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Real Estate Investing: Another Apartment Purchase This Time with a Bank Approved Wrap!
Posted by: | CommentsGreetings from the metropolis of Cedar Crest, NM!
The Bank Allowed What?
Wow…has is been a long time or what? I have been so busy with a real estate class (six weeks) and purchased an apartment building within the same time frame. Just plain crazy so a lot of things got neglected…especially this blog. Looks like we have another apartment building in the works (thanks to KB Realty)….things are looking busy for the next few months…at least I hope!
Anyway….
There is one thing I never heard of when it comes to investing… A Bank Approved Wrap. BUT this one thing is a HUGE deal. I have done several wraps before…..but never a bank approved wrap. Now…remember…a wrap is when you “wrap” an existing mortgage with a brand new mortgage. Read more about wraps HERE.
So what is the big deal? Well, usually on wraps, there is always a small risk that the loan can be called due to the fact that the asset has been sold yet the loan is still in place. This is a small risk because banks usually do not exercise the “due on sale” clause call if the loan is in good standing. In other words, the payments are still coming in on time. But…there is always a chance. In any case, when we first approached the seller, the seller did a “no no” and asked if the lender if it would be okay to wrap the note. Surprisingly, the lender said “yes”…..at first I thought there was a mistake….and I just felt someone misunderstood something. But….I was wrong. So, in the last week of December, we closed on an apartment building with only about 6% into the deal (commissions and closing costs). No joke!
I even talked to my lender friends….they all NEVER heard of of such a thing….especially in commercial.
The beauty of the deal was that it was 80% occupied and still cash flowing. The issue with the property was mismanagement. Bad management with out-of-town owners is a great formula for opportunity.
Now…I have to give credit where credit is due. Preston from KB Realty found this deal and made it happen. James, a.k.a. “J” our attorney, worked hard during Christmas to get things right. Having solid relationships was the only way to get this done….but I digress.
There were problems with the deal….more specifically, timing. The sellers wanted to close before December 31, 2009….which only gave less than 30 days to close. Now…. trying to close in 30 days during the holidays is impossible….so I thought. I told Preston “there was NO WAY we could do it.” Due diligence, attorneys, inspectors, banks, title companies….are hard to round up to work on a project anytime of the year….especially during the holidays….Forget about it! Well…Preston pushed and pushed and the rest is history.
My partners and I learned something…..we don’t know everything…but thinking we do can lose us opportunities.
Thanks to Preston…David….J….
On to the next project!
Real Estate: The Time To Buy?
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Hanging with friends and yes...real estate
Greetings from Washington D.C. Yes….I am still here.
Today I spent time with some friends who used to live in New Mexico and now live in the D.C. area. I also met up with an old high school friend. It was great to connect….but the realization of how I let time slip by since I last talked with my friends was fast hitting.
It had been twenty years since I saw my high school friend Israel. I hope it is not that long when I see him again.
But….I digress….
So….
There is a lot of talk that things are getting better with regards to the economic state of our great country. Well…I do not agree. We are getting ready to see another wave of sucker punches…but this time from the commercial real estate sector. Yes….it is true….commercial real estate is going to hit our economy hard. The question is…. how hard? With government money trying to soften the blow, it may not be as hard as I previously thought…BUT…with the government printing money at record levels, there will be a price to pay. The question is….when is that price going to be paid? My thought? …..soon.
High School buddy... Israel
None-the-less….lender’s books are filling up with Commercial REOs. Commercial assets at discounted prices are showing up by the truck loads….So….it is cherry picking time. BUT one huge problem. Lenders are not lending. Well….at least not without a heavy down payment. Up to 50% on some deals….especially retail…office….industrial. Apartments still fair better than other commercial real estate…but even that sector is feeling the pinch. Have you tried to fund a small apartment complex lately? Seems like only the 2M and above are getting funded these days and that is in only certain areas of the country.
But….there are a few solutions out there as funding gets tough. I am seeing more and more seller financing as well as reasonable terms on private money.
So…yes…it is a buyer’s market….but building those relationships outside of lending institutions will give you great buying power in one of the best times to buy commercial real estate.
Until next time……rob
Real Estate Investing – Your Biggest Investing Enemy?…..Emotion.
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Washington D.C. in the fall
Greetings from Washington, DC. One of my favorite cities…..if not my favorite city. I’d have to think about it.
As funny or odd as this may sound, Washington D.C. is a very romantic city. There are so many positive emotions that bubble up that I think the word “romantic” is fitting. But…not a place for a honeymoon….but then…what do I know.
Today….We spent a lot of time at the Smithsonian Art Museum. Just amazing. I have never been more captivated by art. Living in New Mexico….the art galleries are endless…from Santa Fe to Taos. Walking from art gallery to art gallary in New Mexico is great….but nothing like here in D.C.
So…as we made our way through all the exhibits at the Smithsonian….one painting captivated me….Repose by John Singer Sargent. A girl….lounging on a couch. You can tell this lady is deep in thought….possibly sad. I wondered for a long while what was she sad about?…what was she thinking about? I came up with my on conclusion….but I digress.
Repose by John Singer Sargent
Anyway….
Getting caught up in all the amazing emotions touring D.C. reminded me of how dangerous emotions really are. We all are familiar with emotions when it comes to relationships. The old saying “love is blind” is a great example. Well…guess what, emotions are dangerous in business as well.
I remember as a “newbie” investor how wrapped up I would get in a deal…..to the point where blindness would set in. Getting emotional over a deal is a great way to cloud your vision. All of a sudden you are compromising….or worse….justifying.
Think of it in terms of personal relationship. Before you start dating someone, you have criteria….then all of a sudden you fall in love and the criteria goes out the window…all in the name of “love.” All of a sudden the things that you would not compromise on become “cute” or “no big deal.”
Well…in a personal relationship….the relationship ends in heartbreak. But in business….the results could be financially devastating.
So….
Here are a few ways to avoid getting emotionally involved in a real estate deal.
1) “Fall in love with the numbers first.” This is probably the most crucial tip. Focus on the numbers first! Knowing how to analyze a deal and understanding the numbers is crucial. Letting the numbers dictate your next action is a great rule of thumb.
2) Use the facts. Real numbers should be your focus. Proforma numbers are “hopeful” numbers. Never use proforma numbers in your initial analysis. Yes…proforma numbers have their place in the big picture of things….but not when you are trying to understand the asset. Proforma numbers only help you fall in love with the property…which is a bad move. By the way…come up with your own proforma numbers. Never…ever…ever use a real esate agents or seller’s proforma numbers.
3) Try not to visit the property until you have fallen in love with the numbers. You may be tempted to go visit the property….but…this may only impact you emotionally.
4) Have someone else look at the numbers too! Having a third party look at the financials will give you a different perspective as well as help you stay focused on the numbers.
5) Write down your investing criteria and stick to it. In other words, write your plan…work your plan!
Of course…there is a lot more to this but the tips above should give you good start in the right direction.
Until next time…..rob