All Forum Posts by: Peter Mason

Thanks  Jassem. Wow, no inspections huh? You got cajones

I am currently talking to a guy here in the St.Petersburg area about a 7 unit MF. FSBO w/ owner financing.

Lets assume the numbers work on my initial number crunch and its a good cash flowing property.

The main house of the property was built in 1920 and at some point a long time ago it was split up into 4 units. The other 3 are in a separate adjacent building that was built in 1953. All units in both buildings are separately metered for both electric and water.

The 1953 building I am not too concerned with as it is a bit newer and CB construction. My concern is the 1920 wood framed house. That is almost 100 years old which is hard to wrap my head around. The owner seems to take good care of it. When purchased in 2003 they did a precautionary termite tent and followed up with termite program till present day. Both roofs done in the past 3 years and new double pane windows throughout.

Obviously (if I make an offer) I will do my due diligence and get many inspections. My question for people with experience in a house this old is what else might I be missing? Is there anything I need to think about besides the usual: termite, lead based paint, asbestos, etc

My plan is not to buy and hold this property but to add value and sell within 1.5 - 2 years.

When you "cash flow instantly" is that at the asking price or somewhere in your offer price? I'm guessing somewhere in $775k - $850k?

I have found that some brokers are hesitant about offering such a small number compared to a listed price. Be it they have no cajones, want to save face in the broker community, know something you don't or just think its down right unprofessional. I don't know. I guess the obvious question would be to ask you broker why?  I would say to stick to you're numbers and don't let your broker pressure you into a higher offer without sound reasoning.

I'm kind of going through the same process. I'm desperate to find commercial property in my area (1031 exchange timer is ticking down) and every time I find one that looks promising I run the numbers and it fails without offering what would be a much lower price. It sucks but its a sellers market where I am. I have to keep emotions out of it and go with the numbers. I've done the opposite in the past and I am still paying for it.

I know you've probably heard all this before and it's not really an answer but sometimes we just need to be reminded of the core values.

Thanks James. Good information! 

I've got 5 years of experience owning and managing 10+ units albeit they were SFH not MF and I have enough to manage a 9 month reserve after a 20% dowwn payment. So with the right property and enough funds and proper due diligence I was thinking I could secure a small (10+) MF property for my first time and build confidence and a relationship with the same lender to move onto better things down the line.

Back to the subject initially, I feel like I could take this on myself but finding a mentor or sponsor to hold my hand through my first commercial deal would probably yield better results. But at what costs? I don't know.

I guess that's why I was curious and asked the question.

Thank you for he replies.

Thanks Darryl! That's good, I forgot all about a financing contingency. Thanks for that process I will go that route.

Aha! I also thought this was a possibility which is why I've asked the question in the first place. 

So which comes first the chicken or the egg?

I've dealt with loans for SF properties but I am trying to get into the commercial side now. So I'm trying to get a handle on what to do first. The problem is to make an accurate analysis and ultimately an accurate presentation to the lender I have to first get access to the property. Sure I can get all the financial statements I can get but without physically getting on the property and doing that due diligence portion of it I can't make an accurate determination. See what I'm getting at? I must have missed that part in all my reading. I always miss some mundane detail. 

Any help would be appreciated. 

Ok thanks. I kind of figured as much. 

When making an offer on a MF/Apartment Building, are you required to show a any kind of proof of funds or pre-approval lettter from a bank?

It does sound like you might have a bad PM. Might. I can see why you are torn. Without knowing her past experience and years in service it would be hard to make a fair assumption. To offer some perspective I was once in your shoes with a PM (whom I still have today). When I lost my job temporarily I actually got a job as a PM with said company. I thought i would walk in there and point out all their wrong doings and turn the disaster around. Well I found out it was more complicated than that and that actually they were doing a pretty damn good job. I did the same as you wondering why rents were a month behind and feeling like I was doing their job by recommending contractors. But when I started playing on the other side I realized that most tenants did indeed catch up with rent and paid the late fees associated. I also saw how much harder it made it on the PM (me at the time) when owners insisted we used their maintenance guys instead of ours. Now I only say this from my perspective. It was enlightening to say the least and it gave me a better understanding of PM. The whole process is not cut and dry as you might expect.

With that being said my PM did their due diligence when rent was late by posting notices right away and calling tenants immediately. I never had a tenant that had to be evicted due to late rent. Even the worse caught up. They also used the Propertyware software which gave me real time updates as to maintenance requests and orders, late rents, lease renewals etc.That way I always knew what was going on and could intervene if needed. I would hope with as many properties as you have with them that they have a system in place like this.

Again I would need to know more to make a fair assumption about yours.

Thats awesome! You made decision to act and you did it. That speaks volumes. Nice job. Keep riding that train.