4 Properties in One Deal

[<Steve> 82]

Hello Everyone-

 

Yee Haa!!!

 

I talked with a seller today who has his investment properties up for sale. I drove by to see where they were located and I am interested in 4 of them. Three of the properties are rented and one is vacant. All in good neighborhoods and in good condition, at least from the outside. Looking at comps, the properties are priced at market and rented at market. To make them cash flow nicely by just looking at the price, it would have to be reduced about 20%.

 

The seller is retiring and moving and wants to rid himself of the responsibility. He wants to do a 1031 exchange to his new location. I ask if he needed all cash or if he would owner finance. I ask if he needed cash or wanted to receive monthly cash flow from his properties. He said he would take monthly cash flow and is open to any suggestions.

 

The wheels start turning.

 

Apparently he has paid down his existing financing fairly well and has accumulated a sizeable amount of equity in his properties. It just keeps getting better.

 

The seller is willing to do owner financing; however, is a little hesitant that the bank may call the loan due and does want to do anything that might be illegal. "?" This seems strange for an investor to be thinking this way. No subject-to it seems.

 

So, now I am on the hot seat. I will be looking at the properties in a few days and am wanting to start thinking of a couple different offers I can make. Not sure how well a lease/option would work in this situation? The properties currently have traditional renters.

 

Holy Cow Any suggestions?

 

I'm thinking K.I.S.S. (keep it simple stupid)

 

1) The seller maybe willing to sell "no money down" and take back a mortgage for the entire equity. May be difficult to cash flow however, unless seller is willing to lower his prices 20%+-

 

2) Obtain a new mortgage to pay off existing loans and down payment money if any (hard money lender) and have the seller take a second mortgage, maybe interest only for a few years.

 

Multiple properties at once is a first for me any suggestions or ideas would be helpful and much appreciated.

 

-Steve

[mpine 0]

Steve,

 

It sounds like a Lease Option or Cooperative Assignment might be a perfect fit if he does not need the cash now. If you can get a 3 year lease option you can cash him out when you have a qualified T/B.

 

If you do a Cooperative assignment he can keep control of the property, get a quality tenant looking to buy and remove the landlord headaches while still enjoying his tax benefits until the T/B is able to purchase.

 

If those are not deals he will consider you may try to make him a partner in any deal, or get a purchase contract and just assign it to another investor.

 

Best wishes, and have a Happy New Year,

 

Mike

:ph34r:

[option8 0]

-Steve,

 

Multiple properties shouldn't be a problem. You can always do them one at an time. Take one and fill it, then take another. If you perform on the first one, they just may feel more comfortable about your proposals. The first deal we did was with an investor that had something like 30 properties.

 

option8

[<Steve> 82]

Thanks Mike & option8

 

option8, If you don't mind me asking, how did you go about structuring your offers for the 30 properties? This investor I am working with currently has all the properties rented but one.

 

Thanks Steve

[MichaelC 160]

Steve, your situation reminds me of the old story that asks "How do you eat an elephant?" Answer: one bite at a time.

And I think that's the way you need to approach this deal. Don't overwhelm yourself with trying to put together a huge package for the sake of saying you did it. Work within your comfort zone. Determine which property you want most and make an offer on it. If all goes well, you can then proceed onto the others. By then, the seller will know you, trust you, and be more willing and flexible.

If you come along right off the bat and say you'll take all of 'em, but your terms, no cash, etc., this guy will turn off. Take a slower and more deliberate approach and you may find him more comfortable and open to your suggestions.

[Guest Guest]

OK Michael, I see. I guess my thinking was that I needed to move quickly before someone else came along and got the properties. But if I build up trust and he understands what I am trying to do with 1 or 2 properties, and how I want this to be a win-win for both of us the seller maybe more willing to make deals on the others in the same way.

 

Also, I just talked with him this evening for about an hour, talking about real estate in general and past experiences. It was a good chat. I am meeting the seller this Saturday and am looking at two of his properties. He gave me some numbers of his current financing and knowing what they rent for, I can crunch some numbers on a couple offer ideas and see what he thinks.

 

Always learning

Thx Steve

[<Steve> 82]

OOPs my post came in as a Guest. I guess my wife has been playing on the computer again.

[option8 0]

Steve

 

If you don't mind me asking, how did you go about structuring your offers for the 30 properties?

 

I would use this opportunity to "cherry pick". Ask for a schedule of what is available. This should include address, occupancy status, monthly rent, date of lease expiry and asking price. From this list you should be able to do your research on the individual properties and choose which ones would make good deals.

 

We only took one from our investor with multiples and had a tough time moving that one. However, he is still holding a few and willing to offer those to us, still.

 

option8

[<Steve> 82]

Good advise thanks option8.

 

Steve

[<Steve> 82]

Just wanted to post an update form this weekend regarding this deal.

 

I went to speak with the seller in person this weekend. The seller has 7 properties. Five are rented and two are vacant. After spending a few hours with the seller looking at his properties, he has agreed to a "10 year lease/option on all his properties." I couldn't believe it!!!

 

I am currently doing my due diligence and so far 3 maybe 4 of the properties make sense to me. I have currently applied for an LLC and will be using the naked investor contracts.

 

I am also going to ask that I have the ability over the next "10" years to renew or return the properties each year. This way if one of the properties does not work, I am not stuck for the 10 year term. Still doing due diligence, and it is looking good to pick up a few nice properties.

 

Thanks Michael and to everyone here for you replies! This stuff really works!!!

 

<Steve>

[MichaelC 160]

Steve, this is quite a potential package you are putting together.

One bit of advice comes to mind immediately. Do not draw up a ten year agreement. Instead, make it a series of shorter term agreements with you having a right to renew at the end of that shorter agreement. For example, a 24 month lease with option to purchase, with you having the right to renew if you want to at twelve month intervals. This gives you control and flexibility over the situation and allows you to continue or terminate, at your discretion.

[<Steve> 82]

OK Michael, this way I will not be locked in for 10 years, but would have the ability to extend each year and go 5 or 10 years if I wanted to or not. I think the seller would go for it.

 

From the seller's point of view, I think he sees me as relieving him of the management duties of his property, and is willing to take a smaller monthly cash flow profit by doing this l/o with me. Works for me. I think his ultimate long term goal is to sell these properties within 10 years, put his profits in a 1031 exchange for other properties at the beach and retire there. Can't say I blame him.

 

Steve

[<Steve> 82]

Met again with the seller tonight with the "Residential Lease with Option to Purchase Agreements" for (4) properties. negotiations are going well, its good to see our past conversations beginning to work out on paper.

 

Two main issues are needing to be resolved. First, I have no option money or deposits of any kind in this deal and would like to keep it that way. The seller feels a little exposed that I have nothing into the property, but he is motivated enough to not ask for any. The issue is in the contract, if I terminate the l/o early I am only liable for (1) extra month's rent (my favorite clause). I don't think it would take much to settle this, if anyone has any suggestions? The seller mentioned something like "Making payments until the property is re-rented."

 

Lastly in the future, the seller's ultimate goal and true motivation is to sell all his properties at one time or in groups, putting the lump sum into a 1031 and into a single property (commercial possibly). Of course, he is in no hurry by doing a lease/option. This gives me time to get to know the properties and decide if I want to purchase for a longer term investment or give them back or sell to someone else. I have a separate contract for each property and the seller ask to add, "That all the properties need to be purchased or sold at the same time." At this time, I can't say that I would buy one, much less all of them; however, if they do work well, I would consider it or try to do it. Does anyone think its not a good Idea to add this line in the contract?

 

At the end of this coming weekend, the seller is leaving town for three weeks. This has added a little pressure for him to finish up this week. I have offered to begin advertising and showing the vacant properties while he is gone.

 

We are getting close and I'm having a good time. So far getting properties with a lease option seems less stressful as compared to straight investment purchase with financing.

 

Thanks for any ideas.

<Steve>

[MichaelC 160]

Steve, good to hear you're not wasting time with this potential blockbuster. Take action, and get it done!

Two main issues are needing to be resolved. First, I have no option money or deposits of any kind in this deal and would like to keep it that way. The seller feels a little exposed that I have nothing into the property, but he is motivated enough to not ask for any. The issue is in the contract, if I terminate the l/o early I am only liable for (1) extra month's rent (my favorite clause). I don't think it would take much to settle this, if anyone has any suggestions? The seller mentioned something like "Making payments until the property is re-rented."

No money down? So, what's the issue? That's the norm in this business. Seriously, it seems this issue can best be resolved by reassuring the seller of your professionalism and experience. Remind him how you are taking responsibility for his properties, and that once the deal is finalized he can move on and forget about them. Repeat to him all the advantages of a properly structured lease puchase deal.

The other thing you might consider, but only as a last resort, is to provide him with an agreed to amount of deposit money, but only after you collect it from your tenant/buyers. It should never have to come out of your pocket, Steve. But, I think if you explain to the homeowner that you need to hold onto the money because you are responsible for the maintenance and repairs, he should be OK with that, based on the level of motivation he appears to have.

The bigger issue, it seems, is his concern with the Early Termination clause we have thrown into the mix. Can't say I blame him .

Obviously, we need safety nets in place for when things don't go as planned. He wants you to make payments indefinitely until the property is leased again. But, that is way too open ended for my comfort. You can try and play the "nice guy" by extending that to two months, let's say. Or, you can really be a nice guy and strike that paragraph entirely. Insanity, you say? Not really. You'll note, Steve, we have a backup clause. Review Page 3, Paragraph 23. If you understand it, it is saying that in the event you default under the terms of the agreement, the seller accepts as damages whatever money he has already collected as his settlement.

the seller ask to add, "That all the properties need to be purchased or sold at the same time." At this time, I can't say that I would buy one, much less all of them; however, if they do work well, I would consider it or try to do it. Does anyone think its not a good Idea to add this line in the contract?

Count my vote for not a good idea. Too restrictive and burdensome. This severly limits you or any purchaser by needing to purchase ten properties simultaneously. The funding hurdles alone would make your nose bleed. I would explain to the seller that he is hurting himself by reducing the market for his properties to only wealthy investors. Who else would come along with the ability to purchase ten properties simultaneously?

At the end of this coming weekend, the seller is leaving town for three weeks. This has added a little pressure for him to finish up this week. I have offered to begin advertising and showing the vacant properties while he is gone.

Don't hestiate. Lock this deal up before he leaves!

We are getting close and I'm having a good time. So far getting properties with a lease option seems less stressful as compared to straight investment purchase with financing.

Indeed! The stressful part, however, comes later on when you need to hide your money from the IRS and your wife .

[<Steve> 82]

The stressful part, however, comes later on when you need to hide your money from the IRS and your wife  .

 

Boy that's for sure, I think I would have better luck with the IRS.

 

Or, you can really be a nice guy and strike that paragraph entirely

 

Talked with the seller again, and I did the really nice guy thing, in return the seller dropped the impossible of selling all the properties at the same time. We crossed or Ts and dotted the Is, and it looks like I will be meeting the existing tenants this weekend and sign the paper work!!!

 

Keeping my fingers crossed.

Steve