All Forum Posts by: Sam Simones

Is it possible to take a regular washer / dryer and put a coin-operation part on to it?  If so, what's the cost in doing so?

Hello All,

I know that Master Lease Options have been discussed a ton on here, but after searching endlessly I couldn't find anything addressing some specific concerns/questions I had so here it goes...

• The potential seller is a full time firefighter who has 3 very involved kids and is also a part owner of restaurants across the country with his brother.  His motivation to sell is because of how busy he is and he hasn't been able to manage the properties to his very high standards the last few years.  He owns a 9 unit, an 8 unit, and a 4 unit.
• His places are very under rented, by design.  He's currently getting $20,575/month in rents.  His mortgage is $8,646.  After taking into account property taxes, utilities, water, insurance, and a 10% repairs & capEx fund, I figure he's making ~$5,000/month.  He said his starting point for talking price would be around 100x gross monthly rent but probably higher due to the fact he knows they're under rented.
• Here is my proposal: I'll pay a lease of $10,600 ($2,000 up and above his mortgage) and as a master lessee I'll be responsible for every other expense. I'll give him 33% of the rent increases and the strike price for the option will be $2.2 million (107x gross monthly rent - CAP of 7.4% with no vacancy built in). The lease would last 5 years and his downside protection would be if the lease was not executed, I would owe him a fee of $75,000.
• Getting the rents up to market would be a monthly increase of $3,675, which would result in a valuation increase of $550,000 using my banks' CAP rate. My bank has said that I can use that appreciation increase as my down payment to give them a LTV of 80% or under.
• So he's making $2,000/month and increasing, plus paying principal off (would be about $200,000 of principal pay off over 4-5 years), keeping the depreciation and other tax benefits and having downside protection if I were to screw up and not be able to get the job done.  I'd be getting the cash flow arbitrage (I'm figuring about $40,000/yr) and growing with rent increases.  I'm getting the benefit of the appreciation which will allow me to buy with no out of pocket cost.  And I'm getting a first right of refusal on an A+ building in an A+ location that he currently owns.

Is there anything I'm missing or does anyone have any thoughts on issues they see with my deal structure?  Any input would be greatly appreciated.  Sorry for the lengthy post.

Assuming the following, I don’t understand why the bank would care..

1) I have 10-15% of my own capital in

2) they have 80% LTV

3) debt service and all other relevant ratios are in good order 

If my note with the seller gets forgiven it only enhances the banks position. 

Classic apology for asking something that I’m sure has been asked before, but I can’t find it so that’s okay. 

Say a friend is selling you their property. The appraised value is 1,354,000 and he agrees to sell it for 1,254,000. I’m young without cash or equity and so minimizing down payment is crucial.

Could we list the sales price of 1,354,000 to the bank and carry a promissory note between ourselves for $100,000 (the difference between the agreed upon sales price and the sales price on the offer to purchase etc), and in the promissory note in addition to writing out the terms we put a silly clause that said that taking the friend out for lunch every week was a clause that would fulfill the primossy note. The thoughts here is to basically have a forgivable promissory note. The bank gets their 20% equity (I put the remainder of the 20% of the 1.354m down), the seller gets they want (1,254,000) and I was able to put $80,000 less.

Illegal? Fraud? Just taking advantage of getting a good deal?