Business
Jeff Stephens, creator of the Thoughtful Real Estate Entrepreneur and Sleaze-Free Real Estate Investing Podcast, returns to the show today to talk about a deal he closed earlier this year. In this episode, he talks about how he acquired a building that was two separate properties, negotiated two different deals with two different creative financing strategies, and what he’s done with the property now that he is the sole owner. Key Takeaways: [2:00] This deal was about an 18-month deal once all was said and done. It was originally a bank, and due to a lot line, it had been split 60-40 since a few years after it was built. He sent mailings out to a niche list of owners of buildings that weren’t structurally sound for earthquakes (unreinforced masonry), including this one. [5:20] The first contract for the smaller side of the building fell through, but when the chance arose a second time he put down $15,000 non-refundable, and also pursued the bigger side. After about 12 months of follow-up, he had both sides under contract in two separate negotiations. [8:25] He used two separate financing strategies for the different sides of the building, and closed on them in November 2018 and February 2019, becoming the first person to own the whole building in 101 years. [9:30] The list Jeff used to send mailers was a pretty niche list. In Jeff’s situation, he was able to get to sellers around the same time as the city was, which made the conversations a little easier. This letter was very similar to his regular mailer — he didn’t necessarily say anything about the unreinforced masonry situation for those properties. The list became relevant to the negotiation as well. [13:10] Some things to think about with niche lists: competition — are you going against many others who have access to the same list? You also want to keep in mind how you can use the list to your advantage when talking with the seller. [13:40] Persistent follow-up was key in this deal, with parties on both ends of the building. Taking a chance on the follow-up for the smaller side a second time ended up being a win. When the stars aligned with two yeses, his follow-up had succeeded. [16:25] Jeff breaks down the financing for the two separate transactions. He negotiated the first side down to $840,000 down; he set himself up for financial success a year before. He had previously bought a five-unit apartment on a note, and he put that up for sale to change the collateral of the note. He used the buyer’s money from the five-plex to provide the money. [20:15] The financing he negotiated for a past deal ended up providing the financing for this new deal. Jeff set himself up for success a full year before he knew about this commercial property. At the end of the day, the success of real estate is really about financial structuring. [22:10] Negotiating the second side of the building was a little less glamorous. Traditional financing was difficult, and ultimately he ended up going to a commercial hard money lender to get the money for closing. Now he’s working on refinancing the building as one. [24:15] The financing idea of moving the collateral under notes is a big strategy for Jeff. It’s complicated but is an intellectual challenge that really makes real estate fun. [25:40] Since buying the property, they’ve filled some vacancies and turned the biggest unit into a co-working space. They were able to make some cosmetic changes for about $20,000, and rent out the space as a shared working environment. [28:49] Real estate doesn’t have to be all go buy, fix, sell, rinse repeat. There is a lot of creativity to be found in real estate! Mentioned in This Episode: Meetings Daily REIA Show REI Facebook Page Brian’s Book The Thoughtful Real Estate Entrepreneur Sleaze-Free Real Estate Investing podcast