All Forum Posts by: Jordan Northrup

I need some help in evaluating a wholesale deal that was initially pitched to me. I don't have any experience in this area, hence my posting about it. 

The property is a vacant hotel along the eastern sea shore. The town has good growth with lots of tourism/professional traffic. I'm told that the sellers want $2.25M for the deal. I asked the wholesaler how they arrived at that number and was told that the owner based it on how much he paid for it, back taxes, and what he needs to repay investors that he borrowed from originally. From what I can gather, the seller is elderly, underwater, and needs to get out as clean as he can. Since the property is vacant and has no NOI, how would you go about putting together a valuation methodology to decide if it's even worth investigating?

This is a really interesting concept. I read through the case study to understand a little more. What I didn't see was the rationale for selling the land once acquired. For example, I'm from a small town in northwestern Ohio. I could buy some tax delinquent lots for little money, but who is on the buying end? Is it farmers looking to expand? Is it developers looking to build commercial property?

Hey Zachary, I just checked them out. Wow. What a treasure trove of information. Thanks brother!

Hi everyone, I've been struggling to find a good multifamily valuation model. I've heard mixed reviews for some of the online valuation platforms. I've also got two models from A.CRE - the apartment value add model and the All-in-One model. These two look very comprehensive, but they're incredibly complicated, at least to me. I'm spending more time trying to understand and interpret all of the variables and inputs than I am in analyzing the deals I have on my desk.

Does anyone have experience with the A.CRE models and if so, could I get a tutorial? If not A.CRE, which ones do you like? Looking for any help you can provide. Thanks all!

Jay, those are good questions my man. 

First of all, yes, as a GP I will have a more active role in the management. One of the GPs will manage the actual business operations, I'll handle more of the Syndication LLC responsibilities. And yes, I will try to negotiate higher. I'm at a big of a disadvantage because I'm a late comer. I'm a US Marine, as is one of the other GPs, so there's a "family" connection there. He's letting me into the deal when he really doesn't need to. So, I want to justify my equity share by contributing. Does that make sense? Because of that dynamic, the notional structure is kind of already set. I have the ability to influence it to some degree, but the other 3 GPs won't do a wholehearted change of direction unless our lawyer tells them to.

As far as the exit strategy, I think the goal is to hold indefinitely. I'm sure they'll sell at some point, but that' snot part of the plan (like we'd do in a normal syndication). All returns are generated from the business operations (hotel, restaurant, B&B). The property is very profitable right now. In fact, it's turn key. It's an historic and beautiful property. The only issue is that the restaurant isn't running at 100%. The current owner owns many properties in town and hasn't really poured much attention into this one. He lives offshore in the Bahamas and wants to lighten his load. 

I agree that the 25% is much higher than we'd normally do on a standard syndication. The number is based on the NOI. I could send you the projections if you were interested in taking a look.

Again, thank you all for the advice. 

I'm not trying to do anything illegal. The deal was presented to me in this way...just trying to make some sense of it you know? It's not a standard syndicated deal model. Believe me, I'd prefer to do a traditional GP/LP construct like Jay Scott and some of you have said. That's what makes sense to me.

What struck me as odd was that the other GPs want me to network and raise the remaining $500k, but only giving me 5-10% of the equity. That seemed a little low for bringing that many LPs on board. 

Jay Scott's idea of having a Fund of Funds makes sense. Like I said, I'm trying to make sense of all this and I don't know what I don't know. I'm trying to keep myself out of the hot seat by asking questions. 

Hey everyone, I really appreciate the amount of interaction this post has received. Many thanks to the contributors, especially J. Scott. 

I think I need to be more clear about what's going on. 

1. This deal hasn't officially formed yet. It's in the planning stages. We have an LOI and the seller has verbally agreed, but no contract has been signed.

2. the property is a northern VA hotel, bed & breakfast, and a restaurant. The owner is spread thin, doesn't need the money, and wants to sell.

3. The proposed structure has me being one of (4) GPs. GP1 is a restaurant owner himself and will run the day-to-day. GP 2 & 3 found and negotiated the deal. I'm GP 4. My role is to help raise capital. Since most of the work has already been done, I'm being offered 10% equity. GP1 is getting around 40%, GP2 & GP3 are splitting the other 50%. None of the GPs are bringing any money to the deal.

4. The Offering is $800,000. That's the downpayment and some reserves. The deal will generate a 25% annual return for LP investing capital.

5. There are 2 LPs that have verbally committed to $300,000. The other GPs want me to raise the remaining $500k.

6. I have a pretty robust entreprenurial network and should be able to raise the money. 

7. My 10% equity generates about $4000 a month for me. One of the GPs suggested that I could bring the $500k as an LP, which would earn 25%. They suggested I arbitrage the $500k I raise, meaning I offer my "sub-investors" a lower RoR of say...15%. In that scenario, the RoR would be $125,000, $75,000 of which would go to my sub investors, leaving me with $50,000. 

8. The deal will be registered as a 506(b), and LLC will be formed with all proper documents, (PPM, OA, Questionnaires, etc).

That's probably enough background. So my questions are: 

1. Is this legal? 

2. What are the tax implications for me if it is, and

3. Is there a better way to raise the $500k? Would I be better served to offer individual promissory notes to my personal investors for their RoR? 

Thanks so much for your attention on this! I really do appreciate it!

Hey Micah, this deal is a little tricky. The deal was formed before I joined. The GPs needed capital so they brought me on. The property is a hotel and restaurant. I'm getting 10% ownership, plus the arbitrage between what I raise and what I pay "my investors". Does that make sense?  

I'm a partner on a $3M syndication deal in Northern Virginia. We have 4 General Partners and a very small number of LPs. I have a small ownership percentage; I will make a larger return by contributing $500,000 to the deal. In my LP role, I can expect a 25% annual return of $125,000. The problem is, I don't have $500,000...I have to raise it. 

I plan to offer "my investors" a smaller annual return of say....15%, meaning my return would essentially be the difference in 25%-15%. How should this be structure to minimize my tax liability? If this were to play out, I'd only be keeping $50,000 of the $125,000. Is there a way to pay taxes on my portion and not the whole amount?  

Chris, thanks man that's great advice. My rationale was that all three units are rented to long-term, older tenants who are single with no kids. My PM says the most junior tenant has been there for 7 years and no one has plans to leave. 

Your point about maintenance is a good one. Laundry is offsite, so is parking. The only appliances are refrigerators and stoves. The property is water heated through electricity which the tenants pay for. 

Since this is seller financing, do you have any thoughts on how to balance the down payment and rate? I have $30k in cash reserves for future projects, but I don't want to sink all of that on one deal you know?