All Forum Posts by: Nathan McBride

@Kyle Doney I don’t know the title, but I’m pretty sure it’s episode 260.

@Dennis L Lewis Jr We purchased our first property with them last year and had a great experience. We then went to use them again for a big deal that blew up at the closing table (looong story...). Even though that deal fell through, we gave the loan officer a gift card and note thanking him for all of his work and assured him that they would be our first call for future deals. I’ve kept in touch over the past few months, getting updates on rates and talking about potential deals but making sure not to waste their time until I had something concrete. A lot of the relationship was dependent upon the loan officer, though. He didn’t have to take his time talking with a newbie investor like me, but I guess he liked that I had preliminary numbers already run before calling him, showing that I was serious and that I had an actual deal. If they know you’ll make them money, they’ll talk to you. Now that we have a certain level of trust built up, I really don’t plan on shopping loans around. The loan officer knows that, and it’s more motivation for him to get me the best deal he can. He knows I’m not wasting his time, and I know and respect the fact that he has to make money. The rate shouldn’t make or break a deal if it’s truly a good deal.

@Will Parker I read his book (Never Split the Difference) a few months ago, and it was a real game changer.

TL;DR:  I used the 65%/85%/95%/100% increasing offer tactic, huge amounts of tactical empathy and I refused to speak first whenever possible (yes, I had to embrace the power of the awkward silence)

For this deal, I made it a point not to speak first.  However, the seller made it clear that I would need to throw out the first offer, and I went crazy low (started with a range around 65% of my target purchase price).  I just knew she was going to hang up on me, but she didn't! 

She said it was way too low, but agreed to show me the property after I explained that this was my "sight unseen" price without knowing anything about the condition or layout of the property.  That got me in the door - literally.

Once I toured the place, I bought the seller coffee at a place around the corner with the goal of determining her motivations (while I acknowledged that my first offer was insanely low, I did not push for resolution of price in this meeting - we scheduled a follow up meeting several days later to hammer that out).  I discovered that she was mostly retired and had been buying condos at the beach as her retirement plan.  Also, she was a reader of the 7 Habits, too, and adamantly agreed that we needed to find a win-win.  

She had owned this house since the mid-1990s and had lived in it for awhile initially.  I told her that I may one day re-convert the house to serve as my primary residence, maintaining three income producing apartments (a later in life house hack if you will).

She acknowledged that the place was maintenance intensive at times but was very profitable. I said that, while beach condos may not bring in big time returns, they require almost no effort on the owner's part. I told her that as you get older, your time becomes exponentially more valuable, which is why less work for lower returns would be ideal for her situation. At the same time, at 28, I have time to throw into a project like this, but I need cashflow to get going with my REI "career." Again, win-win.

Long story short, she rolled the proceeds from this sale into a new condo this week using a 1031 exchange and has much more free time to spend with grand kids, while I have a potentially very profitable property that I could potentially live in one day.

@Ashley Zhang The commercial bank allowed me to apply the seller credits ($51,500) toward the down payment and closing costs. The rest of the cash to close came from a silent partner in exchange for 50% ownership. I was able to get the seller credits because of the presence of knob and tube wiring. That will eventually need to be fixed, but it’s something I can tackle using the profits from the property or a line of credit secured by the equity in the property. Either way, it’s not comIng out of my pocket.

@Ben Sosa It was a commercial loan, so I was able to apply seller credits toward the down payment. The rest of the cash to close came from a silent partner in exchange for 50% equity.

@Garrett Ellison That’s a great spot for flips. Tons of potential upside, especially as the city really gets going on the Government St improvements. Commercial investment continues to flow into that area, too. I think doing some flips to raise cash for a buy and hold purchase is a great strategy. I sometimes wish I would have done a flip or two for the experience and the contacts you develop in the process.

@Garrett Ellison

Thanks man! The bank was Citizens Bank and Trust. Note that this is a commercial loan; I doubt you could apply credits like this on a conventional loan. 

I really like the flexibility of commercial loans. The 20-yr am and slightly higher rate do hurt cash flow, though, but I look at it as motivation to make sure the deal is good enough to still meet my criteria for cash flow and ROI.

Where in town is your project?

@Jack Bobeck Thanks for the advIce and encouragement. If I drew from the LOC, it would be for the minimum amount I could get by with to make high-ROI improvements to the property just in time to justify higher rents at the time most of the exIstIng leases expire. The other option would be to reinvest the cash flow from each month, but this option may not quite get me where I want to be in the next six months. First thing, though, is to get a solid work list together and get quotes to know what I’m really looking at in terms of investment.

@Patrick Rowe, our other property is near LSU (E State St area). Where are yours located?

I’ll message you my contact info so that we can get together. 

@Patrick Rowe, this property is in the Garden District.

@Nathan Gesner and @Bjorik Mutize here are some details:

• The property consists of an old, very large (~5,200 sqft) house that is split into five apartments and a garage apartment, for a total of six units
• Purchase price of $478,500 with $51,500 in seller credits (we started at $488,500, but renegotiated after finding knob and tube wiring and other issues during inspection)
• $565,000 appraised value
• Current gross rents ~$6,000/mo (with a little room for improvement once repairs are made) plus revenue from onsite coin laundry
• Cash on cash return will depend on how/when we decide to make improvements to the property (see below), but at least 10-12% in year one
• Financed with a commercial loan (80% of purchase price, 20-yr am at 5.5% on a 5-year lock), but the kicker is that the bank let me apply the seller credits toward the down payment
  • Oh, and to help out with cashflow while making repairs, the bank hooked me up with 6 months of interest only financing as a nice surprise at closing - it definitely pays to develop relationships
• The remainder of the cash to close was provided by a silent partner in exchange for 50% ownership

The bank has offered to extend me a line of credit secured by the equity to perform improvements. I am currently evaluating the pros and cons of accepting the LOC and completing repairs/improvements upfront vs. reinvesting the cashflow generated by the property and completing repairs over the next couple of years.

The area will support improvements to the property in both rental revenue and property value (this is a very large house on two full size lots and two addresses in a high demand, stable part of town), so I know any wise investment in the property will pay off.  I just need to work out the timing.

Looking forward to seeing where this one goes!

-Nathan