1st opportunity of 2019


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  • Hi CFD members

    I hope all of you had a Merry Christmas and are as ready and eager as I am to start the new year off and running with new real estate opportunities.

    Recently, I’ve come across an opportunity that I would like to get some feedback on what the best course forward could be. I’ve been corresponding and talking with a landlord south of my city who has a rental portfolio of 35 houses. He wants to sell all of them if he can being very tired of management. It’s a little too far for me to be interested in master leasing or owner financing but I do like the idea of trying to wholesale all of them. I am going to send an offer to him this week but I’d like out to discuss various strategies here first.

    I have solid numbers on the comps, tax info, copies of the leases (all properties are occupied) and a guesstimate of how many repairs would be required on the properties. If we go under contract, I am going to have inspection reports completed and draw up an information packet for potential investors. Barring any unseen revelations during due diligence, the properties would sell for a 6cap at $2M.

    Ideally, I could find a portfolio buyer to pick up these properties by making it an attractive turnkey acquisition (sale packet would include an inspection report, estoppel letters, possibly contract property management for them) or I could use Jackie’s tactic of doing a bus tour and selling to individual investors, although that might be difficult since these are tenant occupied homes. I only have contacts with <10 portfolio buyers so I was thinking of approaching some 1031 intermediaries as well.

    I would say this landlord is motivated but not desperate. He wants to harvest as much as he can from the sale of these homes but doesn’t want to work the sale. I’m trying to put in an offer for $0.60-$0.65 on the dollar for each home and see if he’ll bite. If not, I’ll offer the 50-50 split above $0.60 on the dollar. I’d like it to be a 90 day option that I record a memorandum for at the courthouse to cloud title.

    My major concern is protecting myself in the exchange. All these properties are held in the landlord’s personal name and a quick scan of property records will reveal his identity to potential investors. I’d hate to list the properties and have someone get around me to the landlord and wait until my option expires. However, I don’t see what I can do there other than waiting to reveal the specific address until nearly closing.

    If anyone has any other suggestions or ideas, please feel free to share them.

    Thanks!
    Jeff

    Jeff great project. Cloud the titles and that should solve cercuvention. Get a right to extend. Put a clause in something along these lines. Both parties mutually agree that closing may be extended to clear title if necessary.

    While it sounds great for you to get them at 60 cents on the dollar, what would motivate the seller to do that?

    Usually, a seller will not accept a big discount unless the properties are in horrible condition or they are extremely motivated to sell fast. It does not sound like that is the case here. You do not have to get at 60 cents on the dollar, even if you just make $3000 -$5000 on each house, it’s a nice payday.

    I have shown tenant occupied properties on a Magic Bus. Of course, the tenants need to be aware that a group of investors are coming over and they will get to stay in their house per the terms of the lease. I have offered tenants a gift certificate to Pizza Hut to get them out of the house while we are there.

    Contacting 1031 intermediaries has always worked well for moving a portfolio of properties too. These investors have lots of cash to invest but are often not interested in properties outside of these target market area… or at least that has been my experience.

    Let us know how it turns out

    Jackie

    .
    There are a couple more possibilities. Both REIT and non-REIT institutional investors sometimes specialize in buying, rehabbing and renting for long term income of single family homes. If you run an online search for REIT AND SINGLE FAMILY HOMES, for example, you’ll get a bunch of hits, such as:

    About target REITs:

    https://www.reit.com/news/blog/market-commentary/single-family-rental-reits-long-term-players-providing-additional

    List of Publicly Traded Single-Family Residential Property REITs

    About target non-REITs:

    https://www.cnbc.com/2017/02/01/blackstone-takes-its-single-family-rental-bet-public-as-sector-soars.html

    Any such investment organizations should be easy to contact to learn their acquisition criteria, particularly geographic and house values.

    –Dee

    .

    Fantastic deal, Jeff!

    All the best with this one!

    Anthony

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