Portfolio for sale.. Alcorn, Garcia, T. Vaughn...and other experts help - Posted by Dealmkr

Real Estate Investing Real Estate Gurus
1

Posted by Michael Morrongiello on April 03, 2000 at 23:02:53:

Forget the banks on this one… It will be difficult to finance 5 or 6 of these properties let alone 100 all with the same seller and potentially you as the same buyer.

  1. I would see if you can OPTION them all at a below market cash price that would then allow you to market them to “retail” end user buyers either by offering your own OWNER finacing or by allowing these buyers to get their own financing.

  2. Try to work a deal where the seller sells to you ALL of them and agrees to finance that sale by taking back individual mortgages on each property rather than a “blanket” lien mortgage. If the seller really wants a decent lump sum of cash from the sale then some of this paper can be converted into CASH that would go to him.

We were involved recently in a sale of 35 individual properties by one burned out landlord investor to a younger investor who had more time and incentive to manage the propeties. The deal was structured so the retiring investor carried some of his equity in the form of paper and got some of his equity out in the form of CASH that was generated by the sale of the seller carry back notes he agreed to finance resulting from the sale. It was truly a WIN WIN transaction for all parties concerned.

The buyer now has resold some properties and wrapped some others. The seller got a good lump sum of cash and continues to receive monthly income on an installment sale taxable basis.

Michael Morrongiello

2

Portfolio for sale… Alcorn, Garcia, T. Vaughn…and other experts help - Posted by Dealmkr

Posted by Dealmkr on April 03, 2000 at 18:33:05:

I had a call (2nd one) from this old timer regarding his portfolio of properties. He has 110 Single Family Houses. I requested a list from him. The first call he wanted to sell a few of them and didn’t sound motivated. Today he calls responding to another ad…and he wants to sell all of them.

This one could be great or just a shark looking for a big bite. Give me some ideas where to start. I’ve got the best banker in the world and I may need him.

What’s everyone’s experience dealing with aging investors wanting out?

Where do I start?
What do I request? besides Schedule E…etc.
How do I approach my banker? Do I just throw on his desk and tell him to work his magic?

I’m a fulltime investor with a fulltime contractor on the payroll.

3

Re: Portfolio for sale… Alcorn, Garcia, T. Vaughn…and other experts help - Posted by Terry Vaughan

Posted by Terry Vaughan on April 04, 2000 at 10:09:12:

DM:

You have great advice from all of the posts below. I do think a re-occuring message in all the posts seems to be “communicate” to the point of detailed information, BEFORE deciding whether there is a deal.

This makes sense to me because as usual, every thing boils down to numbers and motivation.

I also agree you need to go have coffee with this seller. DON’T be in a hurry. Be causual. Be comfortable. It’s too early to get excited. You need information about the properties, yes, but MORE importantly, you need to find out what this man NEEDS.

It is too early to know wether to offer him cash or create notes or trade him a huge RV, you don’t know what will satisfy his TRUE NEEDS.

Once you find his true needs, you can figure out how to put the deal together to fit yours and make it a win-win.

4

Re: Portfolio for sale… Alcorn, Garcia, T. Vaughn…and other experts help - Posted by ray@lcorn

Posted by ray@lcorn on April 04, 2000 at 09:18:59:

I agree with Ed and Eric. You have to know the scope of the properties, their value and debt structure before making any decision as to whether there is even a deal to be considered. It may be that the seller is just testing the waters at this point and has unreal expectations of what the houses are worth, or not. Bottom line, we can’t help you on techniques or structure much past telling you to get the information.

Like Ed and Eric, I would most interested in finding out what the man needs. To do that I would want to sit down face to face with him. I wouldn’t even attempt to get more than preliminary information over the phone. In fact at this point the only info with any value is his address and what day and time you can meet at HIS house or office. Meet him on his turf. That way, as questions come up and you ask for some of the info Ed requested, he can’t say its somewhere else. You’ll have access to his records with his oversight as you talk.

As the conversation progresses, you will get a feeling of whether or not there is some common ground for a deal. Trust that feeling. If you get the sense that the guy is running you in circles, he probably is, and you would be better to wait until something changes his motivation. The only thing worse than overpaying for a piece of real estate is overpaying for 110 pieces!

ray

5

Re: Portfolio for sale… Alcorn, Garcia, T. Vaughn…and other experts help - Posted by Ed Garcia

Posted by Ed Garcia on April 04, 2000 at 02:28:35:

Dealmker:

You’re not ready to talk to your banker yet, you would just embarrass yourself because
you don’t have enough information.

What you need to do is back up and regroup.

The first thing you need to do is to talk to the old man one on one. Ask him his intentions
as to why he wants to sell his portfolio?

Ask him what information he has available on his portfolio, that would assist you to
analyze it?

Example: Property schedules showing Values, Loan balances, payment on loans, rent per
house, etc. If he has any existing appraisals?

There are many ways this deal could be approached Dealmaker, and with out me knowing
your background or experience in the business, I’m going to keep it simple stupid.

This old man must have some idea what his properties are worth. Just ask him what he is
basing his values on.

Next, ask him what he wants? I guarantee, he’s going to hee haw around with his answer.

You don’t have enough information to know if you have a deal, but you have an opportunity to
maybe make a deal here if you handle it right.

I call it, PLAYING IT LIKE A CONCERTO.

I’m sorry to say that I would disregard Michael Morrongiello’s idea of one, the Option, and two,
a major Seller Carry Back. I think at this point on this size of a deal that approach would be too
amateurish.

Like Michael, I don’t have enough information, but when in doubt I try to put an offer on the
table that gets there attention, CASH.

First of all, I doubt if this old man owns these houses free and clear. He may own some of them
free and clear, but I’m sure that in most cases there is some existing financing already in place.

We may be able to capitalize on the existing financing.

I want to find out where his head is at?

Dealmaker, I’m confident that Ray Alcorn or Terry Vaughan could be instrumental in helping you
with your deal. But if you want me to help you ? Then you will have to call me at (909) 944-0199.

There are just to many things I need to talk to you about to properly work this deal, rather than just
talk hypothetically and maybe not even be close.

Ed Garcia

6

Re: Portfolio for sale… thinking outside the box… - Posted by Eric C

Posted by Eric C on April 03, 2000 at 23:55:57:

Hi -

Michael’s post is full of good advice and his point about taking control of ALL the houses is right on.

Nevertheless, there are always other options. You may want to do a little more research into the “needs” whether real or perceived of this seller. (just as you should with any seller)

Many older investors already have cash flow and what they really want is freedom. Freedom from the worry of estate planning, freedom from the headaches that come with property management, and the freedom to live their lives without thinking about their real estate all day, every day.

A deal (long ago) paired just such an elderly gentleman with a younger, bright-eyed RE investor.

A deal was struck to 1031 (exchange)the older investor’s houses, of which there were many, for an office complex located in a metropolitan area which shall remain nameless. Said building came complete with Fortune 500 tenants – and the triple net rents to go along with them. The office building was owned by an estate that badly needed to liquidate and disperse to several needy (OK, you can translate that to worthless and greedy)heirs.

At the conclusion of the the deal, the older RE investor received a secured cash flow with no management headaches while the estate got single families that it could (and did) sell individually; the proceeds of which were dispersed to the heirs.

What of the younger RE investor, you ask? Somewhere in the midst of the dealmaking, he obtained a 20 year management contract for the office building. The management contract (his profit)was sold at the conclusion of the deal for a tidy sum of cash.

Moral of the story – if you take the time to discover what everyone wants and needs, you may find a better solution. What the heck, it can’t hurt.

Good luck,

Eric C

PS - notice that neither the estate nor the older RE investor paid any income tax on this arrangement. However, life (and the tax code) was more unfair to the young, eager RE person – the sale of the contract was fully taxable. He would have to be content with the realization that it was, after all, a “no money down” deal.