AWESOME DEAL with some complications - I NEED HELP - Posted by G. Thompson

Posted by Laure on March 20, 1999 at 07:41:13:

I agree. Try to work out a deal with the weatherization folks. Explain that you know this guy didn’t do right. But you are NOT the seller. Ask what you can do to get this property cleaned up for the city. Ask them how the two of you can compromise, making the completion of the project your number one goal, because the city doesn’t want that building sitting there like it is, and it IS GOING TO JUST SIT, if they can’t/ won’t work with you.

Hope it helps.

And let me know about the windows… You know, I have that “problem” hehehe

Laure :slight_smile:

AWESOME DEAL with some complications - I NEED HELP - Posted by G. Thompson

Posted by G. Thompson on March 18, 1999 at 23:06:33:

I’ve been involved with real estate investing since 1995. Now I do it full time. I came across this site by accident. I’m very happy I did. What a huge resource of info here!

This story is a little lengthy, however, I need to tell you all the details so I can get some good feedback from you. Here goes.

I found a 3-story, 12 unit apartment building, with 2 commercial store fronts on the first floor. The building is vacant and needs a lot of work. The rehab project became a major headache for the current seller. It was seriously mismanaged. His loss, my gain.

I negotiated a $30,000 purchase price, even though he owes $75,000 on a mortgage. His bank agreed to take $45,000 and place it against one of his other properties so I can get clear title.

Terms are: 18 month land contract, $4000 down, payments are about $310 per month.

Here’s the great part. There is still $29,000 in grant money available on the property from the city. This never has to be paid back. So, it’s like I’m purchasing the property for $1000 net.

Originally, the seller got $69,000 from the city and used $40,000 so far. Needless to say the city is upset that the rehab isn’t near being finished and they paid out the $40,000 already. I met with them and they will not pay out the $29,000 until there is I’m $29,000 away from being completed.

The rehab will cost about $85,000. The appraised value “as is” is $60,000. “As rehabed” is $206,000. I will have about $120,000 net profit after rehab on the building! Not to mention a huge net rental income each month when all the units are rented.

I will have even more if I have the units converted to condos. It will only cost me an additional $4000 in legal fees to do this, however, it will yield a lot more than the $120,000 profit. It would probably take longer to sell the condos vs. renting the units out, however, I could charge a lot more for the condo units and sell them with creative financing.

This deal is too valuable overall to simply flip to another investor. Although it would be easily done. There is a problem though.

The seller had agreed to a one year energy weatherization stipulation (DIHR) when he purchased the property several years ago. This means, all pipes in the basement have to be wrapped, insulation in the walls, and two panes of glass, whether storm windows were added or thermopane windows were installed.

He didn’t meet this requirement within the first year. The state (DIHLR) put a block at the register of deeds office in Milwaukee county. This means that you can’t get conventional bank financing yet because the bank can’t record a mortgage on the property until the DIHLR is complied with.

There are 115 windows on the property. They were all removed and boarded up. The idea was to put in brand new energy efficient thermopane windows. Well, this is one of the main problems. It will cost about $20,000 to purchase and have these windows installed. Then the DIHLR stipulation can be removed and bank financing put in place for the remainder of the property.

Some concerns:

  • The insurance company won’t insure a vacant building.
    This leaves vandalism and theft a huge concern.
  • A serious cash outlay of $20,000 to put windows on and
    then board over them to protect against vadalism from the
  • It would actually be easier not to put the windows on
    first. It will take up more labor costs to work around

Whoa! - Posted by JoeKaiser

Posted by JoeKaiser on March 19, 1999 at 22:07:20:

“This deal is too valuable overall to simply flip to another investor.”

Ugh uh . . . that’s the wrong way to look at this thing. I’m just guessing here, but I’m thinking it’s over your head. Tell you what, it’s over my head.

In this business, the real dough is made by signing your name to the bottom of that killer contract. Virtually everything else is real work that requires real skills, experience, know how, cash, etc. Who’s got time to learn about rehabbing when there are hot deals waiting for your signature?

I just checked my 1999 goals, and learning about windows isn’t on the list.

I refuse to learn a single new thing about windows. I know all I care to on that particular subject.


Re: AWESOME DEAL with some complications - I NEED HELP - Posted by Joe Dahlin

Posted by Joe Dahlin on March 19, 1999 at 19:42:01:

You should double check window prices. Sounds too low. Also city might have some input into window requirements. Good Luck!! Joe Dahlin

Re: AWESOME DEAL with some complications - I NEED HELP - Posted by Jim Beavens

Posted by Jim Beavens on March 19, 1999 at 13:09:46:

This sounds like it has enough complications to make any suggestions you get over the internet woefully inadequate. Still, here are some of my thoughts:

Have you talked to the weatherization folks who clouded the title? This is probably assuming too much of our auspicious governing bodies, but maybe somebody can see the absurdity of requiring a vacant building to be weatherized. At the very least, you could see if they would be willing to subordinate their interest behind a first new mortgage (you don’t really say what you mean by recording a ‘block’…so I don’t know if this is possible). If you can get it through somebody’s skull that this block is causing a catch-22 (no weatherization, then no financing, and no financing, then no weatherization), then maybe something can be worked out. You’ll never know unless you ask.

The only other thing I can think of would be to see if there are any hard-money lenders who would be willing to lend money despite this block. If after-repair FMV is indeend $206,000, then you should be able to borrow $80,000-$100,000 without much trouble, and you can stipulate that the first thing to be done will be to comply with these DIHLR folks and fix their stupid windows so that their hard money loan will move up to first position as soon as possible. You can offer to leave all but $50,000 in escrow until that block is removed ($30,000 purchase plus $20,000 to fix the windows), and then proceed with the rest of the rehab with the remaining loan money and that grant money. This will be alot easier if you’ve worked with a private investor before and he knows your track record enough to trust you. But with the equity that you’re going to have in this building, it doesn’t seem like it would be too hard to find a willing private investor.

This is all theory, but hopefully will give you some ideas.


P.S. It sounds like a LOT of rehab is required. Hope you’ve done this kind of thing before, because it would scare this little newbie to death.

Re: AWESOME DEAL with some complications - I NEED HELP - Posted by Paul_NJ

Posted by Paul_NJ on March 19, 1999 at 02:33:44:

Sounds like a awesome deal alright! Just some input on your window issue. I recently had a fire in one of my buildings and for “venting the smoke” per the fire department 27 windows were broken. What I did the day of the fire was to use plywood to cover windows and during repairs to the building I installed vinyl or metal with wire glass replacement windows from the inside and I’ve left the plywood on while the remainder of repairs are being completed. You might check with your building department because I was required to use metal frame and wire glass windows near all fire escapes and ground floor egress windows.

Good Luck!


no windows? - Posted by Laure

Posted by Laure on March 20, 1999 at 07:36:05:

No windows ? Sheesh ! I can just spend hours in the window store. I think I love windows.

“Hello, my name is laure, and I am a lover of windows”

but seriously. He does have a chance at making a bundle here. I personally, enjoy making a work of art out of my rehabs. I enjoy it when all the buyers are fighting each other cuz it looks so good. I know, I know… it’s just a house. I think it’s an ego thing. Will talk to my shrink about it when we discuss my obsession with windows ! LOL