint your area. Then find out the realtors that are selling the distressed, run down, rehab needed homes and let them know you are a buyer. Develop a relationship with a bank so you know they are on your side once the realtor finds you a deal. (Here is a thread I posted on how to find properties.)

3. Manage the project. Take your time, plan it out, involve your spouse as much as they are interested, and do what you do best. Some people will tell you to run the business - i.e. hire other people to do the work and manage them - others prefer to be the workers. Up to you whichever you prefer, maybe try one the first time and a different approach the next time. From your brief self description sounds like you might want to take this one on yourself.

4. Don't forget about the spouse & kids. Know what you need to give your family before you start giving your time away to this new project. A banker I am networking with to try and understand what is needed to finance larger projects (you would think it's the cure to cancer, irradiating smallpox, and alleviating poverty...) recently wrote this quote and I am sharing it with you as much as it's probably helpful self-reflection for any BP members, "many [entrepreneurs] rarely get a chance to spend time in that house because they are so caught up in being entrepreneurs."

5. Work as a team. Finally, spend time developing your team. Even if you only do one deal every year or so you want to align yourself with a good realtor, contractors and subs, a good title company, and a bank that can service your real estate investment needs. Whether you end up doing all the work yourself or managing others, keeping a "team" perspective is important to get through the tough times that will surely come; and it will also help alleviate your early onset of midlife crisis.

In any case... you're in an enviable position! Good luck and enjoy!

@Austin Works we source the majority of our deals worth sourcing by two means: direct mail marketing and driving the block. I personally like the drive the block method because no one I've ever met actually looks forward to junk mail (other than post office executives). Here's a few tips from our experience:

1. As you said, go to the property assessor's website to look for the name of the owner and the address.

2. Check the county tax website to see if taxes are paid, or how long since they were last paid. If they are up to date chances are the owners are alive and active and you have a good chance tracking them down. If they are long since not paid - like 10+ years and actively in collection then you are at a cross roads, either (a) call the collector listed as handling the case (or call the revenue office directly) and express an interest in buying the property and that may encourage them to push it to tax sale within the next 1-2 years; or (b) start focusing on tracking down the estate and heirs because the owner has probably died.

3. Whether the owner is alive or not our next move is to use Lexis Nexis or a version, like Spokeo or lots of other less costly options to track down the owner based on name, address, any sort of information available. We only have access to public information but if you are a lawyer or work with a private investigator I have heard they have privileged access, like access to financial data that can tell you where the person has their bills sent or the address on a driver's license. Like I said, we don't have this access and generally steer clear of anything non-public for fear of breaching some kind of ethics or legal requirement. Also... we have been pretty successful with public records.

4. Persistence. Just keep going down the names and try and figure it out. You can try ancestry websites, but I've also asked a friend who is a genealogist to track down the heirs and that worked out very well. However, going back to the crossroads point, you might find it easier and better to push the property into a sheriff sale. For example, when I finally did locate the owner for one of our properties we're now stuck paying full market price. That's fine, but you have to be prepared for the consequences of letting someone know a long lost relative may have something of value.

5. Lastly, ask the neighbors. We've done this and it's either given us a direct link to the owner or provided enough extra information to locate owners on Lexis Nexis or equivalent databases.

If you have a better way or see something posted somewhere else let me know... we're always trying to improve this method b/c it really is where you can make the best deals - either b/c the asset is strategically located and important for your portfolio or b/c the owner is just happy to dispose of the asset for any fair price.

Good luck, I hope that helps! 

@Jeff Zenko Welcome! My business partner @Troy Sheets works out of Conshy most days of the week (or so he says), might be worth getting together with @Charles McCabe if you are all out there. 

@Joe T. this is a tough situation and I think most of us have been there. I've had many almost deals go by because lenders promised any nature of things that didn't happen - either it took 6 months when it was supposed to take 3 weeks or they ultimately said "no" when everything about our conversation and written follow up said "yes". 

@David Hines probably said it best. Until the bank ask to SCHEDULE CLOSING you don't have a "yes" no matter what they tell you. As an immediate solution you might want to go look for a private money lender or pay in cash and then quickly refinance. I've had to do this on at least 2 deals in the past few months. You sort of get used to things not working out and among the many things to not work out, honestly, having the bank not follow through is the least worst thing that can happen.

Worst thing is probably buying or being stuck buying a place that turns out to be a stretch beyond your technical or financial means or thinking you can handle it only to find out everything behind the walls is not what the inspector said it was, hence their trap door clause "based on visual inspection".

Wish you the best, if it's a good deal hopefully you can come up with a short term cash or hard money solution and quickly refinance.

@Jen Etten With the caveat that I'm not a lawyer or CPA you should be able to still keep your financing separate between personal and business. Basically, your personal HELOC funds the LLC and the payment is recorded as a member contribution. As long as you run the LLC as a business then I don't know why or how you would be exposing your personal assets.

On the other hand, if you used your personal HELOC to take title in your personal name then clearly that is exposing your personal assets; or the same if you as the contractor were doing this without being inside an LLC (i.e. We are the GC, LLC).

With a HELOC you simplify the financing. Just make sure to keep the business structure in mind from an operations point of view. Your property, your contracting company - both of those should be in LLCs if you are operating this as a business versus as a personal activity.

We have a CPA that helps us answer these types of questions and does our company and personal taxes at the end of the year. CPAs charge less than lawyers, I'd recommend checking in with either for a quick conversation on this deal (even after the fact is better than not at all) and to set yourself up for success on the next one.

Making sure you are insured - for the property and total rehab expenses, and GC insurance - is also a good way to insulate exposing personal assets.

Congrats on the project!

@Dewey Jurich PM me and we can catch up. I'll introduce you to our credit union. They're amazing. These days most of our deals are partnerships, and most of the deals we originate are either one of three types all of which the credit union or their regional affiliate happily accommodate. I will share all the info so others can compare and push their lending partners a little harder on terms and comfort level. @Charlie Fitzgerald and @Jerry Padilla is the below comparable to what you're seeing out there?

What we do:

(i) Low complexity projects - acquisition cost $35k and rehab $60-85k; or acquisition cost $115-180k and rehab cost $100-140k.

(ii) Medium complexity projects - new home construction purchased the lot for $85k, construction budget probably around $240k; or triplex rental acquisition cost around $180k and rehab budget around $325k.

(iii) High complexity projects - purchased pretty much a city block and consolidating the lots into multiple phases of apartment buildings. 

The terms we are offered:

The terms they're generally offering for the low to medium complexity projects are 80% loan to cost on acquisition, or 80% loan to value if you cash close and then refinance (great option if you have the cash and are confident you're getting a better than market rate deal) and 100% construction or rehab costs. 

The terms offered on the high complexity projects are probably more typical, 25% equity investment required, 75% credit union will fund. However, they are still far easier to deal with than banks and now that they know us we are closing in under 30 days on most deals.

I would add though, and this is something my partner @David Ross often emphasizes, it is based on the relationship you build. When the credit union gives and gives and gives, think about stepping up your part of the deal. For example, I have a CD of a pretty good size that I leave in their account. I also kept 6 months interest payments in the bank when we first started out, now we are down to 3 months interest payments. Those are terms I recommended to the credit union, not required.

Look forward to hearing from you. Hope that helps!

@Mindy Jensen Awesome! Thank you for the tip, very good to know.

@Wes Brand would have to agree with @Jerry W. and @Lane Kawaoka from my experience, but I'd imagine lending is different in every region. I always opt for the line of credit over the loan. I like the idea of using credit unions and community banks, because we've had approvals in under 2 weeks while some of the bigger banks drag their feet so long it can be over two months to get anything done.