All Forum Posts by: Johnny Hastings

Thanks for all the responses folks! I'll be following up on these!

I have capital, and want to be a private lender. I really would like to talk to someone with experience doing this.

I have already found a borrower, but I don't know where to go from having capital, and having a borrower.

I've watched a bunch of youtube videos on the subject, and I've found some Promissory Note, Mortgage, and Deed of Trust forms that will work for my situation. Much of the info I can find is years old, or seems kind of spammy, so I'm unsure what to trust.

I understand property valuation, and the borrower is exploring a few properties to send me details on. He's a solid person, with a good track record on turning around property, and is putting together an appropriate package on each property he is going to seriously consider. 

If someone out there has some solid info on this subject, my ears are open. If I could chat about some of the nuances with someone, that would be fantastic. 

This post has been on CraigsList for a little while: 

https://wausau.craigslist.org/reo/d/wausau-land-contract-buildable-lot-in/7171854833.html

This isn't too far from my home. It's an established neighborhood. I know realtors around town, and they say there's a real need for smaller homes. I even have the cash to build a home on the lot. 

The land contract offer is $1,000 down, and the rest not due for 9 months. Seems like a good way to scoop it up, build a house, and then pay it off when the house sells. 

Alternatively, the lot seems to be worth about $15K, and he's only asking $10K. I could simply pick it up on the land contract, then try to find a buyer for $13K, and then sell it off right away; walking away with a few grand for little work. 

It's been almost 20 years since I went through the home building process, so it's a bit daunting. I did reach out to some prefab house builders in the area (Stratford Homes), but it seems like they're actually more expensive. I know a few contractors, and am on the cusp of reaching out to them regarding this. 

Thoughts/comments on this potential are very welcome! I'm basically looking for someone to light a fire under my behind to actually make a move here, lol.

@Jason Bilbrey Sadly, or perhaps happily, lol, it never came to pass. The property was pretty run down, and very mismanaged. They set a price, and wouldn't budge, and it was several hundred thousand dollars over the assessed value (which I didn't thing the property was worth in the first place). I'm sure I could have still turned a profit had I scooped it up, but it was a lot of work, and would have cost several hundred thousand just to get it back to a B class property. The property also had a rather bad reputation in Wausau, so finding decent tenants once the physical property was improved would have been a challenge as well. 

I always put up cheap plastic mini blinds. They almost always get destroyed by the time someone moves out. They cost between $20 and $30 each, so outfitting a unit is about $100 to $125. I've debated this same thing many times. At this point I'm confident that I could go without. Many tenants put up their own curtains immediately, and some even take down the blinds and put them in a closet. The apartment in question is a C+ grade building.

If you're running higher class apartments, I'd say you should put something up. If they're B- or less, I'd say you can go without. Just make any tenants that come look aware of the situation, so they aren't surprised by it on the day they move in. 

@Russell Gronsky  Thanks much for the info! That's very helpful with my direction here. I sort of got myself into analysis paralysis; that's mostly due to over thinking everything, and some weird desire to feel like I'm getting a decent deal here. 

Based on my numbers, the cash flow answer is 'yes'. They still cash flow reasonably well even at the assessed value. I'm just a bit worried about blowing all my available funds on the down payment, and having to limp along with a property I'm not happy to tell people that I own (due to condition). 

The market here is generally stable. When things were popping off elsewhere, it stayed really level here. The only real difference I noticed was that lending dried up. Property prices didn't fluctuate even remotely close to what you hear about in the big markets. 

I have been looking for other properties! I try to do something every day to make some progress toward that goal. I just sent out a direct mail to several property owners around the county, after a few weeks of steady research on each of their properties. 

I'm going to give her a call tonight, and discuss their motivation to sell. I think that's a great idea, and perhaps we can come to some agreement after that type of discussion. 

Thanks again for the wisdom! You're a credit to BP!

Just an update here. I've been trying to negotiate with the sellers, but they're holding this at a rather high value. They're refusing to go below the assessed value of $1.48M. The best valuation I've been able to offer is a touch over $700K. So far, we're getting no where, as they won't cave. I'll keep at it though. Going to see about some other possible tweaks to the deal to make it look better to the seller.

Thanks to both of you for that! I'll start by searching BP then, as I'm here already. Hopefully I can make a few contacts here, and then talk to the locals I've worked with before. 

@Scott Meitus I sent you a DM. We should definitely talk.

@Scott Anderson That feedback is very valuable! Thanks much, and consider it under consideration. 

@Scott Skinger I appreciate the links! Would you say all three of those are equivalent, or should I choose one over the other here?

Sorry for how long this is going to be. I'd like to get as much pertinent data in as possible. 

I'm looking at a deal, and I need to determine a valuation for the formal offer. 

The deal is a 52 unit apartment complex, spread out over 5 buildings. 

Condition of Buildings:

The buildings are mostly from the 1980s, and some have not been well maintained. I'll do a break down by unit count here:

8 units are in reasonably good condition. Only minor / cosmetic stuff required; I'd estimate around 2K per unit to get them to a standard I'd be happy with. Also, there's common areas in the building that would need to have the once over; carpet, paint, and so on. Probably $5K worth of work, total. That's $15K roughly to turn them around as I'd like to.

There's 8 more units that are in a similar state, but slightly more distressed. For the sake of simplicity, let's say $20K for the turn around. 

The remaining 36 units are in bad shape. I haven't been in any individual units in the buildings yet. I can say that from the outside there's a nightmare going on. There's several decks that appear to be falling off the building. There's a section on one (perhaps 20' x 30') where the siding has blown off, and needs to be put back up. The common areas need a complete overhaul: flooring, paint, and so on. All the apartment doors need replacement. The common areas feel scary, as they've painted the doors all black, done the floors in black tile, and there isn't good lighting. You get the idea here, but I cannot even estimate the cost of getting all this turned around as I'd like to.

One thing about them all is that the roofs are in good shape; they're newer, so won't need replacing. 

Of the 52 units, the rent rolls show 14 as vacant, and most of those not ready to be rented due to the condition of them. All the unrentable ones are in the 36 unit bunch of problem buildings. 

Valuation Commentary

So, how to value all this? Last time I made a large purchase it was done by simply calling it $35K per unit; the building was in great shape (built in 2002), but had tenant/management issues.

I could come up with something similar here, perhaps break it down by which building it's in. I'd also have to reduce that for any unit that isn't rentable. So for instance, say $27,500 per unit for the buildings in decent shape, $20K for each unit in a bad building, subtracting something to account for the ones that aren't rentable. My per unit numbers there are probably low, but it's just an example.

I could also do it based on Cap Rate. Given the condition of all the properties I'd use their incomes from their 2016 Schedule E forms, and put it at a 12% to 15% cap rate.

I really am investing here for cash flow, so I could also take a cash flow approach; again based upon their 2016 Schedule E forms. 

What are your thoughts on these approaches?

One other caveat to the valuation. I've worked this out so that it'll be seller financed. That gives them some additional sway in setting the price. They are very motivated to be rid of all these buildings however, so I'm not without leverage. 

I'd very much appreciate some advice here!