All Forum Posts by: Juan V Lopez

Greetings BP fam – I acquired a 2-unit in Chicago in late February 2020 with the intent to BRRRR. Top-line numbers:

• Purchase price: $45,000 cash
• Rehab estimate from Project Manager & Contractor: $100,000
• Conservative ARV: $260,000
• Projected cash-out refinance after fees & interest at 70% LTV: > ~ $22,000

I had a hard money lender (Temple View Capital) lined up and literally the week I submitted our scope of work for the rehab budget was the week the Coronavirus started affecting the US, slowing the economy, closures, etc. They required only 10% down. 10% of $100K rehab means I would only be $10,000 in to get the rehab going.

Long story short – Temple View paused lending for a while and recently put out a statement saying they would continue lending but requiring minimum 25-30% down for all loans. I totally understand, a lot of lenders are locking up or increasing their requirements now.

My team in Chicago recommended either waiting for things to even out or possibly taking out a conventional loan at 70% LTV to start the rehab. But I don't want to invest another $30K into the property right now since I own a donut shop and the virus has taken a big toll on our cash flow. I need to stay liquid.

Question / TL;DR: Would you recommend pushing to get rehab going now and possibly putting down a higher down payment for the rehab loan? Does anyone know of hard money lenders still lending at 10% down? Or would you recommend waiting until things shake out and return to somewhat normal in the lending world before getting the rehab loan?

If I waited, the good thing is I own the building outright, so no mortgage or interest. Just minor utilities as monthly holding costs.

I appreciate any and all insights.

@Jonathan R McLaughlin – that's very creative, thank you for recommending that. Exactly the kind of thing I was looking for. I still may end up being on the wrong end of things when renegotiations are done, but I want to come prepared with alternative proposals. Appreciate your time, boss.

Appreciate that, @Bill F. – you're spot on. I may be SOL when it comes to negotiating any kind of favorable terms for my business, but I'm definitely going to explore every avenue. I like the idea about the P&L's, projections, etc – adding that to my list.

My current situation is a big factor in why I've committed to real estate investing – need to get myself on that side of the register when it comes to these agreements. Thanks for your time, brother.

@William Joseph – great point, working through that question myself. Cost of doing business here is high, but the location definitely drives revenue. I have to do a cost-benefit analysis to examine what moving our business might look like. Lesser real estate costs yes, but also less revenue & activity. Appreciate your time.

@Matthew Paul - Absolutely. Very sharp. I suspect a rent increase as well, which is why I have to evaluate the cost of doing business here. We work very hard and giving away a bunch of our earnings is rough, especially since we sell low-ticket items. Thanks for the input, Matt.

@Caleb Heimsoth - great idea on polling some of my neighbors, hadn’t thought of that. Appreciate your time, brother.

@Bob B. I appreciate it, Bob. Gotta sell a heck of a lot of donuts to keep operating ;) You’re right - the landlord has all the leverage in this case, I just wanted to see if anyone had creative ideas from past experiences. I’ll keep digging ...

@Aaron K. – thanks for the response & totally agree with your points. That's why I'm debating how much I want to invest into the place to renovate.

Truthfully, the only idea I have at this point is to offer to sign a long lease (7 or 10 years) in hopes for lower rent. The previous business owner signed 3-year leases for a number of years, so a longer term deal may entice the landlord to lower our monthly rent.

I asked a broad question to the community because I don't have many ideas at this point, but I did want to come ready with some proposals when the time comes to re-negotiate. Perhaps someone has been in my situation before and can offer insights...

Context: I own a donut shop in a busy area in Denver. I acquired the business in January 2019 and the previous owner had a lease agreement through April 2021. Business is good, but my current lease is terribly one-sided. Monthly rent is $6K/mo and I'm responsible for property taxes ($14K for 2019). Giving away more then $85K in 2019 for the building without earning any equity on it killed me.

The building is old and we are planning to renovate in mid-2020. I'm going to invest into it to improve business. It's in a very good area that is still being developed and has a ton of potential. I have no doubt we'll crush it even more after renovating and catering to our younger market.

The owner has zero interest in selling the building. He's an older gentleman who owns about 70% of the buildings within a few miles radius from us. I hold no contempt toward the owner because I wish I had circumstances like his (owning a building that someone pays you rent AND property taxes on). He's a smart man. But I'm on the bad end of an extremely one-sided deal.

He gives ZERO tenant improvement allowances and his attitude toward someone trying to get a mutually beneficial deal is currently: "If you don't like it, leave. I'll have someone else in there in no time." Our building stands alone on a corner lot with lots of parking – very rare and coveted in our area.

Question: I want to re-negotiate as we head into the end of our current agreement in 2021. How do you create leverage with someone who currently holds all the cards? Any ideas for how to approach this and propose something mutually beneficial? We want to continue doing business here, but the numbers don't lie. Can't keep giving away big chunks of money year after year.

TIA BP community :]