Posted by JohnBoy on March 13, 2001 at 22:02:04:
Ed,
Thanks for the uplift.
As far as being on stage goes…well…me thinks you would need to bring several extra hearts along with a full team of heart surgeons as I thinks I would probably have several stop beating from trying to speak in front of 400 - 500 people!!! LOL
I have an offer - Posted by Rich
Posted by Rich on March 11, 2001 at 08:58:28:
I showed an individual my commercial property that is about to be forclosed on (see previous note “Ed, Help” further down the page). He has offered $45,000 to purchased half interest in my two properties (1/2 of what I owe on them). He wants to partner with me by turning the first floor into a pool hall, arcade, game room, etc. We split the proceeds and expenses. The basement and 2nd floor he thinks we could divide into cubicles and rent them out for storage space. We could conceivably make 20 10’ x 16’ storage spaces that could rent for at least $75 per month ea. Storage seems to be in demand around here. I think he has some good ideas. I’m 3 weeks away from foreclosure and need to act fast. I could do everything he has thought of without selling half interest. I contacted a vending machine operator who said he would take care of all of the coin-ops, pool tables, etc. So there would be very little overhead. There’s also no other game rooms in this college town and from people I’ve spoken to, including the vending operator, they think it could be successful. I could also divide the upper floors and basement into cubicles myself. I just need to get some cash to hold off the bank, in order to get going.
The tax appraisal on this building is $140k. A smaller neighboring property recently sold for $165k. I think it should appraise for at least that. I owe $65k. Replacement cost is around $1 million. If I could borrow $45k, instead of losing half of my property, it would make more sense to me. But I’m running out of time. Any ideas? Investors are welcome.
Thanks. - Rich
Re: I have an offer - Posted by Ed Garcia
Posted by Ed Garcia on March 11, 2001 at 12:53:16:
Rich,
Right now if you sold the property for $165,000 the last comparable property, which may be as you say smaller, but be more suitable and ready to go? You would make about $100,000. If you take on this partner, you get $45,000 and keep half of the deal, plus have a partner who will participate in forging forward with restoration of the building, which I’m not to sure you have the ability to do. The man seems to have some good ideas. I like his ideas better than the mall idea that you had.
Rich, three weeks will be here before you can blink an eye. My suggestion is for you to see if you can get another $10,000 out of the guy and close your deal. Carry paper for the $10,000 or apply it against future cost. If I couldn’t get the additional $10,000, I would close the deal anyway.
Ed Garcia
Re: I have an offer - Posted by JohnBoy
Posted by JohnBoy on March 11, 2001 at 10:16:39:
Is he offering you the $45k PLUS him paying the cost of setting up the pool hall and storage area?
Would he be purchasing the tables and vending machines or does he plan on doing the same thing by using a vending machine opperator?
Re: I have an offer - Posted by Nate
Posted by Nate on March 11, 2001 at 09:25:57:
The replacement cost is $1 million, and the building is only worth $165,000???!!!
Where the heck are you located?!
Sorry, that was just the first thing that came to mind. Seems like a huge disparity - not a sign of a strong market if the thing is worth less than 20% of replacement cost.
But that’s just me. Anyway, seriously, where are you? I saw in your earlier post that you were trying to open an antique mall in MD. Does that mean you, and these other properties, are also in MD? Where? I am in the Washington DC area.
Nate
Re: I have an offer - Posted by Rich
Posted by Rich on March 11, 2001 at 14:06:19:
Ed,
Thanks for your advice.
I have one question. Should I be responsible for the underlying mortgages, or should we each pay half. My thinking is that he expects me to be responsible for the entire current debt. His $45k could be used to pay it down, if I so choose, or used in any way I see fit. What do you think? I want this to work for both of us, and feel that he does too. He wants a good deal but not at the expense of me getting shafted. Do you think that creating an LLC and having the LLC purchase the 2 properties from me is the way to go? That way, we can utilize his good credit, get rid of the bank that I don’t want to have any more dealings with, and start with one payment with a good interest rate. Plus we can borrow the additional money for the renovations.
Thanks. - Rich
Re: I have an offer - Posted by JohnBoy
Posted by JohnBoy on March 11, 2001 at 13:10:53:
I have to agree with this. Under the circumstances, what does he have to lose??? At this point it seems he has a lot more to be gained and this pool hall/arcade thing could end up being a big success. I like that idea also. Plus, if they get the storage units rented out that would cover their costs on the mortgage, leaving a nice profit coming in from the proceeds on the business end!
Re: I have an offer - Posted by Rich
Posted by Rich on March 11, 2001 at 10:39:06:
Hi, JohnBoy,
He said he thinks we can do a lot of the renovations ourselves. He’s versed in wiring, framing, drywalling, plumbing, etc., but we would split the cost of materials.
The machines would be supplied by a vending machine operator.
Thanks. - Rich
Re: I have an offer - Posted by Ed Garcia
Posted by Ed Garcia on March 11, 2001 at 15:51:39:
Rich,
He knows the property is encumbered. He’s buying half the deal, he gets half the debt.I think you need to sit down and go over all of the uncertainties or details of the deal.
I also think you should run some or your ideas by him to see his response. Remember the two of you are going into a new partnership. Rich a partnership is like a marriage with out sex, so make sure the two of you are compatible in your thinking.
But I’d do it now, time is of the essence.
Ed Garcia
Re: I have an offer - Posted by JohnBoy
Posted by JohnBoy on March 11, 2001 at 14:23:40:
You would still remain liable to this lender on the mortgage, but he should become equally responsible to you for paying half. He’s buying in with $45k. You would set it up to where he would get his $45k out at closing when the business and/or property was sold in the future…you would get the money out that you have already invested into the property…then any proceeds after that would be equally split.
Example:
Say you paid in out of your pocket so far $20k. He’s now coming in with $45k to buy half the deal on both properties. When you go to sell the properties, the mortgage gets paid off out of the proceeds first, then you get your $20k back, he gets his $45k back and the rest is split equally.
From the day he buys in, you BOTH equally split ALL costs involved. Business opperating expenses, mortgage payments, taxes, insurance, repairs and maintenance, etc.!
If all the income from the business, starage rentals, rent on the other property covers ALL these expenses and their is any profit left, then you would split that equally. If their isn’t enough income that month to cover the expenses and you have a loss, then both partners should equally split that cost of pocket!
If you can get him to go along with setting up a new entity and refinance the deal with him jointly signing on a new loan then go for it. That makes him equally liable to the lender rather that just liable to you personally for his half of the mortgage payments. I wouldn’t try and get into all this right now since you only have 3 weeks to deal with. Just get everything agreed on for now and put in writing, then move forward with it. You can set up the refi stuff later if he’s willing to go along with that. I wouldn’t let that stand in the way of doing the deal.
Once you got all the terms worked out and everything signed off, he becomes equally liable for the mortgage. He’s just not liable to your lender personally, only you are…but he will be liable to YOU personally to perform on his agreement in your contract!
Re: I have an offer - Posted by JohnBoy
Posted by JohnBoy on March 11, 2001 at 11:07:33:
So he would give you $45k in cash which you would use some of that to get your loans current, then the rest is yours to do with as you please. He would then own half the two properties with you and assume equal liability on the loan balances with you…meaning he will split any out of pocket expenses to cover any mortgage payments should there ever be a month the income from rent or business not be enough to cover a payment. And of course, he would be splitting all operating costs should the cash flow be at a negative on any given month…is that correct?
What was the total equity between the two properties that he’s paying $45k for?
Re: I have an offer - Posted by JohnBoy
Posted by JohnBoy on March 11, 2001 at 16:13:50:
Hmmmmm???
What if you were to form a partnership with the opposite sex? Could that include the sex then??
Lets see…She would get sex with you on Sun, Tues, Thurs. You would get sex with her on Mon, Weds, Sat! LOL
Re: I have an offer - Posted by Rich
Posted by Rich on March 11, 2001 at 15:26:01:
I’m not sure I follow this. He’s investing $45k. Where does that money go? If he’s investing it to become 1/2 owner, do I use it to pay down the existing debt, or can I put it in my pocket? He will be out $45k, plus he will be responsible for paying down 50% of the debt. I have been paying down the debt on the one property for 10 years and have only reduced the total debt amount by $10,000. As far as the commercial property goes, I’ve been paying down some interest, but haven’t touched the principal. So, according to your scenerio, I’ll have invested $10k. He’ll have invested $45k. When the time comes to sell, we pay off the mortgage…he’ll receive $45k, and I’ll get $10k. We then divie up the remains. If the buildings sell for $200k, we pay off the mortgage (say $100k), He gets $45k, I get $10k, and we split the remaining $45k. Am I missing anything?
Thanks. - Rich
Re: I have an offer - Posted by Rich
Posted by Rich on March 11, 2001 at 11:13:51:
Hi JohnBoy,
I didn’t say it was a good deal. I only said I had an offer. The alternative looks like handing the keys over to the bank.
The equity in the two properties, based on 2 year old appraisals is $72k. The sale of a nearby commercial property, might make this figure about $25k higher now.
Rich
Re: I have an offer - Posted by Ed Garcia
Posted by Ed Garcia on March 11, 2001 at 16:42:59:
JohnBoy,
What am I going to do with you? You’re BAD. I’ll tell you what; I’ll let you buy me a drink at the convention. Oh, and don’t worry, if you’re not going to the convention, I’ll bill you.
(Smile)
Ed Garcia
Re: I have an offer - Posted by JohnBoy
Posted by JohnBoy on March 11, 2001 at 15:50:22:
You would get the $45k, out of that you would bring the loans current, then pocket the rest. His $45k would be buying half the interest in the property, including half the equity in the property, plus all FUTURE equity that builds up in the property, plus 50% of all rental income and business income off the properties, and you would both equally split all costs involved with owning and operating the properties and business.
So if you have a total of $10k invested and he comes in with $45k, then you would get your $10k back and he would get his $45k back after the property sells and you pay off the underlying mortgage and any proceeds left you would split 50/50.
You may have only $10k of your cash invested where he is coming in with $45k, but remember, YOU have all the EQUITY that is in the property right now. That’s what he’s initially getting up front going into this deal…HALF of all that equity, plus half of all future appreciation, plus half of all principle reduction that gets paid down on the loan.
To just give you $45k where he gets half of all this and you make the full mortgage payment wouldn’t be a good deal for you. You would be paying the debt on the property from your half of the business proceeds while he would retain his half all for himself, plus half all future appreciation on the property. That’s bull!
If that’s what he wants then tell him you will do this, BUT, the business will have to LEASE the building from you at market rent where that money would be used to cover the mortgage payments, taxes, insurance, maintenance and repairs, etc.
He can’t expect to just slide into this by putting up a one time investment of $45k where you pay the entire mortgage payment, the business pays no rent AND he gets half ownership in the property to boot! Heck if thats what he wants, then tell him to just BUY the thing out right and do the business on his own!!!
You take your equity and the amount you put in so far and that’s what YOU have in the property right now. He’s buying into your equity and all future appreciation, plus half the cost of setting up a business that you would both own. That sounds like a steal for this guy to get in on and splitting ALL costs would be more than fair including the rest of the mortgage payments, unless of course you set it up where the business leases the building from you and that rental income would pay the mortgage payments and all other costs in owning the building and splitting anything left out of the lease payments. Anyway you cut it, it would all be a wash in the end whether you set up as a lease back or just split the mortgage payments!
Re: I have an offer - Posted by JohnBoy
Posted by JohnBoy on March 11, 2001 at 11:47:46:
So how exactly is he making his offer? He is saying I’ll hand you $45k and then I own HALF of both properties and YOU will still cover all the mortgage payments out your pocket?
Is he saying I’ll own HALF the EQUITY in both properties and you would keep any principle reduction you pay down on the payments and he would get half any future appreciation on top of the current equity?
What exactly is he proposing for his $45k, besides getting 50% ownership and 50% of the business profits and splitting 50% of all the cost involved with setting everything up that you two will do most of the work on?
Re: I have an offer - Posted by Rich
Posted by Rich on March 11, 2001 at 16:52:35:
Hi Ed,
My wife and son and I are moving in with you after the first of April, if this deal falls through. Don’t forget to save me the room with the view.
Re: I have an offer - Posted by JohnBoy
Posted by JohnBoy on March 11, 2001 at 16:48:45:
You will have to probably bill me. I was hoping to go but I don’t think I can get away for 3 days. I really miss these events because I had a blast in Dallas!
If I could go it would be a last minute thing if I could make arrangements to get away. Hmmmm. I wonder if JP would let me pay at the door if they haven’t sold out if I were able to hop a flight and get away? I mean, it would really be a last minute thing if I could slip away! ;(
Re: I have an offer - Posted by Rich
Posted by Rich on March 11, 2001 at 12:46:22:
JohnBoy,
He hasn’t given me a written offer, so I’m not exactly sure as to the nuances. My gut feeling is that he wants to give me $45k. I, in turn, can pay $45k towards the current balance, or keep the $45k in my piggy bank, or whatever I choose do to with it. He will get 50% ownership in the properties…the expenses, the income, the liability, etc., etc., etc.
But yes, I will be responsible for the underlying debt. One thing I thought of was to create an LLC. The LLC purchases the properties from me, and at the same time borrows enough money to include the cost of the renovations. We would then have a new mortgage that is paid down from the income that the properties generate.
As I stated before in past posts, I would just as soon borrow the money, and not have the issues of having a partner. But the clock is ticking and no bank or broker has stepped forward to offer an alternative.