Huge Deal / Scary Deal - Posted by Tiny Male Praying Mantis

Posted by Steve on May 11, 2006 at 16:01:42:

What can you say about a post like that???

Huge Deal / Scary Deal - Posted by Tiny Male Praying Mantis

Posted by Tiny Male Praying Mantis on May 05, 2006 at 14:36:18:

I’m not using my real name or email, because I need to keep a lid on this. I apologize.

my biz: merchant landlord. have portfolio of 1-4 unit residential. acquiring more all the time. keep most. sell some. rehabbing all the time.

6 years ago, I identified a person who owned more than 100 houses in my area, plus a pile of apartments. I made contract,mainly to introduce myself and plant some seeds for the future. kept in contact once a year or so, just in case the person wanted to unload the goods.

this person is ready.

300 units. 220 SFR’s. plus 1-6 units. 150K monthly average collections. breakup value of portfolio is at least 20M. seller wants 16M. will finance the whole thing!!! the 20M is legit.

I really want to hold on to the portfolio, but the margin will be very thin. a 3-4 month downturn in rental market, and I’m finished. I truly believe this market will appreciate well over the next 5-6-7 years. not like the coasts.

Anyone want to offer me a life preserver???

Re: Huge Deal / Scary Deal - Posted by fh8510

Posted by fh8510 on May 11, 2006 at 03:32:37:

If the monthly income is 150K, I won’t pay more than 15M for the whole thing. Also most of the portforlio are SFH, which subject to the normal housing market condition, and as we all know, the normal housing market is at its peak right now. That’s why this guy wants out. I would build 6% to 10% discount into the purchase price.

Re: Huge Deal / Scary Deal - Posted by Tim

Posted by Tim on May 06, 2006 at 11:12:44:

If you really believe the 20M is legit take control of the properties and sell off enough to pay the entire loan off. Net result you end up with 4M worth of property free and clear. You could also sell off enough to make the package cash flow the way you want. However, being the cynical bast*** that I am, I have to think if it was possible to sell in a reasonable time without a lot of expense the owner would do so. I definitely don’t see enough cash flow to cover the note, taxes, insurance, repairs, management, etc. Just my opinion, & I have to admit I have never done a deal anywhere near this size.

Re: Huge Deal / Scary Deal - Posted by Tiny Male Praying Mantis

Posted by Tiny Male Praying Mantis on May 07, 2006 at 08:19:58:

thanks for observation. you are dead right about the cash flow situation. a couple problems with selling off a chunk of the portfolio:

  1. located in medium sized town. listing all of them would flood the market. would need to be done 4-5 at a time over a few years.

  2. the SFR’s will command top dollar when vacated, spiffed up, and sold to owner-occupants. That takes time.

  3. Time is the killer here. One or 2 bad months with this kind of carry, and I’m dead meat. that’s when that big beautiful mantis turns her attention toward me, opens her huge jaws, and…

SOMEbody’s gotta be an optimist… - Posted by PeteH(NYS)

Posted by PeteH(NYS) on May 10, 2006 at 01:44:21:

…perhaps it will be me.

The way I see it, if you can buy $20M worth of property for $16M, you’re getting a 20% discount. Depending on how quickly you can capture that value, either through sale (challenging, for your stated reasons) or simply by paying down enough debt to put a comfortable-enough distance between you and breakeven, this could be a deal worth doing.

Major downside: your expenses and debt service may be too high to stay afloat.

Major upside: the guy is willing to owner finance. Since he knows the business, he may also be willing to finance on terms that start easier for a year or two. Would that be enough time to sell a handful of SFRs and pay down enough debt to ease the debt service burden? Now your biggest headache is managing 200+ units.

I’d play with the numbers a bit more and spend some time massaging an offer structure that keeps you away from the firing squad.

Oh, and don’t underestimate the time required to manage several hundred units.

Keep us posted.

Maybe Flooding the Market Could be Good… - Posted by Berno

Posted by Berno on May 09, 2006 at 14:46:55:

If you literally could flood the market, couldn’t you actually raise the FMV of all the properties? If you are throwing a bunch of houses on the market you could tack on 10% to each home and all of a sudden that home that was a FMV of $150k is now looking like a $165k house. If you are that big of player you can help raise the prices of homes in your area. You could put all of them on the market for a premium price, sell the ones that get decent offers and hold the rest. Just an idea!

Re: Huge Deal / Scary Deal - Posted by NJ-Richard

Posted by NJ-Richard on May 08, 2006 at 21:59:41:

Another consideration to owning many smaller properties is the difficulty in making a 1031 exchange into a single, larger property. You may not envision this in your future but, if some day you wanted to trade all of these for one or two large commercial properties using a 1031, it’d be pretty difficult, and quite likely impossible.

There may be other ways to make an investment this size that would give you greater flexibility down the road.

This is just something to think about.

Thanks for reply - Posted by Tiny Male Praying Mantis

Posted by Tiny Male Praying Mantis on May 10, 2006 at 07:18:35:

been noodling this over for a week. I have the management capability in place already for my own stuff. This would triple the load for them, which might require one more person.

One solution is for me to partner up with some money, so that I have a fat reserve on hand. this would cover 6 months of debt service and anticipated expenses, plue 100% of the property tax bill that will arrive later in the year. [that bill will SUCK].

I’ve never run into a deal that I could not do myself. so partners are a foreign concept. not sure how to design deal to compensate the money partner, when I am providing part of the money, and everything else.

another option I am considering is this: Instead of biting off on the whole deal, I might make a run at the rehabs in the portfolio. This is what I do best, anyway. they would be priced a LOT better, and represent about 40 units.

You’re Confusing Asking Price - Posted by PeteH(NYS)

Posted by PeteH(NYS) on May 10, 2006 at 01:33:04:

with Selling Price. Go ahead, Ask for $165K. It’s not FMV (Fair or Full market price) until a buyer makes it so by agreeing to pay that much.

No, I’m Not - Posted by Berno

Posted by Berno on May 11, 2006 at 08:00:19:

Not at all. If there are people that want a 3/2 and you own almost all of the houses on the market, you can pretty much command your asking price, within reason. Supply and demand my friend…no confusion.