Posted by Mark Graham on February 23, 2001 at 11:43:17:
The size of the deal is irrelevant except to your comfort level. When looking at ANY property, the profit is what counts. If it needs LOTS of money up front, then the profits are unlikely to be as high and it is less likely you will choose to do the deal in the first place. If you decide to act on this opportunity but you don’t have the neccessary cash, then it’s time to get more creative with the financing. Keep working on the financing until the property is sold, either yourself or someone else. You would be surprised at some of the financing offers that creep out of the woodwork when you start looking at longshot possibilities.
Also, this work might prove beneficial even if the deal falls through. Let’s pretend that the appraised value of the props is $4million, 20% down would be $800,000 to go the conventional financing route. You manage to find $400,000 in private investment money, but the props are sold to another investor at this point and you’re out of the game. Advantage: you know where to get $400,000 worth of high-risk loans. That’s not something to sneeze at.
In your particular case you mentioned “24 repos”. “Repo” usually means the bank owns the property, but you said the real estate agent “had them”, rather than “listed them”. In any case, if the bank owns them, you might be on a gold mine … the bank usually hates being landlord, and might be desparate to unload them. At the same time, they don’t want to repo them again in two years. More to the point in the analysis is WHY were they repod in the first place? Too much maint? bad neighborhood? overpriced? Do the numbers, factor yourself a nice fat profit margin, and make an offer, even if it seems absurdly low to you. (Don’t forget the escape clauses, in case you can’t swing the financing or you change your mind later.) In the above example, you might offer $2.9 million and allow yourself to be negotiated to $3.1 million. If this is accepted, you’re buying $4mil worth of property for $3.1mil, and this suddenly looks attractive to REIs. Chances are it will be rejected, but who knows, the owner might be sick to death of it and ready to bail.
Hope this is of some help.