All Forum Posts by: Mike Rutallie

Thanks for the quick reply Chris. What you say makes sense. I know this is probably a long shot, and not as advantageous for the seller as $325K cash up front, but I should have mentioned the seller had it listed for $325K for 4 months, no offers, dropped it to $315K, got a couple of calls, but no offers, then has had it off the market for 3 months and wants to relist it in March if I don't buy it.

Since this seems VERY overv-priced based on recent sales, I'm trying to figure out an option that might work for the seller, but we might just be too far off.

Any suggestions on how that could be done?

I am considering purchasing a "near" lakefront cottage that I believe is priced far higher than I would consider fair market value, but I may be looking at this wrong. Here is the situation

Cottage - seller asking $300K
Sold in 2021 for $225K, seller put about $15K into it
Built in 1940s, very few updates
Needs new roof, old 2-wire electrical, original walls, and has an $8K assessment by the association about to come due.
700 Sq Ft
Part of an association owning shared private beach access
@ $300K it is $426/sq ft

Comps (all sold in last 6 months)

Cottage sold (to this seller) 5 months ago for
$425K @ 872 sq ft = $487/sq ft
"Direct" lakefront property part of same association
Built in 1940s, some updates

3 other comps I've seen that are larger that have similar associations w/ shared private beaches that are "near" lakefront on the same lake.
1. Sold $485K @ 1552 Sq ft = $312/sq ft. Plus garage and fully renovated.
2. Sold $310K @ 1100 sq ft = $282/sq ft. Plus garage and partial renovated
3. Sold $488K @ 1200 sq ft = $373/sq ft. Plus garage, and fully renovated

My question is should I be looking at this purely based on cost/sq ft, or should I give a percentage value to the property it sits on, then assign a percentage value to the structure itself to figure out the fair market value? Or is there another way I should be assessing this?

For reference here is the breakdown of price based purely on cost/sq foot of this 700 sq ft cottage
300K = $426/Sq ft
280K = $398/Sq ft
260K = $370/Sq ft
240K = $341/Sq ft
210K = $300/Sq ft

The intent is for personal use of this cottage as it cannot be a short term rental.
I wrote a separate post regarding creative financing on this with the seller herehttps://www.biggerpockets.com/forums/50/topics/1171112-pleas... which may paint a little more color on the situation.

I appreciate the help.

I am working on purchasing a 700sq/ft cottage (second home) that I believe fair market value is ~$210K-$230K, however, the buyer bought it in 2021 for $225K (and put about $15K into it) and a realtor told her it is now worth $325K. This is part of an association of a handful of properties that share a private beach on a highly desirable lake in Michigan. I've looked through recent sales (trailing 12 months) to determine similar cottages with similar lakefront amenities, and although none are as small (most are 1000-1500 sq ft), I determined what I feel is fair market value based on cost/sq ft. One additional note is that this cannot be financed through a conventional loan nor can it be used as a short term rental because I would be purchasing the building on the land owned by the association, which I'd have partial ownership of.

I am considering offering $240K cash, or a lease option, with the following terms.

7 year lease @ $1K/month with the option to purchase at $225K at the end of the lease. 

My thinking is that this will 1. save them ~$11K in capital gains tax, 2. Allow me to put the money I'd pay for the property into gov't bonds paying roughly what the lease payment would cost, and 3. would give them ~$320K in total lease payments including the offset of capital gains, while it would be equivalent to me purchasing it for cash today at $225K.

I know there is an income tax liability on the seller's part for the lease payments, but I don't know their situation to judge the impact of that.

I've never done a transaction like this before, so please poke holes in it, or if you have a better option, please let me know.

@Michael Ealy

First off, Thank you Michael for sharing your wisdom. 

Here are my top questions.

3. The recession is coming. Should I buy now or wait?

I'm very curious of what other plays worked out well during the last 2008 recession. So what were the things in 2007 that did and didn't work to get people through the recession? Also, obviously every recession manifests itself in a little different way, but what are general things that we can expect if things go south?

9. Should I get a mentor? (or What can you say about apartment investing program of [guru]?)

Which programs have the best success rate, and how long do these programs typically take? What should one realistically expect out of a mentorship? Will they typically be more of a partnership on a deal, or just connecting the student to the mentors network? Is $25K-$50K reasonable (obviously depends on the mentor)?

10. Wife does not like me to invest in real estate. What do I do?

This is highly subjective to each relationship, but are there specific ways that people have sold the idea to their spouse who is in doubt? My wife's biggest worry is the time it will inevitably take away from our family. I tell her that the goal is to get MORE time with the family, but from her perspective, I can see her concern. There will definitely be a time where I will have to "pay the price". 

Another question I have is:

In general, how much time should one expect (both per week as well as the overall length of time) to get into their first deal?

I'm trying to determine how much time until I can bring in enough to quit my full-time job so that I can focus solely on apartment investing.

@Travis Watts and @Charles LeMaire Thank you both for your input. I keep contemplating that strategy of staying employed and just passively investing. The problem is I feel I'm an entrepreneur at heart; I just don't get the corporate "clawing your way up the ladder" to make someone else money and killing yourself for it. I love building systems, building teams, and creating process around chaos in order to create self-sustaining systems. Kissing other people's rear to get ahead has never been in my DNA, I care too much about integrity and what really will make a long-term difference in the company, not just short-term wins to turn my boss's head. This is why I am looking to venture out on my own, or build a partnership with someone else who shares my values.

Oh well, enough with my rant. 

My issue at this point is that I feel I need the experience before I can get in the game, however, I don't already have the network to quickly find those who I can help in order for me to get that experience. I keep reading that people pay for mentors to help them grow their business, but I am concerned that would be a waste of money this early in the game.

Regardless, I'll find a way to move forward. I just hope and pray that I can learn from other's who are experienced so that I can accelerate my success.

I appreciate all the input from everyone, its very helpful.

@Trevor Ewen

Thanks for your insight.
I'm also in the technology space, have been for 17 years. I 've lead technology teams in software development, systems engineering, telecom engineering, and network engineering. If you have time to chat and would be willing to share, I'd love to hear more about the strategy that you described and the outlook of that approach. It's always nice to connect with others who share my passion for technology and investing. 
Thanks again for the advice.

@Larry Caper

Thanks for the encouragement. I'm a Spartan too (#GoWhite), graduated with my Masters in Management, Leadership, and Strategy a couple of years back with a 4.0 GPA, all while serving as an officer in the Air Force National Guard, serving as the treasurer on my local Board of Education, and leading/building engineering teams in my full-time job. So yes, I love making things happen. 

I think I'll try what your mentor suggested and make my call list at night and execute on lunchtime. I have been reluctant to do that to this point because I don't want to develop a newbie reputation and not be taken seriously. But heck, everyone has to start somewhere. 

Now I just need to find the right mentor/coach like you said. 

Thanks again for the advice.

@John Fortes

So my ultimate end goal is to free up my time to do what I love. Spend time with my family, help others, and build a business.

I presumed the best road to that is to ramp up real estate investing to start generating passive income until I have met the threshold needed to support my family’s lifestyle then quit my full-time job. It seems that the fastest way to do that is through active deal finding, capital raising, and/or operating a syndication. Now, it is clear to me that I can’t do all those while working a full-time job.

The problem with passive investing for me at this point is that I don’t have $500K+ to start generating much passive income. What I do have, I figured should be used to invest in deals that I sponsor so that I have skin in the game. If I put my cash into others’ deals now, I assume it will be harder to raise capital later if I don’t put my own skin in the game.

@Alina Trigub

Thank you for the encouragement. I've been spending most of my efforts around general education of syndication and practicing deal analysis with the limited knowledge I have.

Do you have any suggestions around a great resource to really dig into underwriting? There is so much out there, I hate to spend my time on something that isn't the most impactful use of my time. I've been doing the basics around deal analysis, such as forecasting out rent rolls, expenses, value add effects, calculating IRR and CoC, but I feel like there is more that I am missing.

Are there any models in particular that you might recommend? I was considering buying Michael Blank's Syndication Deal Analyzer (SDA), but if there is something better, I'd love to hear.

Also, do you, or anyone else reading this, know of a place that has deals to practice underwriting? I know the answer is probably "just go do it" but the problem is, I don't know if my underwriting is effective. If there is a method to "check my work" I'd love to know about it.

Thanks again.

@Greg Dickerson

Yea, I would be reluctant to invest with someone who is doing it part-time as you said. I've been thinking partnering for a least a couple/few deals is a definite requirement.

My goal is to get to the point where I can di it full time and quit my day job. I am planning on starting an LLC to do all these ventures, and grow that into a full-fledged business.

In terms of capital raising vs operating, what sort of equity split could be expected? Being new to the game, I figure it will be almost nothing for me because I get education out of it. However, looking to the future, I'm curious what I could expect when structuring or being proposed a deal.

How much time goes in to being a full-time operator if you have a solid property manager in place? This is something I haven't been able to find the answer.

I really appreciate your thoughts Greg.