Archive for the ‘syndication’ Category

New Apartment Complex

March 26, 2010

On last Friday I began a new journey of a new apartment complex in Texas. This complex is a group investment (real estate syndication) that I sponsored. The investment is owned with no Debt to eliminate the main risk that I believe cost the previous owner the building. Too much debt! I will be bloging about this investment over the next couple of months as a way of communicating to the investors in the syndication and as a means to share my experiences with other investors who may be interested in real estate investing. This building is 31 units mostly 1 bedrooms with a few 2 bedrooms in a medium sized town not too far from my home base of Austin TX. The building was empty except for a babysitter who made sure that the copper did not grow legs. Most of the stoves and refrigerators did grow legs so I’m not sure how much confidence I put in his ability to baby-sit. For those who don’t know what “growing legs” means; the definition of growing legs is when things of value get up and walk away all on their own without any help or any knowledge of anyone around them.

The units are built with flat roofs and cinder block walls covered in a faux brick. The flooring is a combination of carpet and tile. Each unit will be getting a new stove, refrigerator, microwave and flooring as needed. Some units need a little some units need a lot of repairs. There are more units that are in decent shape then there are units that need a lot of repairs. The building has 1 water meter but separate electric meters. There is no gas service to the building. The kitchens have tile countertops in most units and a few of them have new cabinets. The one bedrooms are decent sized I believe they are about 465 SQFT maybe a little bigger but not much. The two bedrooms are about 700 SQFT. There is a small laundry room as well with enough water hook ups for 4 washers and 2 dryer hookups.

I found this property on a well know national real estate investment listing website and went to see it a few days after seeing it listed. I am a paying subscriber to this website and this one investment has paid for that subscription many many many times over. When I went to see it I knew that I should make an offer on it and the listing broker shared with me that the sellers were true “don’t wanters” with the proper incentive to move this asset at a price that would go now. It was priced in such a way that attracted me too go see it at it when most other foreclosed properties are over priced. That attractive pricing is what motivated me to go and see it right away and even then I still initially offered 30% less than the list price! I really wanted to see at what level of motivation the sellers truly had and I was rewarded with a truly record setting purchase price. The seller’s agent believes that locally my purchase price will set a record low purchase price for the local multiple listing service.

After seeing the property 1 time I went home and that night wrote an offer and emailed it to the agent that night. This was a Saturday so he would have to wait until Monday to fax it to the asset manager for the lender. By Monday they countered reducing their very attractive list price by only 10% but I was not moved very much. I raised my offer by about 12% and the bank accepted the offer and we were off to the races! They accepted the offer and wanted to see the cash! Fortunately I had developed several lines of credit that allowed me to make this purchase with cash and then collect the funds from my investors to pay off the lines of credit that I used to make the purchase.

The purchase price is less then 1/2 of the county’s tax assessed value! That’s right less then 1/2 and that value was low compared to the market value of the asset! In 2005 the property sold for almost 4 times what I paid for the property today! This is the type of deal that your do not lose any sleep at night over!

One of my most scientific measures of a piece of real estates performance is the sleep at night test! The sleep at night test is simple. So simple it is genius. It is can you sleep at night after you purchase the asset? If so you know that you have a great deal, not a good deal or one that will require you to perform miracles, but if you broke everything you still could get your money out of the asset then you can sleep at night! If you can sleep at night then you know that for the most part you will be all right and your investment will be successful.

After the sleep at night test, then I used all of my CCIM skills and performed a very technical analysis of the area, the property’s financial performance, the alternative use possibilities, the market in general and the market segment where this assets fits and determined that the overall level of risk associated with the asset was within acceptable levels. Do you have intimate knowledge of the risk factors affecting your property? If not you should contact a CCIM for help in determining those factors and how they affect your specific property and its financial performance. (Call me at 512-782-8982 or email me at If you are not sure what a CCIM is you can find out more at CCIM’s are considered the PhD’s of commercial real estate.

After I could sleep at night I called on a few investors who know a thing or two about investing in their own right. They gladly agreed to be the first investor in this asset and almost purchased the entire asset themselves! These investors were smart enough to hire a great real estate fund manager who earns them outsized returns in real estate and other investments using their IRA’s. The manager that they have hired normally doesn’t get motivated to invest their funds until the returns equal more than 20% annually with very little risk. Each of them started when they were very young with very little money and has grown their investment fund in a very short time frame to an amount that most people working for 30 years will not be able to begin to achieve. They normally do not use leverage to reach those returns, in other words they like to pay cash for assets and keep all of the cash flow that the investment generates. They don’t live off the investment fund returns so each and every month it grows by leaps and bounds. I got their permission to share their identity and the identity of their fund manager. They are my kids and I am the renowned fund manager!

If you want to learn about how become a fund manager for your children to help start them along the path to financial independence call me (512) 689-6742


Are you growing your business?

February 9, 2010

One of the things I want to do this year is grow my business. So I began looking for opportunities to invest and to put together another group investment or syndication. I found a small apartment complex in one of the communities close to my home base and decided to go and look at it b/c it was a screaming great deal! I had to drive a little while to get to it but not too far. This neighboring community is very different from my home base but If I invest again in this area I will have a little experience in the area and may be able to get better results then I did when I first went into the area. This particular property is a foreclosure that appears was just over leveraged and once the debt service became too much for the previous owners they gave it back to the bank. The bank has hired a out of town broker who co-brokered the deal with a local guy. The local broker is a good guy and understands this market very well. He met me at the property and showed me around. Luckily for the bank and for me if I buy it the property has a guy looking over it and keeping the copper from growing legs. “growing legs” means things just get up and walk off i.e. get stolen borrowed or otherwise disappear. There are very few worse things that can happen then your HVAC’s, copper pipes, and wires growing legs. To replace those things cost an arm and a leg. I wanted to talk a bunch of pictures of the property but after I got there my battery died in the blackberry! Luckily the broker also has a blackberry and had his car charger so he let me charge my phone! After walking thru the place I decided that it as in ok shape and needs some work but nothing I think I cant handle so I made an offer to buy it all cash with no contingencies!

I did not offer the asking price b/c the agent and I talked a little about what I think about the property and about where the market it for this type of property. I think that the bank will need to take a bath on it and if I am able to help them I will try to do my part. This property would not be a good deal for me but a great deal if I am able to fix the problems. If I am not then it could turn into just a good deal. If all I can do is just buy a good deal then I should stay at home b/c good deals are a dime a dozen. What makes this business great is finding the great deal! The hardest thing in the world is to NOT BUY A GOOD DEAL. Good deals come along all the time but a great deal! Those are rare and when you have the potential to bring one of those down you have to be ready! If you have used all of your gun powder (investment capital) on good deals then when a great deal comes along you can not kill it and bring it home to feed your family b/c you have been taking all of these good deals.

If I get a good response from the bank I am going to talk to the current lone resident manager who is looking after the place to make sure nothing grows legs. I need to know what he knows and what happened to the past ownership.

If I end up buying it I will create an entire case study of it and post it on my case study page. Otherwise I will just write about my experience and see what happens.

This property is what I call a dirty ugly, ultra low-income property! I don’t call things a slum b/c in my opinion you can own low-income property and run it like a decent place to live or you can become a slum landlord! The property becomes a slum b/c of ownership 1st and foremost. If ownership cares then management cares and if management cares then resident’s care if everyone cares the place can be for lower income people but still be a great community and a great investment.

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