All Forum Posts by: Pete Edmonson

Hi Brian Ploszay, thanks for the fast reply. The co-signer/ partner question is a good one. With the commercial loan officer I work with, when he asks me the "source for down payment", I have listed "private lender" and discuss the project with the loan officer, so he can explain to his loan committee on my behalf. I've never had a co-signer up to this point. Good point about getting them on board with the loan though. 

I'd like to hear more about your 20% equity deal. Specifically, things like, how you arrived at that number, how expenses and ROI were div'd up, etc.

Great topic!

See you there :)

I have started marketing to some private investors the idea of giving equity position in a deal, in exchange for down payment funding. I tried unsuccessfully to find some advise on PB Forums to help me determine how much is usually negotiated. So at this point, I'm looking for some advice :) 

Thanks,

Pete Edmonson

@Rusty Pollard, the answer is luck (or preparation meets opportunity). 

No-joke, 20+ years ago my Investment Realtor used to live in this same 50-unit place, and got to know the owner and his wife really well, (realtor was getting back on his feet, raising his kid, renting from them, and this couple takes a liking to him) and fast forward to now, and the owner wants to sell all his properties. So- my realtor told me about it. And yes, most of the properties he is liquidating is 'off market' right now. 

All this info is truly dynamic, so thank you! I've received non-audited financials, walked through (but not fully inspected with my team) the property, and am massaging the purchase price in my spreadsheets down to the point to get me a cap rate of 10. With annual NOI of $226k, [$346k income-$120 expenses= ] and a Cap Rate of 10, that puts my PA at approx $2.2m. A couple of positives- a.) there is definitely room to raise rents modestly while reducing some expenses, b.) all 50 units are fully furnished! (I told you he was old school). So his 1% rule included all furniture, personal property, chattel, etc. Some negatives to consider a.) HUGE monthly DS of at least $11k-15K, b.) Property taxes will probably triple once the new value gets recorded. c.) He's in his 80's and still runs the property so finely-tuned it's like Wonka's Chocolate Factory- which I would have a hard time duplicating, which means my expenses for "unknowns" has to go up. Is it possible to feel 'in over your head' and 'confident you can slay the dragon' at the same time :)

@Account Closed Alexandria, MN

Thank you guys! Yes rents can be instantly raised $25. per unit to easily add $15k/ year to the bottom line, no overdue cap ex or maintenance to speak of, everything is very clean, and the owner has said he will consider carrying all or half of the down payment as a 2nd. So now it looks like I gotta find the Cap Rate for the area to negotiate a purchase price, get my contingent's set up, and move into the next step of nailing down bank and/or private funding. Thanks @BenWilkens, @MichaelBiggs, @OlegShalumov 

I have an opportunity to purchase a 50 unit apartment, along with 7 other SFR properties (14 doors total for those) from a retired old-school RE investor. He keeps telling me that he used to buy his properties using the 1% rule, and wants to sell them as such. His explanation of the rule is: If gross monthly rent on SFR is $1,000 ~ House should sell for $100k. If his 7- unit brings in $5,000, he wants to sell it for $500,000, and since the 50 unit apartment brings in $28k gross rent a month, he wants to sell for $2.8 million. I'm in the process of analyzing the apartment financials to make him an offer. But I don't know enough on how to analyze apartments to counter and negotiate. Like I said, he's very old school, has no debt on all his properties, and I know him well enough to know he's not out to swindle me. I can analyze SFR all day long, but very green in the apartment arena. It was a 5 year goal to move in that direction, but this opportunity presented itself 4 years and 3 months early. Any suggestions for analyzing?

Very very good info @LindaWeygant and @Aaron Pfeffer + others! It certainly appears that it isn't as simple needs as I first thought. I will keep walking down this road and reply back on what was (in my opinion) the best route to take to accomplish the goal of a.) Getting into a property with creative financing and b.) Using depreciation as a negotiating tool. 

Hi all, 

Wondering if anybody offers up the depreciation from a potential new property to a private investor as part of the terms? I have a couple of investors that are looking to a.) park some money, and b.) find additional tax write-offs. For example, on a standard $100k SFH, with the 20% down payment coming from the investor, and a standard $80k bank loan, I am offering the investor either 50/50 split or 100% depreciation for the property, which allows me to get the property with zero-down, and allows the investor the tax write-offs they want. End game would either be for me to refi in 12 months to cash investor out and them repeat, or let it ride until the investor wants out.