All Forum Posts by: Nicholas TenBrink

Investment Info:

Other buy & hold investment.

Purchase price: $325,000
Cash invested: $100,000

2 Story Mixed Use building.
Office/Clinic Space in Commercial Ground Floor unit.
Residential/Short Term Rental in upper Residential unit.

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

An specific lack of available commercial space available in our local area.
A lack of short term rental options for travels in the area, and or patrons of the local event centers.

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

Door knocking.
We explained to the long time owners what our specific intentions were and that we wanted to invest in a building in our community in order for us to also open up a health clinic to serve our community.

How did you finance this deal?

Personal cash and Local Bank commercial mortgage.

How did you add value to the deal?

I was the capital and taking lead on the investment in the building related business.
My wife is taking lead in creating a new business (health clinic) that will occupy the ground floor and be our 'Long Term' tenant at the property.

What was the outcome?

Property acquired, renovations are under way, and getting the building online/operating.

Lessons learned? Challenges?

Door knocking, and having honest conversations with sellers can dramatically help the deal flow smoothly.
The sellers were a local Real Estate firm (their own office) and are well connected to our community.
In the spirit of 'improving our community' I then partnered with our local bank, and worked with a commercial banker that also knew the sellers, and the building very well.
This was also my first LLC acquisition, much easier than I thought it would be.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I self represented in this acquisition and worked closely with the sellers(RE firm) to help keep closing costs down.
I worked with the local bank that understood our objectives of investing into our local community and providing access to resources that are not currently present.

Hi everyone,

I'm looking at purchasing a property that has been inhabited by two heavy indoor smokers, they've been smoking indoors for 25+yrs in the property and it reeks heavily of cigarette smoke(even as a former smoker it's too much). 

The interior wall surfaces are all tongue and groove boards (cedar), there are visible nicotine stains on the air returns.
Every single surface will need to be cleaned in some capacity, but I am left scratching my head at effective solutions.
I've found a few anecdotal recommendations about using white vinegar or TrisodiumPhosphate, but when you need to scrub the walls and the ceilings of a 1700+ sqft house that seems pretty daunting and time consuming given that it is tongue and groove. I also thought about the idea of hiring a company like ServPro/etc that specializes in post fire/smoke damage remediation.

My worse case scenario is gut the house, and repanel , but I would rather not need to do that.
At this time I am seriously considering making an offer with a significantly reduced price due to the long term smoke damage.

What are your thoughts? Concerns? Advice?
Thanks for reading!

TLDR: I've taken a pretty holistic approach and have come to these ideas through a wide range of different topics, conversations, books, posts and pod casts.

Long answer:

@Chris Corbin, i've not read any books specifically focused on partnerships, I've come across a lot of good business structure examples in a couple books that can lend themselves well to partnerships. I've come across a lot of good posts on here around partnerships, and I've also have learned at lot from the bigger pockets podcast on partnerships.

Per a lawyer forming the LLC's, we are still in our planning phases of our partnership. I'm not certain if we will have the lawyer form the LLC(s) but one will be involved with drafting our operating and any financial agreements between the partners.

Per two books that gave some good examples of business structures: one is Robert Kiyosaki's 'Real Book of Realestate'  and the other is a "Rich Dad Poor Dad: Real Estate tax loop holes" book.

Thanks for the reply Jason!
My preference would be option #1 personally from the over all simplicity of it all.

You have a good question to 'solo deals' and how that would affect a partnership, we've discussed that they could happen, but not talked through what that would  mean for us.

Thanks for getting this scheduled! I'll see you all Tuesday!

^^Correction to my post:
Where i state "MJ LLC to place first lien on Property" it should state "MJ LLC to place SECOND lien on property".
I'm pretty sure the bank would want first lien ;)

Hello everyone!

A good friend and I are looking at forming some type of REI partnership.
He is a more seasoned and self sustained real estate investor that is living the dream, I'm the newer guy with the time, W2, etc . You know the story.
I'm going to skip the conversation about, "would you, or should you partner with this person?" since that is not to my question to you all today.

As we are looking at our opportunity to work together we have the obvious, "what if's" around business and partnership structures. So in that theme I have outlined a few 'options' to how we could structure our opportunity to work together and or partner.

I've scoured the depths of Bigger Pockets and I think I have determined these 3 may be the the 3 different formats that we all (bigger pockets) identify as the most used structures.
 

PS: I do not include a Contractor/Labor option in the optional business structures, we've already discussed that and that would most likely be at a later date, but not now.

Please take some time and read through Options 1-3 , I have placed them in preferred option order, please provide some feedback if you have some. 

Option # 1 to me seems like the obvious best option, but the other options can also work.

Also, here'a key to help your brain while you read through:

NT/MJ : refere to individual parties
NT LLC/MJ LLC : refer to individual held LLC's

xxx LLC : refers to jointly held LLC (50/50)

Option 1

A.) Finance Backing Option- Structured around Private Money Lending

1. NT forms NT LLC (example name) for property acquisition.
2. NT LLC acquires line of credit from MJ LLC (example name).
3. NT LLC acquires and secures property using line of credit for down payment, and conventional/creative/etc financing.
4. NT LLC pays MJ LLC on principal and interest at a fixed rate, amortized and with a due date/balloon payment, and or until refinanced/cashed out.
5. MJ LLC places first lien on property to secure interests.

• Pros:
  • Creates legal entities that protect all parties assets
  • Simple structure
  • Allows for passive income to money lender
  • Structured cash flow to investment financier
  • Can easily be repeated with other parties

• Cons:
  • Less day to day partnership in nature/ownership of property

B.) Property Management (Option/Addition) - Structured around 50/50 ownership and Management of properties

1. NT and MJ form MGMT LLC for shared property management purposes of their own properties, with 50/50 stake in company ownership.
2. NT LLC (referenced in A) hires MGMT LLC to manage property(s) acquired through financial investment.
   1. MJ LLC can also then place properties into management with MGMT LLC for supervisor/management.
3. Payment/reward in MGMT LLC can be based on partner activities such as:
   1. Tenant placement
   2. On call responses/duties
   3. Facilitating repairs/maint
   4. Management of specific properties
   5. etc
4. Additional funds generated through MGMT LLC could also be used for other joint/partnership ventures.

Pros:

• Creates structure to engage MJ with operational success of personally financed investment property(s).
• Creates consistent management structure for each others private properties success.
• Creates financial reward/incentive for partners involved with management activities.
• Creates legal entity to protect assets
• Creates 50/50 joint venture
• Can generate its own cashflow to be used for investment

Cons:

• Add’s additional layer of complexity

-------------------------------------------------------------------------------------------------------------------------------

Option 2

A.) Property Partnership - Structured around variable cash flow returns

1. NT and MJ form Property LLC, owned 50/50
2. Property LLC acquires line of credit/loan from MJ LLC/MJ/etc
   1. Allows MJ LLC to place first lien on property
3. Property LLC secures and acquires property through NT acquired mortgage.
4. Property LLC pays principal and interest at a set rate on line of credit to MJ LLC, amortized and with a due date/balloon payment from gross income (setup as expense).
5. Net Cash Flow split at determined rate related to partner risk & activities.

Pros:

• Creates legal entity to protect assets
• Creates financial liability & expense for business through loan
• Structured cash flow to investment financier
• Can easily be repeated with other parties

Cons:

• Complicates conventional lending bringing two parties to the table.
• Ties MJ returns on investment to property performance and involvement with operations.
• No Principle and Interest payments to MJ
• No tax write off on financing of down payments
• Not passive for financier of down payment.

---------------------------------------------------------------------------------------------------------------------

Option 3

A.) Property Partnership - Structured around associated Risk and set % cash flow returns

1. NT and MJ form Property LLC , owned 50/50
2. Property LLC acquires cash for down payment/acquisitions from MJ
3. Property LLC secures and acquires property through NT acquired mortgage.
4. Net Cash flow split at 50/50
5. Equity at Refi split 50/50
6. Equity at Sale split 50/50

Pros:

• Partner reward/payout simplified.
• No principal or interest costs on cash to acquire property.
• Risk associated with each partners legal or financial obligations
  • MJ Risk associated with down payment/cash
  • NT Risk associated with Mortgage liability

Cons:

• Complicates conventional lending bringing two parties to the table.
• Does not secure financial interest of MJ against property (no lien).
• Ties MJ returns on investment to property performance.
• No Principle and Interest payments to MJ
• No tax write off on financing of down payments
• Not passive.

Large factor of course is also in what region of Minneapolis.
At $1500 for a 3/1 unit in a duplex; you are just bellow market in South, above market in North, and probably about spot on for North East.

If you comps are looking at $300k, and your NOI is at $36k, you are coming out at a 12% cap rate, thats decent if you are concerned with cap rate.

For an investor @ 25% down:
36000/75000 ~= 48% cash on cash return, IF you require no repairs (obviously excluding closing costs in this calc as well).
IF you have $75k burning in your pocket this could be enticing.

For a owner occupier  @ 5% down:

18000/15000 ~= 120% cash on cash return. People will climb over each other for those numbers.

@Tim Swierczek is right, a Homeowner is going to view the deal very differently than a person that is looking purely for investment, target the Homesteader, not pure investor. 
Duplexes are hot, anyone looking to buy a house and are paying attention are targeting duplexes because they generate income. In a homeowners eyes, it is subsidizing their mortgage and allowing them to build equity faster and recoup their initial investment fast. An investor will be interested in cash flow or cash on cash return, and locking up that $75K for a period will cost them.

^^ That is correct Donald.
For me , i was dealing with cast iron, but had (as a back up plan) figured out a way to use a combination of the pvc offset flange with the mating seal for flange that would mate to cast iron.

UPDATE:

Well even with the toilet flange measuring in at a 9" rough in, i still went ahead and bought a toilet for a 10" rough in and was very happy to see that it fit just fine.
The space behind it is tight, but everything clears and this is making very happy.