All Forum Posts by: Jean G.

@Ross Greene

thanks for the advice. That leaves me the risk of not being approved for the loan at the end though, right? My understanding of a financing contingency is that I can get out if I am not approved, but not for any other reason. So if I waive my inspection contingency after my sucessful due dilligence, and have say 10 more days after that by which the financing contingency will waive automatically, then there is not way for me to get out during these 10 days after the inspection and before the automatic waiver of the financing contingency? 

Please explain if I misunderstood how this works.

Jean

Hello,

I was trying to get a 48 unit complex (rural but stable area with just under 10% cap) under contract. There were 2 offers being considered by the seller (ours and that of another group) and we were asked for highest and best due yesterday. The broker highly suggested that we make the earnest money non refundable at some point in the process, or waive the financing contingency, but my partner in the deal (much more experienced than me) was adamantly against this, saying that we would loose all leverage in case of any misrepresentation/surprises discovered later on in the process.

I was just informed today that the seller selected the other offer, mainly because they agreed to make the earnest money non refundable at the end of a short 7 day inspection period.

I know that the story is not over till it's over, but I was wondering how common it is to make the earnest money non refundable at some point in the process (specially if your offer is financed and not cash), in a multifamily deal? Do you consider this risky if the due diligence was thorough?

Maybe Brian Burke can chime in?

Jean

Hello,

I am also considering a first trust deed investment with them and I am also not finding any information here. Apparently they are also called FMC Lending and are somehow affiliated to Athas Capital (although I'm not exactly sure how.).

If anyone has any experience on them, please share.

Jean

Just wanted to provide an update: I haven't found the information I was looking for, but found some other interesting information about USDA loans for multifamily properties: these loans are not intended for acquisition of a performing property. The loan requires that a minimum of $6500 of rehab be performed in each unit (this is the minimum, typically the USDA requires more). Also, while these loans can go to 90% LTV, they only go to 50% LTC.

So this is not what I was looking for at the moment.

Jean

Hi @Brian Burke

Thanks a lot, that answers my question precisely. In other words it works how all partners decide that it will work and I can see the advantages and disadvantages of each method for the 2 parties (like that you pay less total pref if you reduce the principal along the way and the other way around).

This also explains why the lawyers have no opinion on this when I ask them, since it is basically a business question and the lawyers will write it whatever way the sponsor and investor decide on a case by case basis...

Thanks again for the great content. If you're every wondering about your next blog post, a summary of this would be very useful for anyone looking to syndicate. Otherwise I may write this up myself after I've done it a few times...

Jean

@Brian Burke

I guess I thought that you use the preferred return to repay the capital, so anything paid as preferred return reduces the capital contribution account, but given what you just explained it doesn't seem to work like that as I have to pay them their preferred return on the entire capital plus their capital.

So the question is: what extinguishes the preferred return (ie counts as repayment of capital, whether the entire capital or a little bit of it) during the holding period? Is it only if I specifically repay their capital through liquidities of the company that are not paid as preferred return or part of the waterfall, for example liquidities from a refinance?

Jean

Hi Shannon,

what type of interest rate and LTV?

Jean

@Brian Burke,

thanks a lot, this is great content and information not easily found out there, specially since you do a lot of these and know how to actually attract investors (I listened to your podcast a while ago)! I completely agree with your position on re-balancing. If an investor took the risk to invest with me, they should also reap the rewards, and I can certainly see how you will get that capital right back to invest it again into another deal once you have repaid it. I just wanted to make sure I understand how it's commonly done. You can be sure that I will follow YOUR recipe since it has obviously worked for you, and you are kind enough to share it.

Last question (I hope):

In the same spirit of being fair to investors: if you sell the asset before the investor's capital has been fully repaid (maybe you dispose it early because it's the right time), what happens with the proceeds? In particular, if there was a preferred return and let's say the investor put in $400k, got $300k back via preferred return so far and an additional $150k back as share of remaining cash flow over the years (so he actually got $450k back in aggregate), and there is a profit when the asset is sold, would you first give the investor $100k (the remaining portion of his capital not paid via preferred return) before splitting the rest of the sale profits according to what was agreed, or would you consider that the capital was already returned (as he got a combined $450k), and proceed directly to splitting the proceeds of the sale?

I hope the question is not too convoluted...

Jean

@Stephen Jantz

My cabinet guy is Gus Rodriguez [email protected] Cell 5108253447 (He is in Vegas even though he has a 510 cellphone number). Again, not China prices though. He did very good work at a very reasonable price, and understood what we wanted right away. He also made custom jewelry displays for us as well as furniture for my daughter's nursery.

Here is also a granite fabricator I've used before in Las Vegas. Probably not the cheapest, but good work and good prices: Custom Granite Masters, Victor, 702-413-2457

I think the transport will cost a fortune though, unless you do it yourself. If you can get your slabs to St George, then you can use the following fabricator in St George: Granite Source, Dell, [email protected]. They work with Anasazi stone and are extremely customer service oriented. If you speak to Dell (Granite Source) or Ryan (Anasazi Stone), they may have a truck going between Vegas and St George for their own slabs and could possibly bring your slabs over to St George...

Jean

@Brian Burke,

thanks so much! I've asked several people to explain this to me over the last few days (from lawyers to other investors) and from those who even understood my question, you're the only one to provide an answer that makes sense. So thanks a lot!

So you're advocating to leave the equity as is after return of capital, and I can see how that makes sense. It could probably also make sense to reduce the investor's equity to some extent after return of capital, so not remove them, but tilt the balance a little more in the sponsor's favor (and I only thought of this because it was mentioned in a podcast if I recall)

But if you're leaving the investor in the deal indefinitely as you suggest, is it acceptable to not talk specifically about return of capital at all in a situation where there is no preferred return? In other words, if you have no preferred return to extinguish, then why bother tracking the cumulative amount paid out at all? The investors get their share of the profit paid indefinitely and it amounts to whatever it amounts to over time. Up to them to keep track of whenever their capital was returned, if that's an important measure to them? I myself would just see it as money being invested with x% annual return. When you put your money into a savings account, you're also not tracking when your principal has been returned?

Any thoughts on that?

Jean