I have a great deal. need help!!!

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I will admit in the whole scheme of things I'm really not even a drop of water in a whole ocean , and I would rather error on the side of caution than acting arrogant and really havn't expressed myself the way I would have liked to , if I could start this post over again. I don't claim to be any kind of authority when it comes to commercial investing , nor am I as accomplished as yourself gold river , and it seems to me that you have great deal more knowledge in commercial investing and I could learn a lot from you. But what I do have is a great deal of knowledge with numbers and the ability to determine not only weather a deal is profitable , but if it isn't to find out why and by compiling all of my due diligents seeing what potential a property might or might not have,and you are right about knowing the value of a property not only in as is condition, but after repair value . It's foolish to assume the value of a peticular property without running the numbers and using comps with all the variables factored in. Where I have my short coming is not determining weather or not a deal is worth it or not. But I could have as many deals as possible but without funding in place or possible investors lined up ready to pull the trigger all my efforts are futile. That's why I have counseled a SEC atty to file my score form and a 504 reg D . In my state I am only allowed to use 10 private investors . But I was told I was not allowed to advertise  or else I would receive a cease and decist letter. I not only wanted to work with accretided investors but nonaccretided, as well as raise unlimited funding.  But I'm still at least 90 days from my filings being completed and was looking to develop relationships with other private lenders who were interested in working with me either on the quality of the deal or paying me a fair refferal fee to turn the deal over to them, and as a relationship is formed and I have developed a track record with this investor they would be ready willing to do some joint ventures together.  It's not finding the deal it's finding enough investors to fund the deals I do find.

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I would like to make this post to gold river . I looked back at the post you originally made to me and stated what you thought the value of this apartment complex was worth, why would you assume instantly that I was incorrect on my calculations as to possibly giving me some benefit of the doubt that even if I was off in my numbers that if it was even remotely close to what I was saying it was not to at least take a deeper look to see if I really had a keeper. Because didn't you say that this is was what you do is buy and develop etc commercial properties, who knows maybe this might have been just what I said it was.

[Gold River]

Hi,

     You assumed I thought your numbers are wrong!

I can sell you my $300k Ferrari for $150k and I could sell that same Ferrari needing restoration for $50k, however what is the value of the Ferrari? Market value at $300k? The price you paid of $150k? Or the price prior to restoration of $50k?

All of the above answers are actually correct at some point in time, however as investors we seek the optimum value!

Your numbers were at the very least incomplete, however I never questioned like the example above your evaluation of value, I did however see you taking tens of thousands of dollars in cash flow that actually equates to value! Every $66k a year you take in cash flow equates to $1m in value at current interest rates!

A full rehab / remodel of the property actually returns closer to $11m in cash on cash returns over 3 years. This equates to a 27% return on investment year over year for the cash investment! Where I believe any way you cut it your repairs and the fact the property is 50% empty makes this a minimum 3 year investment to lease up and re-stabalize the property!

Your example actually shows very good returns at face value, an initial investment of $4.5m and potential returns of $5.5m over 3 years (These are gross number examples, not net after sales costs) according to your number examples. However from experience your current level of tenantcy will continue to reduce by attrition and it will take all of 3 years to re-rent up the current property.

I estimate the actual cash flow over three years at less than $1.5m because the complex will not effectively attract tenants, units will not show well and it will continue to be a struggle to rent / lease up units. This re-adjusts potential earnings in this property to a healthy $4m in returns over 3 years or a 29.6 percent return.

At face value this actually appears to be a better investment, however change orders, additional cost over runs, unexpected cost's of dry rot, mold, termite, wiring, gas, water, sewer and structural items unknown at this time but estimated at more than $500k will ad money to your estimated $2.5m repair cost and you will face additional unknown costs in maintaining old components of an aged structure.

Appliances, HVAC, doors and door locks, flooring, electrical, plumbing and mechanical components will ad additional unknown cost's to trying to rent / lease up an older complex! These additional cost's could equate to $500k to $1m in additional unknown repairs every year. When re-adjustments are made returns drop to less than 15% per year cash on cash.

Now your asking how do you know this, well at one point or another I have owned apartment properties in some of the less desireable area's of the country, I bought hundreds of units of apartment properties for $2000 to $5000 a unit, there rats nests and slums and yes the only way is up, but it takes money and time and experience has shown that it's better with properties that have slipped this far in value to completely overhaul the property rather than try to nickle and dime it!

Any investor would agree there money is safer in a fully remodeled property plan than trying to manage an old property that has a number of unknowns, and reselling an old property whether fully leased up or not is an ongoing challenge!

You have a lot of grace as a residential investor, were not expected to know everything and we can make money as we continue to learn, but in commercial investing we are held to a higher level of sophistication, rather than deal in thousands of dollars we deal in millions of dollars!

As an investor I expect a full financial plan with a deal of this caliber and obviously want experienced people behind the deal with experience, a track record and bringing something to the table! I look for a construction estimate in unit pricing detailed and supported by cost data like RS Means and in an AIA format! I look for a critical path schedule supported by rental / lease statistics and detailed time / material lists!

When you appear to not know what your doing and don't have a legitimate plan your investment is soon to fail, and investors don't want to participate in open ended projects where there expected to fork over additional funds or have there ownership interests reduced for additional capital needs!

Remember just because it's there does not make it a good investment!

Good luck,

     
                GR



 

[Gold River]

Hi,

    We buy class A apartment properties, and occasionally buy class B properties that have been condo mapped and approved!

We do not buy Class B, C or D otherwise or currently rehab / remodel any existing apartment properties!

We build brand new class A properties and keep some percentage of these properties to add to our portfolio each year!

So your project does not appeal to me!


                  GR

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I thank you for your input G R and realize that not all investments are right for all investors . And many of the investments that you would turn away from, might just be the ticket for not only myself but many other investors as well. And I feel that the purpose of sites like reiclub should be not only to get questions answered or to answer them, but to also create new contacts and relationships with potential future business associates. I have found you can never have to many contacts. Who knows I might just find a deal your interested in and vise versa. The ones I'm looking for are B and C properties that are neglected and possibly bank owned with mid to low vacancy with an after repair cost around 10k to 14k per unit and a minimum size of 100 units preferably around 150 to 200 units located within a 200 mile radius of indianapolis In. And any populated city in the State of Florida. If anything like this comes up on your radar I would be interested.Thank You for your time.

[JPMessina44]

Bada bing GR......well said.