All Forum Posts by: Scott Krone

@Sam Westfall - A common strategy to offset the cost of expensive college housing, is to purchase a place (home, townhome, condo) and then use it as well as rent it to friends.  Upon graduating, either sell it or maintain it as an income property.  It may be a strategy for you to dip your foot into investing while attending college.  The plus side is the interest payments are tax deductable while school housing is not!

@Aaron Lietz - Your post caught my attention, as someone who has taught college architecture, had two mentors, and has coached/mentor real estate in the past.  As in the collegiate arena, or for the most part in life, the 80/20 rule applies.  While teaching, 90% of the students would say their goal was an A.  The 10% who stated their objective was to learn "x" or "y" were usually the 10% who earned an A, the rest did not put in the effort to earn an A.

There are truths to your points 1, 2, and 3.  As I have never been in the music industry or considered being a mentor a full time job, I can not comment on 4-7 as an industry.  I did disclose the challenges as well as strategies to overcome the challenges, nor will I state I had an answer for every challenge.  I do agree whole selling is a hard way to earn a living.

I also do believe their are other tangible benefits for working in real estate that you did not disclose in your analysis.  But at that point, it appears your discussion was more about whole selling versus the pros and cons of a having a mentor.

When asked if someone should have a mentor, I will most likely say yes - because I have benefited from them.  I will also state, going into the relationship, one should have a clear goal and expectation - what they are trying to accomplish, and how much time and energy are they willing to accomplish said goal.  Otherwise, the 80/20 rule will prevail.

Is your post about mentors or about whole selling?  I agree it is a tough business, much like being a real estate broker.  That being said, a tool we have used and an important one to have in the tool belt.  It is also important as a buyer to understand the role of a whole seller.  I would also contend, not everyone has the ability to make $250,000 - $350,000 in a corporate job, so I tip my hat to you for accomplishing that.  By the government's definition, that puts you in the top 1%.  I do know whole sellers who are also in the top 1%.  So, by the government's standard it is equally as hard to earn the same amout of money.  If you determine it is easier for you to do that working a corporate job, awesome - I trust it serves the country as a whole for you to be doing your job well.  If someone else finds more satisfaction being a whole seller, more power to them - not a job I desire to do full time.  If someone wants to coach full time, I hope they are good at what they sell, and help those who buy from them.

@Bruce Woodruff - Indeed!  I agree if we got all those at one time it would raise some concerns.  Nevertheless, they are questions we have been asked, and we answer them when we discuss our company.  So inessence, they get answered without being asked, so as an owner it is good to know the questions in order to know what to listen for.

I also agree GC's don't have to perform all the tasks - but it is important to know which ones they do (for lien exposure).  Large GC firms sub out 100% of the trades.  Small GC's may do 100% of the work themselves.

@Benjamin Lemieux - We have a design build firm so we get these questions all the time.  There are distinctions which are good to know and ask.  Depending where you are in MO, I may be able to recommend someone.  Our friend does GC work in the StL market.

That being said some questions:

1.  What services do you provide?  (Some GC's do all the work themselves, others sub it out)

2.  Do you have your own crews, if so, what trades?

3.  How do you handle payouts - use a title company?  (This is important to know if there are subs, to insure they get paid)

4.  What types of insurance do you carry?

5.  What types of projects do you enjoy working on and are considered in your wheelhouse.

6.  What areas do you work in, do you have experience with "X" city or town, etc.

7.  What is your current work load, and how would this project fit into your schedule.

8.  How big of a firm is your company.

9.  What is your process for obtaining a proposal and contract.

10.  Can you provide an example of a contract.

These are the most common questions we get once we have explained our business model.

@Angel Hernandez  @Paul Moore has written a very indepth book on self storage for BP.  I am not sure if it has been released yet.  @Scott Meyers has an program on self storage.  It does not cover other types of commercial real estate.  I don't know of any that cover both.  We moved from commercial into self storage.

@Michael Williams  In response to your subject line, "raising capital" and "private lending" are generally two different souces in the capital stack.  Raising capital or equity is generally associated with "syndication".  Within the capital stack it takes up anywhere from 10% to 40% depending on the lender.  So, if you are buying an apartment for $100,000.00, and the lender will loan up to 70% or $70,000.00, then it requires $30,000.00 of capital or equity (cash in the deal).

Private lending is debt not capital.  Private lending generally refers to non-institional (bank) loans.  People who lend money using a mortgage and a note.  It is important to understand the distinctions.  To answer your questions:

1.  How to find private lenders:  brokers, referrals from title companies/attorneys/other investors, as well as private lenders do advertise.  More importantly, why do you feel you need a private lender versus a traditional lender?

2.  You do not need a security attorney to borrow money.  I would certainly recommend having an attorney review the loan documents.  If you choose to raise capital/equity, then I would suggest using an attorney who specializes with that.

3. Do you need an LLC. We have put everyone of our properties in an LLC. I would suggest doing that no matter what the capital stack is.

I trust these answer your questions

@Nathan Leger - What I have to offer regarding this topic, goes beyond your immediate question.  It will apply to so many other questions that you, I and others go through on a daily basis.  If you take the type to learn this tool, it will help you in so many other areas of your business.

The concept or tool was developed by 4th century monks.  The fact that it remains relevent today, demonstrates the power in their tool.  It is not some wacky hockus pokus type stuff.  In fact, many others have tried to rebrand it under new names or terminology.  The idea is everyone, and literally everyone, is one of 9 personality types.  None of them are good or bad, they just reflect our "natural" ways in which we respond to both good and challenging situations.  When we are "healthy" we draw from one set of traits.  When we are "not so healthy", we pull from others in an ugly manner.  We all have this, in fact they are developed or born from trama.  It is our natural self coping mechanicism.  The system or tool is called the Enneagram.  

Ian Morgan Krohn (no relation - so BP I am not promoting anything) has written a concise book about the enneagram and developed a test to help each reader to determine their type.  The book is called, The Road Back to You.

So to answer your question, "how do I overcome fear", is impossible to answer unless one understands your type.  There are 9 types:  1 - 9.  The answer changes for each type.  What someone offers in this post because that is how they did it, could be 100% meaningless to your your type.  A type 1 is a Perfectionist.  The basis fear is failure.  A type 5 is an Intellect.  The basic fear is looking stupid based upon a decision with incomplete information.  For instance, @Robert Beardsley answer for a type 3 is too simplistic (nothing against what Robert post - I am not criticizing his post.  For his type, the answer works!)  For a type 3, the response is, "What about X, or Y or Z - there is so much more to consider!".   A type 3 is an Achiever, appearing to be successful.  Basic fear is being worthless - if it fails then I am worthless.  They each have very different set of fears which drive them.  I hope and trust you can begin to see my point.  Based upon your post, I have no idea your type or which is the best answer for you.  

I would offer, read the book, and determine which type resonates most with you.  There are hundreds of books on this subject, if that one doesn't resonate with you.  Nevertheless, only you can determine your type, no one could or should tell you what you are.  Then you will begin to determine how to answer your question.  

@Sean C.  if you know the address, you can enter it on this website https://www.novoco.com/resourc...   to see if the site is located in an OZ.  Second you can do a search on the Secretary of State for Illinois to determine if that company exists.  Two strategies to use for this or any investment to determine if the project is a real project.  From there, I would continue to do the balance of the due diligence.  

For instance, we were presented an OZ deal, and ran the address - it was in a zone.  Then we looked at the site, and they were proposing a 20 story building.  A small issue was all the surrounding buildings were 2 to 3 story.  No way a 20 story building was going to be zoned there.

@Sohrab Ansari The asking price is a 5.77% and your offer is 6.5%. Your question is "are you overpaying". The simple answer is maybe. A 5.7% cap for a class B or C facility is a strong ask in the market. However, if the revenue is not verified and the expenses are not accurate, then yes you will certainly be overpaying. We see many facilities that look great on paper until we dig into the due diligence and find out all that is included or more importantly not included to get to the real adjusted NOI. If you agree on a cap rate, you can make your offer based upon the cap rate applied to verified income.

@Jacob V. $2,500/mo could either be a lot or not so much depending on the size of the facility and the acquisition price. If the price is high based upon that cash flow, then that could be the reason for the 50%-65% LTV (inessence the banks think you are over paying and it is a way to manage their risk). There are lenders who will finance based upon construction and existing cash flow. There are brokers that can assist you with that.