Need some advice please. - Posted by Tom

Posted by Tom (WA) on July 02, 2002 at 23:59:13:

Tom,

Yeah, I am. I am a full time investor and have done over 250 real estate transactions. I am currently developing 2 different sub-divisions. I think it is great to be enthusiastic, energetic and positive and think those traits are necessary for success, but it is tough to start at the top, i.e. a multimillion dollar project. Projects never seem to go as smoothly as projected, they take more time and cost more money. Banks seldom give investors 80% loans, and my guess would be never to someone without a pretty good track record. That’s just the real world.

I assume that since you asked, you really wanted an answer. The good news is that there is a bundle of money to be made in this business. I am in the process of changing my emphasis away from big projects and back to single family houses. No more huge overhead and bunches of employees. As I review the last 30 years, I think the single family guys do as well as the big guys with much less hassle and more time for the things in life other than work.

This business is the greatest. Good luck and tons of success.

Tom

Need some advice please. - Posted by Tom

Posted by Tom on July 01, 2002 at 22:45:27:

Hello everyone,

I have stumbled onto a GREAT deal, but I am in a bit of a bind, and I was hoping someone here might help me out. I need a little advice on how I should structure and finance it.

Here is the deal I found:

Owner of 21 condos is looking to retire. He has already purchased beach-front property in Mexico and an RV to live in. The condos are situated on the side of a mountain overlooking a golf course with mountains all around. There is a ski resort about 2 miles away and a large casino about 5 miles away.

The owner is currently renting out the condos on a nightly/weekly basis for $149 - $179/night. He has also sold 300 timeshares to the property that bring in $325/year each.

He is asking $3.5 million for the property. If we buy it at that price, financing at 6% over 30 years with 20% down, the ROI on this business would be an amazing 3%. heh

In my conversation with the seller, I am convinced he would accept a little under $3 million for his property. He agreed to disolve the time-share and nightly/weekly rental business, leaving us with 21 fully furnished condos in great shape.

I started to discuss the resale prospects of the property with him, and later my real estate agent, and found that these condos will sell for $180k-$220k each(9 condos have attached over-sized garages); so, assuming worst case scenario, we could sell these for $3.78 million. Getting better.

Now these condos are situated on a little over 3 acres, all zoned R3(multi-family). The previous owner started to build 12 more condos on this land, but he ran out of money after the foundations were laid and the property was baught by the current owner after being foreclosed on. Athough these condos were barely started, and the foundations most likely need to be replaced, he was able to connect the property to all necessary utilities.

After reviewing the plans, I found that the property has more than enough room for a total of 51(21 existing) condos, an office (for property management) or a small house, and a large single family home. The newer condos that are being built across the road from this place are being sold for $220k - $270k, and sold very quickly (ie. before they are built).

Now, here is my plan (this is where I need advice):

Purchase the property for $3 million, putting 20% down, at 7%, financing over 30 years. Monthly payments will be $17026.99 PITI.

Sell the existing 21 condos and use the proceeds to pay off most of the financing and start construction on the next 30 condos.

When the first block of six condos is completed, sell them off (worst case of $220k each, $1.32 million). Sell the next block of six for another $1.32 million. As the rest of the 18 condos are completed, lease them out at (worst case) $1200/month.

By the time the last condo is completed, all construction costs and financing will have been paid off.

To sum up, the sale of the condos, 33 of them, comes out to $6.42 million. It will take $2,567,227.68 to pay off the financing, assuming it takes a year to sell these off (not likely). This leaves us with $3,852,772.32 to apply toward the first years taxes, insurance and construction costs. Any cash left over lines our pockets.

We will have 18 condos leased out at a minimum of $1,200/month for a total of $259,200/year. Assuming 40% for taxes, insurance, maintenance and management costs, we would have $155,520/year positive cash-flow. Assuming we put $600k as a down payment for financing, this gives us a 25.92% ROI. Very nice.

OK guys and gals. I know there is probably a better way to structure this deal. Anyone have any suggestions?

Tom

P.S. All this is dependant on me finding a partner that can come up with the $600k :confused:

Re: Need some advice please. - Posted by Tom (WA)

Posted by Tom (WA) on July 02, 2002 at 16:29:32:

You are way, way over your head on this deal. No bank in their right mind will give one with no experience that kind of loan, and I can’t imagine someone coming up with $600,000 for you. Guys with that kind of money don’t need you. If you really think it is a great deal, try to find an experienced developer and try to get a finders fee.

Re: Need some advice please. - Posted by Rick

Posted by Rick on July 02, 2002 at 07:18:19:

"He agreed to disolve the time-share and nightly/weekly rental business"
Tom, how can he dissolve the time share business? wouldn’t he have to buy back those time shares?
(Would the time share owners sell and at what price?).
…Sorry, Just a little detail to muck up the whole thing.

Rick

$600K Sure NO Problem!! - Posted by DB

Posted by DB on July 02, 2002 at 24:49:06:

Why didn’t you put that first in your post? You, made me read the whole thing and then said:“All this is dependant on me finding a partner that can come up with the $600k” lol

Someday I will be looking at numbers like this.

Right now I am happy with 2 or 3 deals per month. I have to keep building my cash reserves up to purchase properties of this magnitude.

Good luck on finding a partner! Have you posted this in the “commercial” forum? You, might get a better response there.

dave

Think so? - Posted by Tom

Posted by Tom on July 02, 2002 at 16:52:14:

Are you speaking from experience?

Re: Need some advice please. - Posted by Tom

Posted by Tom on July 02, 2002 at 07:54:15:

In order to disolve the time shares, he will have to pay the owners off. He has agreed to take care of this prior to closing. Of course, I would ensure this is in writting and taken care of prior to closing. This is just one of the many clauses in my purchase agreement.

Tom

Re: $600K Sure NO Problem!! - Posted by Tom

Posted by Tom on July 02, 2002 at 07:57:23:

LOL! Sorry about that :slight_smile:

I do have it posted in the commercial section also, but noone seems to ever post there :confused:

Tom