All Forum Posts by: Paul Stout

Welcome to BP.  Do at least one thing every day to reach your goals no matter how small it is.

An LLC is not iron clad protection. Look into umbrella insurance as well for more assest protection.

Ok here is the latest deal that I have come across.  I know that I do not have a lot of information here to make the most educated analysis but I am looking for ideas on how to structure the offer.  I will eventually get all of the financial information to plug in the numbers of the offer but how would you structure this deal?  The owner is putting a pro forma together for me now.

The owner has a 24 unit apartment building that was built in 1979.  There are 18 1/1 units and 6 2/1 units.  This is in a nice neighborhood.  The gross income is approximately $17,000 with 80% occupancy.  The common areas have electricity for lighting and hot water heat and there are two coin laundries so the owner utilities consist of common area electric for lighting, gas and water for the common area heat and hot and cold water for the coin laundry. 

The owner owns two such buildings and does not owe that much according to him.  I have no idea yet what he does owe.  He is asking $1.6M.  The taxes are $24,000/year.  he wants to sell one now and one in three to five years when he retires.

He said he is open to owner financing but he doesn't want to carry a note into retirement.

What are some ways I can structure a deal to make this work.  I currently have $75,000 cash and a private loan commitment of $70,000.  What would you do?  What offer would you make?  I know many of you are going to start out by saying that it depends on the numbers but lets say for the sake of conversation that the numbers look great and the asking price is fair.

Thank you for sharing that story.  It is educational.  Hopefully it was therapeutic to share it. 

I'm a new investor myself.  I have entertained the idea of turn-key.  I think it could be a great way to start if the numbers work.  I have decided not to do it because, even though I am fearful, I know I have the skills to do it on my own.  Each person has a skill set.  The trick is identifying yours and being honest about it.  Even though the connotation of that comment may seem as if I'm saying you must know your limitations, the opposite is true too.  Many people do not see the true potential in themselves.  I have been guilty of that myself.  I know that when I have been put in new technically challenging situations I have been able to figure them out and not only succeed but thrive.  Who are you?  What are your skills?  How quickly do you grasp new concepts?  How do you react when things go wrong?  Answer those questions for yourself and you will find your path.

There is a saying that states that the defendant who acts as his own attorney is representing a fool (at least it goes something like that).  Paying for expertise is nothing to be ashamed of.  When you buy turn-key you are doing just that.  If it gets you going then do it.  If you will otherwise hesitate and get stuck in the analysis paralysis phase on a self-constructed deal then do it.  If you don't make as much in return consider the lost income as an education expense.  If you calculate the true cost I think you will find that the price paid is a bargain. 

How you invest should be tailored to you and should be as individual as your signature.  Pride and lack of self awareness can be very costly things.  If you have calculated the costs and weighed the pro and cons and you decide it is for you then do not let anyone tell you different.  You hold the keys to your future.  Anyone who would call you a wuss for that is most likely what I call a gate keeper.  They are jealous of your ability to know yourself.  Misery loves company and the miserable constantly invite us to be with them by putting creative thinkers down  They let others dictate their future by pandering to others opinions of themselves.  You are better than that. 

Thank you @Paul Ritter and @Charlie Fitzgerald for your help!  I have passed your information on to him.

Please help out on this one BP Pro's.  I have a friend who is truly a great person and a Veteran of the United States Marine Corp.  He has the opportunity to purchase his in-laws house for him and his wife and child.  He told me he was going to hire a real estate agent to handle the transaction because he has no idea how to do any of it. 

Can someone who has gone through the VA loan process please let me know how we can help this young man. I will research an attorney so that the transaction closes without any issues but he is limited on funds and he doesn't even know where to start. I know we've had some veterans out there who have used VA loans so please help.

Also, his credit is below the minimum for the loan.  He was in a very dark place when he returned state-side and he did not pay his bills for a couple of months.  He had a spotless record before this and has had a spotless record since.  Is there anything he can do?  Apparently two of the three credit reporting agencies have him listed right about where he needs to be but the third has him well below the others.

I have other friends and family members who have suffered from PTSD and I have seen what it can do.  It is unfortunate that his service to our country resulted in a condition that has put him in this place outside of his control.  I would really like to help him so if anyone out there has any ideas please let me know. 

That cash flow is after deducting for 5% repairs, 5% vacancy, 5% maintenance and 12% property management.  I also deducted what the owner told me the worst case scenario was on utilities for each month which I'm sure will be lower most months.  That net cash flow estimate is very conservative.  That is $150 per unit after deducting all of those expenses and the overall gross monthly income works out to 3% of the purchase price.  These numbers are based on 10% down and owner carries a 5% note for 15 years.  I am also basing these numbers on $27,500 in repairs and improvements at the time of purchase.

I do not have cash to purchase a building outright.  If I did I would get the $450 per month per unit cash flow that you stated.  Every investor is entitled to their minimum rate of return, cash flow etc @Nick Patterson and I think that is phenomenal if you are holding out for deals with a minimum cash flow of $450 per unit.  Would you mind sending me the prospects that you turn down that are below that?  My personal minimum is $125 and I am typically working in the 25%-30% down payment range. I'm sure you are passing on deals I would love to have and if I were able to jump on one of those I would forget about this one.

Thank you

@Renea Steward and @Ronan M.

for your comments.   Just to clarify, this is not the City of Chicago.  The City of Chicago is indeed not in the luxury condo business or any other business that is fiscally responsible.  Second, this is not a depressed area.  This area has seen rapid growth in the last three years.  There is a new single family home development on the next block over and my realtor tells me the homes have all sold very quickly and have all sold within $2,000 of asking price.  I believe she said a couple of them have sold for over asking price.  These are very nice homes. 

I have discovered that the city owns 5 of the 10 properties that I ran through the assessors office looking for owner info.  I spoke to a woman who works for the city and she said that they do plan to buy the entire block.  She said that she is not 100% sure what they are going to do with it but she did tell me that they are getting two appraisals and basing their offers on the higher of the two.  Her father owns a home on the block and they have agreed to sell to the city when he is ready to move.

I went to visit the property yesterday and it needs much more work than I expected. I have not gone through my notes and photographs to start deciding what must be fixed immediately and what the costs will be but I am guessing that my initial estimate of $5,000 immediate expenditure is low by 100% to 200%. I am going to run the numbers to see how this looks for ROI and cash flow.

Something I did discover is that there is a huge amount of space that is not currently being utilized and that the rents are well below market.  I am going to run multiple scenarios on the property and I will post those when I am finished.

I also discovered that the owner has no debt on the property and that her husband is highly motivated to sell it because he is the property manager and he is getting up in years and he wants to retire.  I discussed owner financing with him and he likes the idea and he will discuss it with his wife.  His wife controls the money and I have not yet discussed it with her.

I need to find out how the buildings are zoned.  My agent suspects that the basement apartments are not legal units. I am going to the city Monday to find out.  I have never done this before.  How do I ask for this information?  I don't want the city getting wise to my plans since I am sure they have more money than I do and they may decide to outbid me.  Is there a way to find out without them discovering my plans?  If the basement apartments are not legal units, what issues can I run into?

@Renea Steward

I found a property in the South side of Chicago. The owner said that the city made an offer to buy the property but she felt it was too low. The COC ROI is 20.95% and the cap rate is 11.75% and the cash flow is just over $600 on a 4-plex if I paid her full asking price. She said the city plan to develop that area. I found out that the city owns many of the surrounding properties and spoke to some neighbors who have gotten offers from the city as well. Some have accepted and some have not. The rumor is that they want to put in luxury condos.

So, has anyone else had this scenario?  Did it work out for you or not?  Can it be an opportunity for a better offer from the city?  Will the city harass the owner if the owner won't sell?  What are the pros and cons and what are your thoughts?