We took a tiny step forward on the 50 property portfolio this week.
Guess who else took their first tiny step this week? That's right: Looney Tunes.
Livin' La Vida Luna
We don't really have a picture of her first steps, but here she is on the playground at school in a magenta velour jumpsuit.
Where does Dia find these outfits?
50 Property Portfolio Play-by-Play
If you’re new to SunShakSunday, welcome!
Here’s a quick recap of what’s going on.
A few months ago, I started cold-calling rental listings on Zillow and Craigslist in an attempt to find a tired landlord.
Two weeks ago, I struck gold.
One of the rental listings I called is owned by someone who owns ~50 small multifamily properties in a handful of the best towns in NJ.
Unfortunately, he is going through a divorce and is being forced to liquidate his entire portfolio as part of the settlement.
My partners and I are trying to make the best of this opportunity and provide a win-win solution for everyone involved.
The sellers offered us the entire portfolio twice. Once at 29.75M. Then again at 26.5M.
Our numbers weren’t anywhere close, so we decided not to counter. We didn’t want to risk upsetting the sellers and losing out on this potentially massive deal.
Instead, we took a stab at a subset of the portfolio. We wanted to get our foot in the door and then bust it wide open after the sellers knew we could perform.
We made an offer on 4 properties:
- 6 unit condo building
- 6 unit apartment building
We sent that offer on Friday, May 7th, 2021.
Here’s the play-by-play of what happened since then.
Saturday, May 8th, 2021
Our agent texted us this morning saying both 6 unit buildings are off the table.
We knew the 6 unit condo building was in Attorney Review, but we were willing to move forward without it. Mostly because it was a condo building disguised as an apartment building.
The difference between condos and apartments is that you can sell each condo off unit by unit if you put an HOA in place. Also, the cumulative property tax for 6 condos tends to be higher than the property tax of a 6-unit apartment building.
The 6 unit apartment building was the real gem we were after. It was probably the best asset in the entire portfolio.
Our agent told us the sellers offered the buyer of the 6 unit condo building the 6 unit apartment building as well. They agreed to take both. Crushing defeat.
The sellers offered the other two properties in our original offer for market rate with no discount. That’s not interesting.
Now we go back to the drawing board.
As of right now, we’re not going to counter the seller’s offer on the 2 properties. We’re so far apart and it seems like a losing battle.
Instead, we’re going to create another package and make another offer. We’ll go bigger this time. 4 properties may not have been enticing enough. The next package will be 10 properties or more.
Another thing we’re doing is removing a bottleneck.
Up until now, we’ve been communicating with the seller’s agent through our buyer’s agent.
However, my partner, Bill, also has his license. From now on, Bill will play a bigger part in the negotiation with the seller’s agent.
We also learned a few other properties in the portfolio are under contract. We’re now down to 44 properties. 6 opportunities lost.
If I want to achieve my goal of 55 more units this year, I need to acquire half of the properties remaining.
My knee-jerk reaction to losing the 6 unit apartment building in the 4 property bid is to go bigger… I wonder if that’s the right move.
This is a case of Aim Small, Miss Small vs. Go Big or Go Home.
Sunday, May 9th, 2021
After speaking with the seller’s agent, we ended up countering the duplex and triplex.
We offered 485K and 675K as our best and final. Remember, they were asking for 525K and 875K.
We came in 40K under their duplex ask and 200K under their triplex ask.
I didn’t like the idea of countering these two properties alone, but it was my birthday and mother’s day so we were lazy about it and just shot from the hip.
Monday, May 10th, 2021
The seller verbally accepted our offer. 🤯🤯🤯
They added the following conditions:
- Signed contracts by end of week
- 10% non-refundable deposit subject to clean environmental and sound structural
We just asked for bank statements to verify rent is being paid on time by each tenant.
We’re planning on selling the duplex immediately and hanging on to the triplex. We’ll likely use hard money to finance both but might go the personal conventional route for the triplex.
Dia and I filed a $0 income return in 2020 so I’m not sure if we’ll qualify, but I switched to w-2 income in 2021 so maybe we will.
My mortgage broker is my older cousin so I look forward to bothering him every day about this until I have an answer.
Tuesday, May 11th, 2021
We scheduled a walk-through for the triplex tomorrow at 10 am. I can’t wait to see it. We might move there once the current tenant’s lease ends in the 3 bed 2 bath unit.
I have to sign a bunch of contracts today. Our agent sent the contracts over last night, but I held off on signing them because I’m trying to find a new attorney.
The attorney I use for my private money lending business is a real stickler. That’s usually a good thing, but sometimes he just gets in the way.
I’m reaching out to a new attorney today to see if she can take me on as a client for this purchase. If she can, great. If not, we’ll use my partner’s preferred attorney.
Wednesday, May 12, 2021
The attorney I wanted to use is available to take us on. Her name is Casey. Please use her for your next Northeast NJ transaction. Tell her I sent you.
We walked the triplex today. It’s nice!
I’m pretty sure we’re going to house hack that property. The first floor is a 3 bed / 2 bath unit. The second and third floors are 2 bed 1 bath units. We could live there for super cheap.
The second and third-floor units currently rent for $3,050 total per month.
- Purchase price of $675K = $135K down (20%)
- Loan amount would be $540K.
- Principal and Interest Payment on $540K at 4.25% is $2,650
- Taxes are $11,500 per year or $960 per month
- Insurance is $3,000 per year or $250 per month.
The total monthly nut is $3,860.
Rental income of $3,050 means it’ll only cost us $810 per month to live in a 3 bed / 2 bath in one of the best towns in NJ. Not bad.
- We need to create LLCs for both properties
- We need to figure out financing (hard vs. private money)
- We need to supply the seller with more financial information
I asked my attorney how much her LLC package costs. She said $500 including filing fees. Filing fees are $125. So basically $375 in labor.
I AM TRYING SO HARD TO LEVERAGE EXPERTS AND PRIORITIZE TIME OVER MONEY...but I couldn’t justify dropping $1,000 for something I could do myself in 30 minutes.
So I did the next best thing. I created a Process Document: How To Create an LLC in NJ.
Total time to complete: 60 minutes including typing out the entire process.
When I eventually hire an Executive Assistant, this process document will really pay off. Until then, maybe you can use it and let me know how it worked out for you.
Thursday, May 13, 2021.
We woke up to a body blow this morning.
Last night, the seller decided to sign the duplex contract but retrade us on the triplex contract.
Definition: Retrade. Retrade means renegotiating the purchase price of the property after a price was already agreed to. Usually, buyers try to retrade, not sellers.
We got the following text message this morning:
This text really threw me off. I went into somewhat of a downward spiral trying to figure out how or why this happened. In fact, I missed an important appointment at 10 am because of this text.
Before I continue complaining, let me express some gratitude. At least we have the duplex under contract at $485K. We think it’s worth $525K - $550K so there are roughly 40,000 reasons to be happy about right now.
OK, now back to the complaining.
After agreeing to $675K, the seller wants to retrade us at $780K for the triplex. What the F, bro!?
His excuse is that he didn’t pay attention to the price in the 3(!) or 4(?) contracts we’ve sent him over the past couple of days.
I am mostly upset because I could see my family actually living there after walking the property yesterday.
Even though I really want to, we won’t be countering his $780K ask today.
My partner is less emotional about this property. He says if we agree to come up on the price on the seller’s whim now, nothing is stopping him from doing it to us again in the future.
Instead, we’re going to group this property into our next offer, which should go out by EOD tomorrow to give him the weekend to chew on it.
Friday, May 14th, 2021
Two notable things happened today.
First, I had an investor call that didn’t go so well. I wasn’t as prepared as I’d like to be and that’s because there is so much uncertainty around this deal.
We’re pursuing 4 different strategies. We’re grasping at straws in an attempt to make the best of this opportunity.
Sometimes we want to buy and hold, other times we want to fix and flip, and when we get really frustrated we just want to wholesale anything we can get under contract.
The second thing that happened today is we finally shipped our portfolio offer to our agent. This is the first time we’re throwing a number out for the entire package. Only 43 properties are remaining.
We’re getting a little desperate. It’s been 2 weeks and we’ve only managed to get 1 property under contract and lost out on 6 others.
The seller’s agent is also listing another property on the market on Monday. Once that hits, I expect it’ll sell for close to retail value.
We heard through the grapevine that the sellers have a meeting with their attorneys on Monday so we should probably hear back Monday afternoon at the latest on our portfolio offer.
We instructed our agent to send the offer to their agent on Sunday afternoon. We are trying to eliminate their time to prepare and ultimately rush a decision in the room.
Who knows if that tactic will work. Probably not, but it sounds cool and makes for a great story.
There's not much we can do in the meantime. This is great because I need some space from this deal.