All Forum Posts by: Sam Rust

I am one of the managing partners in an apartment syndication deal, and am in the capital raise phase. We are using the 506b exemption. One of my accredited investors would like to buy a couple of shares on behalf of their minor children, but are unsure on the best way to structure the transaction to shield the minors from tax liability down the road. Is it possible to gift the shares once purchased, or is there another vehicle they should explore?

Thanks!

@Jason Bott, we plan to replace the panels wholesale once we own the complex. Is it possible to obtain a policy that will rachet down once we complete the work, or provide a short term exemption if we escrow the funds to replace the panels immediately?

@Matt Popilek & @Jason Bott, thanks for your feedback! We tried to go back to the seller and get a credit to do the panels and bring the fire/smoke/CO monitors and alarms up to code, and got shot down. Ultimately we decided to continue pursuing this deal as the overall numbers are still excellent.

I have a 64 unit apartment complex under contract here in Colorado, and we are wrapping up our due diligence. In our unit walkthrough we determined that all the unit panels are Zinsco's, probably original to the property (built in 1968). These panels are outdated and will likely affect our ability to get insurance, and thus a loan, on the property. We are planning to replace them either way (estimated cost of $50k total), but I'm wondering if we should go back to the seller and ask for a credit?

https://energytoday.biz/blog/4-outdated-and-unsafe-electrical-panels-that-could-be-hiding-in-your-home

A bit of background, this property is under contract for $7.55 million, and has good bones with new roofs and a new pool system. The interiors of most units will need to be rehabbed, and we anticipated initial rehab costs in the $300,000 range. I don't want to retrade the deal, but this is also a life safety concern that probably will need to be dealt with whether we close or not. 

What are your thoughts?

Thank you all for your input! 

I did some more research, and pulled my offer today. The combination of too much upfront capital, top-end rents that had nowhere to go but down, and the issues I'd likely face when I went to sell were too many red flags.

On to the next one!

@Bill S. Thanks for the feedback! I did build in a 3% vacancy rate, but did not include any cap ex or PM costs. The current tenants have been in place for quite some time, 2 years and 4 years, both willing to sign long term leases with the buyer.

That being said, your points ring true. I don't want succumb to paralysis by analysis, but my brain won't let go of some of the warning signs you mention.

As a thought experiment, what CAP would tempt you to buy this property, regardless of appraisal and assuming you had good quality tenants in place?

I am conflicted on a property I currently have under contract and am looking for some advice! My wife and I have about $200k in cash and are looking to invest in real estate. Our near term goal is to land a property with good cash flow, longer term (6-18 months) I'm hoping to get into a larger multi-family deal.

The property in question is in Brighton Colorado, and has 3 separate structures on the lot, 2 houses (1/1, 600 sqf, 2/1 775 sqf) and a garage that is divided into two storage units. Current rents are $1095, $1400, and $160 for the larger section of the garage, market rate for storage would indicate I can reasonably charge $100 for the smaller section. I currently have the property under contract for $340,000, closing is a week from today. Property was originally FSBO at $359k, and the owner has a back up offer at full price in place. All structures were completely redone in the last two years, complete new flooring, siding, plumbing, electrical, roof, the works. I am not using a realtor on this transaction.

All utilities except trash ($15 per month) are billed to the tenants separately, lawn care is also the tenant's responsibility. Taxes and insurance are roughly $2600, I'm figuring $1000 per year in maintenance which is a bit low, but I think is realistic because everything is new. Using these figures and assuming I can rent out the smaller section of the garage I get an 8.4% cap rate. (total gross rent of $2755)

My first appraisal came back @ $320k using 2 duplexes in the $270 range, and 1 commercial/residential hybrid at $380k as the comps. My lender flagged the loan for a desk review and tried to contact the appraiser to address issues with the report (mainly centered around the 3rd comp), but of course he has not been responsive. Now the lender will not loan based on the original appraisal as they are only willing to assign a value of $260k with the info currently. My mortgage broker believes he can get his firm to pay for a second appraisal, but asked for me to find a comp or two that would be more favorable. I spoke with a realtor I trust, we both did research, and came up empty in our search.

The seller has been getting more anxious by the day as the process has dragged on, he is not in dire need of the cash, but I think does have some obligations coming up that are making him eager to close.

I have several options including:

- Getting the second appraisal, hoping for a better valuation

- Putting $145k down on a lender valuation of $260k and enjoying enhanced cashflow/watching a chunk of cash sit

- Renegotiating the seller down to a better price

- Walking away

There are a bunch of questions swirling around this opportunity, but my qualms are centered around putting that much capital (option 2) into an investment that is not very liquid, and doesn't have a clean, clear path to appreciation. I really like the cash flow aspect, that is why we put it under contract in the first place. I think that I need to establish a value for the property to me, then negotiate to it or walk. I'm just not sure how to weigh the cash flow upside vs. the downside of overpaying based on appraised value, which then impacts my sale price down the road.

I know there isn't a "right" answer, but I'd love input from the BP community. What would you do? How would you make the decision if you were in my shoes?

Thanks for making it all the way through!

@Jeff F. Thanks for taking the time to chronicle your process on this property, a fascinating and helpful narrative! Do you still plan to refinance and hold long term?

I'm under contract for $340k on a piece of property that has two separate houses and an unattached garage. The houses are both rented up with a total gross rent of $2500 per month. I reached out to my mortgage broker who has done my last couple of SFR, and he is telling me that I need to put 25% down if it is a true duplex. This raises a couple of questions:

How do I determine if it is a "true duplex"? I looked it up on the county site and it lists both dwellings as residential. In talking to the owner, the buildings are both legal and are grandfathered into the zoning type.

Do I indeed have to put 25% down on a true duplex?

Is it possible to use the rents as a case for a lower percentage down? 

Thanks! 

@Chris A Godbolt

I would echo @Andrew Johnson, using sites like Zillow and Redfin is a route to finding properties, but probably not the most effective tool either. I did just enter contract on a duplex that I found on Redfin, in this case the units were FSBO and had languished on the site for over 60 days.

Trawling those sites for older listings is probably the best way to go, trying to use them to beat the crowd on new SFR listings is not the most effective method.

Best of fortune in your venture!