My rentals are making me crazy

[John_in_NC]

Pete,

Can you give me some phrases you use to convince them to sell at such a low price? I'm pretty direct with people, and I'm afraid that is going turn some off. I've already called up some investors that brought me a house a long time ago for a rental, to let them know i'm back in the game.

Also, I was thinking about running an overpriced ad in my local paper. It's gonna cost more than it should, so I want it to be right. Any ideas, or is this a waste of money?

[fdjake]

You are 100% right....That direct approach WILL turn them off.  TAKE YOUR TIME but be realistic.....If some idiot wants $400,000 for a 3 family home in Fall River MA....That isn't going to be a LONG conversation.  LISTEN to them and see if there is any FRUSTRATION in their story!!!

Ever sitiuation is different but here's how I do this from a recent example.....

Last weekend....

A couple had a property left to them from a death in the family NOTHING OWED ON IT....

The house was JUNK.....WORTHLESS....but the LAND was zoned COMMERCIAL and was on a very busy street.   The property WAS NOT lsited on the MLS....I got the lead from a "digger" of mine and called them.

I met them at the property on Saturday......I SOFT SELL everything...I NEVER push....So we talked and talked....I asked them what THEY wanted for the property???   She said $250,000....I said, I didn;t think anyone would come near that number and I also pointed out that a BANK would not finance a deal on the house because it was failing down....That meant they needed a CASH BUYER...

I asked them what the intended to do with the proceeds from a sale???  ALWAYS, ALWAYS ASK THIS QUESTION!!!!

They said they'd probably just pay off their own house....I asked HOW MUCH DO YOU OWE ON IT???  They said $75,000.

I explained to them that they needed to look around and see what was selling in this area.....It wasn't commercial property.....It was STARTER HOMES...I told them that right NOW would be a perfect time to SELL this albatross and use the $75,000 to PAY CASH for a 2 bed house......RENT IT OUT for $1200/month....In 5 years when the real estate market is better...Look at where they would be.....The house would have generated $1200/month x 12 months=$14,400/year X 5 years=$72,000.....So, 5 years from NOW you could have, not only your $75,000 back....But ALSO a home that by THEN could be easily worth $140,000...Take the $72K add in the $140K and you have $212,000!!!   The property you have here is UNRENTABLE.....USELESS...SELL IT and BUY something during one of the WORST real estate busts in history....HOW DO YOU LOSE???

You could SEE the light bulbs going off in their heads!!!

It made SENSE to them.....They could understand it....Will it work out exactly like that???  Probably NOT....But THEY could SEE the end game..The numbers didn;t include taxes or anything else...But so what???  they keep the place 8 years, THEN sell it...Either way they could SEE the potential there!

They called Monday morning.....We signed a sales agreement for $75,000!!!

LISTEN to people and FIND A FIT......PAINT A PICTURE FOR THEM.

ASK QUESTIONS......The KEY to your DEAL lies in giving them possible ANSWERS to the QUESTIONS you asked!!!!

Now I understand why you haven't gotten any really GREAT DEALS....You can't just drop a NUMBER on these people....You have to JUSTIFY IT....You have to be able to PAINT THAT PICTURE.....EXPLAIN to them WHY this is a great deal.  Get them to do what YOUR DOING RIGHT NOW!!!

Look at things from a DIFFERENT PERSPECTIVE!!!!

[John_in_NC]

Thank you!! Very useful info. What you do sounds almost too good to be true, I imagine the real art in this is in the negotiation.

[fdjake]

You're right John.....It IS too good to be true....

DISREGARD everything I've told you and go back to YOUR original plan.......

Drag a dishwasher into the middle of the street and beat on it with a baseball bat so the neighbors think you're crazy!

Hey......

"My rentals are making me crazy."

IT WORKED JOHN!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

This is WHY guru's offer a 100% money back guarantee...They KNOW ONLY 4 out of 100 will ever DO anything with it.   

"THIS CAN'T WORK...IT'S TOO GOOD TO BE TRUE.

Why do I even BOTHER??????????????????

[John_in_NC]

Hey man, everyone has to start somewhere, and I wasn't born with a silver spoon in the kisser,  and 30K dollar houses was about it between me and my banker at that time. But i'll admit my original plan isn't going to be as doable as I thought long term. At least what I bought is still worth more than I paid. But I'm gonna need hypnosis therapy soon if I continue renting to deadbeats who stiff me on rent and destroy my property. It's just a matter of time before I snap, and it wont be a dishwasher or a baseball bat anymore.

I can do what you do, maybe even better. Like I said, I'll report back. But I am very appreciative of the help you don't have to give me.


John

[REIER]

What you do sounds almost too good to be true, I imagine the real art in this is in the negotiation.

John,

I think what fdjake outlined is very doable.

You might be giving these home owners too much credit. Think about it, these people where handed a piece of property they did not work for and have no clue what this place is worth on the market. Everyone's reaction is to spit out an unrealistic number when asked what they want for their place. It's your job to bring these people down to reality. If you are in front of the right prospect, who is somewhat rational, motivated and is willing to listen, you have a very good chance of striking a deal. Will this work with everyone 100% of the time? No way! Will it work with the right folks? You bet.

If you're serious about flipping, it's going to take some time and you need to inject your own spin on this.

You can also find REO's, submit low ball offers on them. Most won't pan out, but some will.

[HoldAndBuy]

This sounds like good advice that FDjake is giving.

I'm on my first rental but I'm keeping the idea of flipping in the back of my mind as an alternative in case the insurance situation for rentals becomes too onerous, or I find I don't care for dealing with tenants.

I don't feel that I have the expertise at this point to manage a flip, but I've learned some about how much things cost by managing the different people who came to fix up the rental I bought from the bank.

I don't want to put all my eggs in the rental basket long term though.

[fdjake]

"I can do what you do, maybe even better."

Now THAT'S what I like to HEAR!!!!!!

Of coarse you can...and don't forget to SHARE any IMPROVEMENTS you make with ME!!!!

I KNOW you can do this!!!

[John_in_NC]

Well sold two of my DUMPS today. It's pretty cool to get a 6 figure check. Never happened to me or my parents before. But I grew up a poor kid in Arkansas.

Anyways i've located a commercial DUMP for about 50% FMV. It's a garage/service center 2900 SF. Old, beat up, and looks like something I would buy. Market rent 3K-3.5K. It's rented now but I don't think they are paying. The current owner can't pay his bills because of so many non-payer commercial tenants. It's on major street that flows out of  downtown. It's actually in downtown, like the 900 block. There are NO vacancies withing a mile or two radius of this property. Last sold for 400K about three years ago. Previous owner financed it that I would be buying it from. I have a price of 189K. Would you guys do it?

[badmash007]

John_in_NC,

Congrats on the sales.

You've done your research on the supply side. What about the demand side? How's the local economy doing? What kind of industries will utilize this space? How are these industries doing locally?

[John_in_NC]

John_in_NC,

Congrats on the sales.

You've done your research on the supply side. What about the demand side? How's the local economy doing? What kind of industries will utilize this space? How are these industries doing locally?

I really have no idea. They are still there, I guess I could drive up and ask, but i'd be talking to mechanics.  Our stupid state still requires car inspections, so I know that is what most of them do. I never take my car or truck to downtown, because they charge a pretty penny for labor. Like 60-90 dollars an hour!  But I suppose a lot of the state workers probably don't care. Raleigh is the capital of NC and we have way too many lazy overpaid state workers that don't care.

[allagash]

Ever sitiuation is different but here's how I do this from a recent example.....

Last weekend....

A couple had a property left to them from a death in the family NOTHING OWED ON IT....

The house was JUNK.....WORTHLESS....but the LAND was zoned COMMERCIAL and was on a very busy street.   The property WAS NOT lsited on the MLS....I got the lead from a "digger" of mine and called them.

I met them at the property on Saturday......I SOFT SELL everything...I NEVER push....So we talked and talked....I asked them what THEY wanted for the property???   She said $250,000....I said, I didn;t think anyone would come near that number and I also pointed out that a BANK would not finance a deal on the house because it was failing down....That meant they needed a CASH BUYER...

I asked them what the intended to do with the proceeds from a sale???  ALWAYS, ALWAYS ASK THIS QUESTION!!!!

They said they'd probably just pay off their own house....I asked HOW MUCH DO YOU OWE ON IT???  They said $75,000.

I explained to them that they needed to look around and see what was selling in this area.....It wasn't commercial property.....It was STARTER HOMES...I told them that right NOW would be a perfect time to SELL this albatross and use the $75,000 to PAY CASH for a 2 bed house......RENT IT OUT for $1200/month....In 5 years when the real estate market is better...Look at where they would be.....The house would have generated $1200/month x 12 months=$14,400/year X 5 years=$72,000.....So, 5 years from NOW you could have, not only your $75,000 back....But ALSO a home that by THEN could be easily worth $140,000...Take the $72K add in the $140K and you have $212,000!!!   The property you have here is UNRENTABLE.....USELESS...SELL IT and BUY something during one of the WORST real estate busts in history....HOW DO YOU LOSE???

You could SEE the light bulbs going off in their heads!!!

It made SENSE to them.....They could understand it....Will it work out exactly like that???  Probably NOT....But THEY could SEE the end game..The numbers didn;t include taxes or anything else...But so what???  they keep the place 8 years, THEN sell it...Either way they could SEE the potential there!

They called Monday morning.....We signed a sales agreement for $75,000!!!

I love this soft sell stuff....

You are vicious fdjake....vicious...

if we meet at that Coast Guard restaurant up your way....I may need to get one of those silver heavy biker chains for my wallet....

lmfao...

-Mike

[fdjake]

John,

A couple of thoughts here.....

First:  Was this service station ever a GAS STATION???  If they ever had UNDER GROUND TANKS there MAKE SURE you have documentation from EPA that the ground passed all testing...If it was NEVER a gas station also make sure there aren;t any contamination issues with the property. (dumping oil, anti freeze into FLOOR DRAINS)  That's why I NEVER put floor drains in my buildings...You're INVITING people to dump nasty sh*t into them.

Second:  If everything looks good enviromentally......You said it sold for $400K 3 years ago, which puts it at the PEAK of the bubble years....Now it's for sale for $189K???   I thought you guys never had a BOOM down there????   A more than 50% price drop in 3 YEARS???   THAT'S BOOM/BUST pricing!!!
If those numbers are correct and comparable to what I'm seeing up here, even at $189K you could be paying full market value...You need to find out what OTHER repair shops are paying for their monthly LEASES.

Third:  What did you walk away with from the sale of those 2 homes???? Dollar wise....HOW MUCH???  I ask because it an important issue if you're dealing with someone that isn't getting PAID for his properties....CASH is gonna be HUGE for him right now.

Fourth:  If you do buy it:  The first thing you do with this building is.....
Have the entire outside painted....WHITE preferrably.....Clean, bright and it contrasts nicely with the next thing you're going to do.....AWNINGS....If you have just ONE window or door (or mulitples) get AWNINGS up there....I use Greens or Reds....They contrast perfectly with the white building and white letters really stand out on them..THEY CAN TRANSFORM BUILDINGS!!!!
I'd replace the garage doors too....Then the ENTIRE BUILDING looks new from the street.  THIS BUILDING WILL GET A LOT OF ATTENTION AS YOU DO THIS!!!

Finally....Pay a seal coat company to come in a spray the entire parking lot and stripe it...This willl blow your mind!!!  Dark Black lot against a bright white building with some color thrown in on the Awnings!!!  HOME RUN for ANYONE looking to have their BUSINESS stand out on that road...And THAT is EXACTLY what BUSINESS OWNERS WANT!!!

Then step back and look at your NEW BILL BOARD!!!

Here's what I LOVE about commmercial real estate.....

The ENTIRE time you're out there PAINTING, having AWNINGS installed, installing new garage doors....You have a BIG SIGN out front that says FOR LEASE....The entire BUILDING has now become a BILL BOARD!!!   Business owners renting from land lords that DON'T take care of their buildings will be DRIVING BY EVERYDAY and start THINKING!!!!   So will their CUSTOMERS!!!
The daily progress on this building will draw HUGE ATTENTION...Make sure you've got a PHONE NUMBER on that sign because you WILL get calls...MAKE SURE your contractors keep the front of that building CLEAN and CLEAR of CRAP......Put the DUMPSTER BEHIND the building...You don;t want ANYTHING blocking the view to "THE SHOW".....The TRANSFORMATION is what will get this building RENTED for you....I won't even let my contractors park their TRUCKS in the front of these buildings!!!!
DON'T BLOCK THE VIEW!!!!!!!!  People LOVE seeing these buildings TRANSFORM as they drive by everydayand everyday it looks BETTER!!!

Every single one of my buildings got this treatment.....Every single one was leased PRIOR to it being completed....Usually by the time you get it painted and the AWNINGS up the calls start coming in....I make sure my AWNING company leaves the most prominent window UNFINISHED so  the NEW TENANT can put their business name on that AWNING....They usually install a temp front that says YOUR BUSINESS NAME HERE!!!!

All totaled.....A cosmetic rehab done like this MIGHT cost you $5000-$8000....and most of that is for the awnings and garage doors.

Building like this are ALWAYS in demand because the BUSINESSES that lease them usually do well in RECESSIONS!!!  (Repair shops)

I put a 5% anniversary rider in ALL my leases.....The rent goes UP 5% every year UNLESS the tenant notifies me in WRITING 30 days prior to the lease anniversary that they are MOVING OUT....That 5% ADDS UP over the years and having it in the lease removes the negotiations...They signed it....That's the deal....If the LOCATION is GOOD and the BUILDING has INCREASED their BUSINESS.....THEY AIN'T MOVING....Their PAYING the 5%....HAPPILY!!!

And JOHN........NO MORE NIT WIT DRUG ADDICTS......NO MORE SMASHING DISHWAHERS.....If they don't PAY YOU?????  You decide to put 10 DUMPSTERS around YOUR BUILDING to do ROOF MAINTANANCE!!!!!  I did this to ONE GUY....ONE TIME.....He was Late paying his lease every month...One MONDAY he showed up to work and the entire BUILDING was surrounded by DUMPSTERS.....I told him that this was the LAST TIME he would EVER be late with his rent again....OR....These dumpster would be here until he went UNDER!!!

SURPRISE........NEVER LATE AGAIN!!!!

Try doing THAT with residential rentals.....You'd be in JAIL.....Not in COMMERCIAL....It's MY BUILDING......NOT HIS HOME!!!!

[John_in_NC]

Pete thanks again, I can assure you I will be following your advice on this if I can get this thing. I was told it was never a gas station.


I did a covert inspection of the building yesterday, it's a 5 bay that has been built on to not long ago. The old part built in 1958 is a block with shingle roof that has been redone probably at the same time they built the other 3 bays on the side, which is a metal building with shingle roof. I'm guessing the additional part was built on around 2004. It's on a one acre lot. It looked to me every bay had a hydraulic lift build into the concrete slab. I'm guessing that belongs to the owner, not the tenant, that I will more than likely be evicting. According to the tax records that lot alone is worth 182K. Total assessment is at 378K, but its very common to see commercial buildings in this part sell for way more than the assessment. The price is 200K now, it's a real long story on that one. Attorney has cleared the title for me already. I am working with only a little over 100K cash. So that means a loan, which is what makes me the most nervous about this deal. I have no idea what my banker is going to say to this one. I'm gonna call him, but the standard answer for this is "it's tough out there, send me the contract and info and we will see". I'm gonna look like an A$$ if I can close this deal.

[propertymanager]

It's rented now but I don't think they are paying. The current owner can't pay his bills because of so many non-payer commercial tenants.

John, I don't mean to rain on your parade, but Pete is laying it on pretty thick and you really need to consider whether there is demand for this property.  The tenants aren't paying - not good.  The current owner has so many non-paying commercial tenants that he can't pay his bills - is that because the current owner is incompetent or is it that business owners are under a lot of stress in your area?  Unlike residential rentals, commercial property can literally stay vacant for YEARS!
 

Last sold for 400K about three years ago. Previous owner financed it that I would be buying it from. I have a price of 189K. Would you guys do it?

Has the previous owner already paid the note down to $189K (from $400K) in 3 years?   If not, can he really sell it if he is upside down?

Pete gave you great advice about painting the exterior; improving curb appeal; and turning the property into a big billboard  -  but IS THERE DEMAND or will you end up in the same predicament as the current owner?

Here's an article primarily about the trouble the banks are in as a result of commercial loans:  http://www.theepochtimes.com/n2/content/view/30405/

The point I would take from the article is not about banking, but rather the underlying problems in the commercial sector that is causing all these commercial loans to default. 

Again, my point isn't to suggest that you shouldn't do this deal, but rather to counter some of the hype being posted by Pete.  I would just be sure that there is demand for the building, unless you are willing to pay for a vacant building until the economy recovers (which could be a decade or more).