Creative Real Estate Investing with a Multi Family Unit
Dave: Hi, I’m Dave Dinkel. And today, we’re here with one of our students, Jason Vanterpool. The reason we’re here, just to have a good time.
Jason: That’s me!
Dave: Jason had a very interesting deal with a multifamily property that we’re going to talk about. We sometimes talk about terms being more important than cash. If you have a motivated seller, price isn’t the issue and you’re going to see why in this particular case. So what we’re going to talk about is a multifamily property. How many units?
Jason: Eight units.
Dave: And you found it where?
Jason: Actually, I found this on the MLS®.
Dave: OK. It was listed on the MLS® at what price?
Jason: It was, at the time of visit, at 130.
Dave: OK. So it was listed at 130. What did you make an offer at?
Jason: I just threw the offer out there at 110. Honestly, it wasn’t that big of a reduction but because I was involved in a similar deal before with one of the other students, we have found a buyer. I knew what the price – what the property could sell for.
Dave: OK. So, you got it under contract at 110.
Jason: I got it under contract at 110.
Dave: OK. Now, you started to market it. But you also did something else that we try and get everyone to do it all the time. Thats go back and redo it.
Jason: Right, right. I renegotiated – I actually, like I said, negotiated the other deal that I was involved with down south. It was a similar 8-unit multifamily and I know that one sold for about 140 in similar condition.
Jason: So, I advertised it to my buyer’s list and immediately, I got two bites on it. And it kind of drove it up a bit and went up. I ended up getting the contract for 150.
Dave: Oh, you did get one for 150.
Jason: I got a contract for 150 initially.
Jason: So once I got back, I went back to the seller and I renegotiated down to 100 flat.
Dave: One hundred. That was the first time.
Jason: That was the first time.
Dave: OK. What did you say to the seller?
Jason: I just told him basically that my partners and I went to the property and it’s in a pretty bad shape. We would not be able to do it for 110. We need that to for 100.
Dave: Now, you told him 100 and he said OK.
Jason: And he said OK.
Dave: OK. But you didn’t stop there. You went back a second time.
Jason: Come on, man. Why stop?
Dave: So, you’ve already used that excuse so to speak. What did you tell him the second time?
Jason: The second time, OK, the reason – the main reason that forced me to renegotiate the second time – we’ll get to that. But the second time I told him that I had an engineer go out there. The first time was just me and my partner looking at it. I had a professional engineer go out there and told me that because of the unsafe structure lien, there was an unsafe structure lien.
Dave: Ah, OK.
Jason: The exterior rehab cost was going to be more than I initially anticipated.
Dave: Now, an unsafe structure lien can mean the building is going to be torn down. But they can also go on the property for a couple of reasons. Like if you have a little smoke damage in one of the apartments. What was the reason for the unsafe structure?
Jason: Man, there were a lot of issues with that property. It could have been the actual structure that got issues but mainly I think what caused it to have that lien on there is because it was abandoned, doors were off the hinges, and the windows are wide open.
Dave: That’s another reason for it, yeah. It’s unsafe because people can go in there and hurt themselves.
Dave: So it wasn’t in a sink hole or anything or it hadn’t had fire. It just needed to be a lot of rehab on it.
Jason: Right. One of the floors in – because there were two different buildings.
Jason: And one of the floors was actually sunken down a little bit. So I guess there was some structural issues with the support.
Dave: Just to mention something real quickly. That doesn’t mean a sink hole. Sometimes what people do is they leave a hose on outside in the yard. Kids are playing or something like that. And what it does, it keeps soaking the yard. Since we have sandy soil down here, it literally will make it slushy underneath the foundation and the foundation settles just a little bit. And that could be what that was.
All right. So now, this poor seller, you whipped down to $90,000. But it’s because he was motivated.
Jason: Yeah, he was really motivated.
Dave: He is tired seeing an abandoned building.
Dave: Was there any liens or code violations?
Jason: I actually went down to the city and I looked up the liens. There was unsafe structure, there was like a tree removal, violation for tree removal without permit, and unsecured structure or something like that.
Dave: Yeah, unsecured would be boarding it up.
Dave: OK. So now, you have an offer. You got it down to 90. You have an offer at 150. But what happened to the 150 offer?
Jason: Well, the guy – it’s a funny story. The guy – I mean just dealing with the guy. He seems the kind of just shoot off the hip kind of guy so he’s not that much into due diligence. He just saw an 8-plex, he made an offer, he put a sizable deposit down too.
Dave: He sounds like us. How long was your inspection period on it?
Jason: My inspection period I think was…
Dave: For him though.
Jason: For him, zero days.
Dave: OK, zero days for him. But you had how long? Twenty-one or something?
Jason: Yeah, I had about 15 days inspection.
Dave: OK. All right. And so, you thought he turned out to be a little flaky.
Jason: Yeah, a little bit.
Dave: So, what did you do? Did you cancel the contract and get someone else?
Jason: No. OK. So when it came time to close or he was past his inspection period and hard on his deposit, he came back and said, “Listen, I can’t close on this at 145.”
Dave: Was it 150 or 145?
Jason: Well yeah, 150. Sorry.
Jason: And he said, “I need I that at 135.”
Dave: He did the same thing to you.
Jason: Basically, he did the same thing to me.
Jason: So that’s the reason I renegotiated mainly for the 90 because he talked me down to 135 from 150.
Dave: OK. So now you’re looking at a spread from 90 to 135 which normally would be close, walk away, and you’re done, right?
Jason: Usually. Right. That was I was hoping for.
Jason: But that wasn’t the case.
Dave: The guy at the end, the 135 guy at closing or close to it said, “By the way, I don’t have the money.”
Jason: By the way, yeah. It just so happens I couldn’t find the money. So I talked to Michael, at Independent Title to see and try to get a list of Harmony lenders.
Dave: Yeah, he’s one of our closing agents. And he gave you a list?
Jason: He gave me a list. I send him over to his guy and none of them would touch it because of the lien.
Dave: Well, yeah. And the condition and stuff.
Jason: And the condition is pretty bad. But the guy still wanted the property like – none of the lenders wanted to lend on the property. And he’s like listen, “I still want the deal.” So what I’m going to do, I release the $10,000 deposit to you just to give me an extra week to get this money together. He released it to me as in like a check to me personally, not to my title company or anything else, to the escrow.
Dave: That was – put up some serious good faith.
Jason: Yeah, that was in good faith. So OK, I said, this guy is serious. I gave him an extra week. And what happened, I was out of contract too. So I was passed my inspection period. I was supposed to close. So I went to the seller and basically the same thing he told me, I told him, “Listen, I need a little bit more time. My partner is having an issue. The guy I was supposed to partner up with isn’t coming to the table because of whatever the reason. So I’m going to release $2,000 to you.” Because my total deposit with him was actually 5 grand actually.
Dave: So typically though in this situation, prior to his not telling – he is telling you he didn’t have any money, somebody would have done – I would have done transactional funding or somebody maybe would have done hard money but probably transactional funding would have closed the same day or next day. And boom!
Dave: But now, he doesn’t have any money. And he’s not going to borrow any money either because of the condition of the house.
Jason: He couldn’t borrow any more. Yeah.
Dave: OK. So you came up with a – did you come up with it or did I come up with it? Crazy, creative genius idea.
Jason: It probably was you honestly. I don’t call you every day so it’s hard to remember what’s my idea and what’s your idea.
Dave: So you said to the …
Jason: OK. So I said to him …
Dave: The buyer said to you, “I have a big cash flow.”
Dave: How much cash flow was he willing to give you weekly towards the property?
Jason: OK. Let me get to that.
Jason: I gave him the week extension. I released $2,000 to the seller.
Dave: As a good faith.
Jason: As a good faith to get him to give me an extra week. Actually, a week and a half because I had a feeling this guy wasn’t going to close. So I got the extra couple of days. He didn’t close on the week. I told him, “Listen. We need to make this thing happen otherwise I’m going to have to go ahead and resell it to somebody else.” He saw me. I put it back out to my mailing list.
Dave: That’s what we always do. When you have a seller that’s kind of fudging around, you know he’s on your email list, you put the property back out.
Jason: Put the property back out there. Let him you’re serious. So I put it back out there and I probably knocked it down 7 grand from the first price that I put it out at. So he saw that and he said, “OK, listen. I’m going to close. What I’m going to do is I’m going to have my title company – I’m going to put another $10,000 in your pocket and you just give me another week.” So I said OK.
I went back to the seller again. I said, “Listen. I’m having issues. I’ll give you another $2,000 of this escrow money to give me another week and a half to close.” Big surprise. The guy doesn’t close in the week and a half.
Dave: Oh geez! Now, so far you’ve collected $20,000.
Jason: So far I’ve taken 20.
Dave: You’ve lost $4,000. So you only make $14,000 and haven’t even closed.
Jason: Yeah. Only.
Dave: But you still want to close.
Jason: Yeah, definitely because I’m after – I don’t want to leave any money on the table.
Dave: Yeah. So going into the third week …
Jason: So going into the third week, this guy said, “Listen man, I can’t find anybody to lend on this property but I really want it. I want to get this deal done. I’ll pay you $10,500 a week until we pay off my balance.”
Dave: OK. How much was that about?
Jason: It was 11 weeks remaining. He paid it 11 times. So he was at 135. He had 115 to pay left.
Dave: OK. So now, you went back to the seller and said, “By the way, here’s how we’re going to work this. I’m going to give you …” how much a week?
Jason: I told him I give him 8.
Dave: OK. So for the next 11 weeks …
Jason: For the next 11 weeks, I will collect the check for $10,500 and pay out 8 grand. But here’s the other kicker, because I know who I was dealing with …
Dave: This crazy guy.
Jason: This crazy guy. I had the contract drafted up. It was crazy. You had to go through to attorneys and everything to get it drafted up. I had the contracts, my contract and his contract where the payment day started two weeks apart from each other. So I collected from him for two weeks before I started paying the seller because I know this guy was going to miss a payment or two.
Dave: Or the checks wouldn’t clear or something.
Jason: Or something.
Jason: But we stuck it out and we wound up closing.
Dave: Now, speaking of that, you came close to the end and he was like late or something. And you said to me, “I got another offer. I’m going to take the other offer. What do you think?” What did I say?
Jason: You said, “Give him a chance to close.”
Dave: Otherwise, you would have had a very expensive lawsuit.
Jason: There’s going to be a lawsuit. But you’re right. I mean I didn’t want to do it. But the guy seemed like a good guy but I didn’t want to get that far into the game and then the deal fall apart then I’m liable to the seller.
Dave: So for 11 weeks, you made about $3,500 a week net. And then you had already made $16,000 net. So you made $51,000.
Jason: Yeah. But it was 2500 a week.
Dave: So 30 or something.
Jason: And it kind of worked almost to 45 because the closing costs weren’t that much at the end of the time because the balances were down so much.
Dave: Yeah. So, there’s an extraordinarily creative way to do financing. If you said to me nobody would ever do that. Bingo! It depends on how motivated the seller is. If the seller wants out and he sees in this case cash flow and he knows what’s going to happen. The thing remained in his name the whole time so it was not like, “OK, I’m going to have to foreclose to get it.”
Jason: Did I mention the lien popped up? Like two days before the actual closing?
Dave: That always happens.
Jason: There was like a contractor who put a lien on the property and claimed that he had done work to the property, $45,000 worth of work.
Dave: It’s called a mechanical lien.
Jason: Yeah, mechanical lien.
Dave: But what for? What did he say he did?
Jason: I have no clue because there was no way he spent $45,000 in the condition that property was in. So on top of the closing, the seller had to put money from the closing into escrow to clear that lien before the money was released to him.
Dave: How much did he put in escrow?
Jason: I think he put the full 45 or something.
Dave: Oh wow!
Jason: I can’t remember. We’d have to ask the attorney.
Dave: It’s not uncommon scam for a contractor when he knows the property is going to sell to put a mechanics lien on the property just before the sale. And the reason being is – and that’s a pretty big one, if he put one in for $3,500 he probably would have gotten paid.
Jason: Yeah, he definitely would have gotten paid.
Dave: Yeah, everybody wants to just get rid of it and don’t worry about it. But in this case, he overdid it. And he wound up probably not getting anything.
Dave: So what else can we say about that deal? Do you remember anything? Any other highlights?
Jason: Highlights, I mean never give up. Because I was about to give up but then that’s why I thank God every day that I have you and Viju to talk to.
Dave: I’m changing my phone number.
Jason: I’ll still find you. But definitely never give up and you fight on to the last – to the end because you might just give up on – you might walk away from a lot of money just because you don’t think creatively enough.
Dave: And you don’t stick to it.
Jason: You don’t stick to it.
Dave: OK. Thank you, my man.
Jason: Thanks, Dave.
Dave: Go back and get them now.
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