All Forum Posts by: Michael Moikeha

Hello,

I have a Master Lease that I am negotiating, and the owner is starting his negotiations at the full price of what he is offering all the space for individual. 

So for example:

5,000 sqft restaurant/retail listed for $12 a sqft/y

5,000 sqft warehouse/storage listed for $6 sqft/y

10,000 sqft lot listed for $2.4 sqft/y

Plus NNN

So if he leases it all separately, the income is $9,500 + NNN a month fully occupied. The place currently is less than 50% occupied in the retail space, and none of the rest of the space is currently leased out. He wants me to lease it for $9,500 a month.

What would a good counter be? Obviously I am taking the risk of being able to get it all rented, but even if I fully rent it at the "going rate", I don't make anything. 

I have two questions. In a typical Master Lease, I imagine the property is a bit more stable, so can justify a smaller discount off of the going rate. But what is that? 5% - 10%? With his vacancies so high does that justify a lower rate, or would this be a time to offer an escalating lease based on performance?

This is my first go at this, but negotiations are looking good. He owns the property out right, is open to carrying a contract, is willing to negotiate cash back at closing held in escrow to put into the property. 

Any feedback is appreciated!

I think I have seen this with it being a Lease-Back Option. It's a way to gain liquidity when needed, and whoever has the liquidity has the asset security in the event the corp isn't able to generate the growth they needed and also gain the financing to rebuy the property.

I am speaking from a place with little to no expertise .... So take that with a heaping grain of salt. 

I came across this while searching for information on Master Leasing a commercial complex, and the discount off of the going rental rate I should be looking for. 

@Michael Plaks

To date I’ve done 20 or so flips and 4 rentals in 5 years. I do this full time. I’m still a small timer compared to a lot here, but I’m not hiding anything.

“Party A” - private investor.

We do a lot of creative financing. 20 year owner carry with no payments for 6 months at 3%.

Sub2 and owner carry for 18 months with no interest, just a higher purchase price.

We’ve done 3 sub2s on flips and rentals and varying degrees of owner equity payoff. One was paid off over 4 years with no interest on owner carry. Others paid off when sold.

We have a pool of about 10 small to mid level private investors.

1031 ex with long term financing play is the one that went bad.

We owned the flip and we were looking for long term financing. One of our partners was selling and wanted to put 1031 ex funds somewhere. We worked a deal where he would buy the property from us and lease it back on a 30 year lease option with a 4.1% interest rate. $250k.

We are 4 years into that contract. He has had a nasty divorce after 40 years of marriage, found and married a new person within 4 months, and has been making poor financial decisions.

He wanted to sell our property to pay off money owed on the divorce. So this was the initial cause for the contract dispute.

We had another $115k note at 9% with another entity that he lent as well. That entity used the funds to flip a few properties, and at the time he didn’t need the money back and agreed to allow us to use those funds to further the improvements on the 1031 ex property.

That property appraised last year for $365,000. Our agreed upon plan was when we executed the option, we would combine those debts and interest.

The appraisal was as is in unfinished condition and has an ARV of $495k or so.

I didn’t realize the source of the dispute would effect the answer on the tax side of the settlement. So there’s the background.

After us trying to get him to sign and allow either the combining of the note to the option to execute it, or executing the $250k option as is, he won’t allow either option.

We have an attorney who drafted up our settlement agreement and we agreed on us releasing our interest in the option as payment for the note.

The $115k note and option are in different entities.

So my questions is on the tax side, how do we show that as an equal exchange of goods when the note was true monetary value in entity A and the option contract was equitable rights value in entity B.

Right now my accountant is saying that it will show as a $115k profit and that since we didn’t own the property, she doesn’t know how to account on the books how to show the asset of the contract.

I have an interesting situation and my accountant is working to figure it out, but I would like to see if anyone has had experience or has insight they can help with.

I have 2 contracts with one lender.

They had 1031 exchange funds and we worked a deal where they bought the property and we had a 30 year lease option with an owner carry purchase which could take place after 2 years. This is with me as an individual”. We could purchase for $250k and it’s current value is around $375k.

With company “B”, solely owned by me as an individual, we have a $100k unsecured business loan which was used across a few flips.

We have come to a disagreement and have a settlement agreement written out where we release our rights to the lease option in exchange as payment for the note.

Our accountant is saying that the “forgiveness” of the debt constitutes a profit of $100k. But that she is unsure how to equalize it or show a personal loss between the $250k contract cost and $375k value of the equitable rights as they are not in the same entity, and as I don’t own the property, she doesn’t know how to put a value on the contract for tax purposes.

I would imagine the value is being established through the settlement and agreed upon exchange of contracts.

 Thanks! I did do a search before posting, but didn’t find this. 

Thanks Daniel! We are going to approach the owner about doing an owner carry, but we don't have the 30 year relationship. 

Thanks Brian! I will reach out to them. 

Hello! 

Bigger Pockets has always been the place to go, and I am looking for some help! At this time, I am not looking for a Mortgage Broker. If any Mortgage Brokers want to point me in the right direction to a bank that would work, feel free, but I also understand if you share your secrets. I just want to be up front with that.

So, has anyone had any success with any particular banks that WILL do a Self Directed IRA non recourse loan? US Bank told us they could. Gave us written acceptance, went through the appraisal process, but then while rounding 3 base, choked. They ended up needing to bring in their outside council, and it turns out they just don't have the experience with this non recourse IRA loans, and backed out. They would happily give the loan to us as individuals, but couldn't do it the way we needed.

If anyone has a bank contact they could connect me with, that would be great. It's a home run, but our window to close has been wasted by being strung along by US Bank. 

Thanks in advance!

EDITED TO ADD - The property is in Oregon State

The real reason it was so good was I didn’t want it. So asking for the moon wasn’t out of questions. I was ready to walk as it wasn’t in my go to area. The only reason I would hold onto it was if the financing was a no brainer. 

Because of where he was with the property and ready to be done with it (it was a rental of like 20 years) he was happy with the monthly cashflow. 

Investment Info:

Single-family residence buy & hold investment in Portland.

Purchase price: $150,000
Cash invested: $25,000

Trashy run down rental. We purchased with $0 down, no payments for 6 months at 3% interest and a balloon payment at 20 years. Owner financed. Had tenants in it before we needed to make payments

What made you interested in investing in this type of deal?

This property has the potential for a lot division. The location isn't ideal now, but in 20 years it will be prime!

How did you find this deal and how did you negotiate it?

This came from a letter we sent out. The guy was in town from California and wanted to make a deal happen. He told me what he thought it was worth ($150K) and I told him that it was a crappy home on the wrong side of the freeway and the only way it would be a good purchase was if I could sit on it for 20 years. He said he would entertain it. I pitched it at $0 down, no payments for 6 months, at 2% interest. He came back at 3% and we shook. We met on a Friday and had it signed in escrow by Thurs.

How did you finance this deal?

Owner financing

How did you add value to the deal?

Cheap quick remodel of the whole home.

What was the outcome?

Nicer place that we can sit on for a while. Got tenants in it. No vacancies.