All Forum Posts by: Trevor Miller

@Luke Grogan

Thank you Luke.  I'll look into Buildium to see if that will work for my needs.

My decision to self-manage was based on the sellers feedback of his involvement with the property.  He doesn't spend much very much time on the property.  He does get the occasional phone call that something is broken or damaged but no more than 5-6 hours/week.  

My thought is if one of the tenants has an issue that is my responsibility to fix, I'll call the maintenance company that has promised my priority to fix the issue and I go about my day.  I'm sure there will more involvement than that but between my wife and myself I feel like we can handle the requests.  

If you read through my last post you will see I offered the seller the position of property manager.  He has an emotional attachment and I thought that would be one way to help him out.  

Thank you to everyone that helped chime in.  I can't believe it's been almost a year since my last post!  

The Phase II inspection came back unfavorably and we had to delay the closing.  Here we are 11 months later and I'm still trying to put this deal together!  The seller was dragging his feet for the longest time but I was able to convince him to have some additional testing done, that would possibly provide enough data to give the property a clean bill of health.  This involved drilling holes through each slab of the 11 buildings and taking gas samples to see if the soil under the buildings was contaminated.  The first test didn't take place until September but it came back clean.  The second round was just completed 2-weeks ago and we are still waiting on the results.  If it comes back clean, we will have enough data to appease the state and schedule a closing date on the property.

Over the last year, there have been some positive changes to the property.  The seller built out the 11th building and now has a tenant in there.  He also renegotiated two of the leases and raised rents considerably.  Due to these improvements, the selling price did increases to $1.3M but I'm 100% on board.

My biggest problem moving forward is the seller is now having reservations about selling the property.  Like I said in my OP, I had to pressure him into selling it and now that he is renting the 11th building, the cash flow is pouring in.  He has an emotional attachment to the property and the cash flow is hard to ignore.   I proposed bringing him on as my property manager so he can still stay actively involved with the property.  I also proposed using him for seller financing so he can continue to generate cash flow.  He liked both of these ideas.  I'm going to have some questions on how to structure the seller financing deal but thought I would give everyone an update first.

Thank you,

I wanted to thank everyone for the input.  

Update: I decided to take this project on alone. I'm confident my wife and I can manage the property and have teamed up with a local property maintenance company that will give us priority on tenant requests. The loan from Dad ended up being a HELOC on his house at 2.75%. I'm projecting I can pay him off in 4-years or less. I was approved for a 20/5 year loan @3.75% with no guarantor needed on the loan. The appraisal just came back this week at $1,370,000 so we are good at my purchase price of $1,250,000.

We are scheduled to close on June 1st but have two lingering issues. One, we needed to perform a Phase II environmental.  The results should be back any day now.  Some of the surrounding properties have tested positive for slag so fingers crossed the test comes back favorable.  I'm prepared for an unfavorable outcome as well and are prepared to walk away if the site needs considerable clean-up.  My second issue is the estoppel certificates.  We didn't deliver the estoppel in a traditional way as the seller was pretty clear he wasn't going to offer much help with getting them.  Like I stated in my OP this was an off-market deal and I had to put the pressure on to get this deal done.  I ended up drafting the estoppels and sent them via e-mail w/ E-sign.  I introduced myself as the new property manager and explained what/why the estoppel was for.  Of the 12 tenants, I only received 3 back.  One of which stated the seller owed her a bathroom remodel, hanging a new sign on the building and new light fixtures.  They do not have a signed contract with the seller on these items and the seller is saying this tenant has been asking for these upgrades but he never agreed to them.  I told the seller he needs to resolve this outstanding issue before we close.  Does anyone have insight on how to move forward with this situation?

I'll attempt to stay more active on my progress and will reach out for more advice.  Does anyone recommend a software system to track rent payments for multiple tenants such as this?  

Update:

My Dad is going to be my private lender and can loan up to $250k. This means I’m covered for the down payment and will have the ability to build out the 11th building for a long term tenant. How should I structure the repayment to my Dad? He insists I don’t owe him interest which is a nice bonus. Should I bring him on as partner and then buy him out at the end of year 5?

I toured the property with the owner yesterday and got to meet all the tenants. The businesses include

-3 cleaning companies

-2 Churches

-Mobile Forklift Repair

-LED Wholesale

-Roofing

-Custom epoxy floors

-Electrician

-Painter

-Residential/commercial maintenance (sellers company)

All of the buildings are extremely well kept inside and out. The buildings are all nicely updated including new siding, metal roofs, new HVAC etc.

None of the leases are NNN. Tenants pay for rent, utilities and plowing.

He does have a 2%/yr rent escalation in the leases.

The seller has been renting out this property since the early ‘90s and he said it’s very rare that he encounters vacancies but when he does, the buildings rent out quickly due to location and lower cost. Speaking of lower cost, It sounds like rents are closer to $18k/mo not $23k like I was told. He’s not paying himself rent on the 5,000 sq. Ft building he’s in but said he would pay me $3k/mo after I purchase which would bring the rents up to $21k. Based on comments from the seller I think 60% of the rents are well under market value. He says he offers lower rent to keep good tenants in place.

I’m still waiting on the actual financials to tighten up what this property can actually do!

Questions:

Would you update the leases to include NNN? Worth the backlash from reliable tenants?

Best way to pay my Dad back over 5 years?

I’ve got the potential of bringing a partner in with me. He currently owns several residential investment properties and wants to move into commercial. I could see doing future deals with him but my greed says to go at this project alone. Bringing him in would ease the burden of management and splitting major expenses would be nice. Just looking for advice on this.

What kind of resources are out there to help broaden my knowledge on commercial specifically?

Is there a standard for the amount of capital I should have on hand to use? I'm building in 10% for CAPEX, 5% for Repairs but what should I have for the first few months?

@Cole Bigbee the current rents coming in are $23,500 per month. Once the property is sold it will free up the 2 buildings (3 units) that are not currently collecting rents. I’m projecting another $4k per month out of the 2-unit building and will work on locating a long term tenant for the newly constructed 30X70.

@Marc Rice

Thank you. I’m not familiar with the 3% rule. Can you elaborate?

I started my REI path looking into multi family 2-4plex homes. I've made a few offers but the right deal hasn't popped up yet. I recently sold my rental property of 7 years and have $70k capital coming out. Closing for this property is next week and I've lined up a 1031 intermediary.

I learned from my cousin that his step father was off-loading his 54 residential properties and wants to retire over the next 2-3 years. I decided to call him up to bend his ear and ask for tips. He told me the residential market is great but the best move he made was buying a 6 acre commercial property. Over the years he's built up the property which now has 11 separate buildings. Each building is catered toward more contractor based companies and current tenants include a roofing company, church supplies, lighting wholesale, contacting/maintenance and a few more. The owner of this property is occupying one of the 11 buildings and he uses another one of the buildings (new in 2019 70X30) to hold his junk. He is not paying himself rents on either of these buildings. Long story short he told me if I could swing it, this property is the best investment he's ever made. Turnover is extremely low and all leases are NNN.

Current rents on the occupied 8-buildings is $23,500. Once the property is sold the 2 other buildings will free up. The finished building is actually split in half with individual 240v electric in each unit. Rents on each unit could be $2,500 per side. The 11th building is not finished inside and could be built to suite. Rough rents are $3k on this building once finished. This would bring rents up to $31,500.

He wants $1,250,000 for the property. I’ve got $70k in my 1031 and another $30k to put down. I’ve asked the seller if he would consider seller financing but have not heard back. I spoke to a commercial banker today and he told me I would need 20% down to obtain a loan through them.

Question for the BP community. What kind of creative ways can I present this to the seller? I’ve got $100k at my disposal. The seller is my cousins Dad and I have excellent rapport with him. He wants me to have this property but I want to present a fair proposal.

Thank you,

Thank you @Will Fraser!

You confirmed what I was already thinking.