The Apartment Deal That Just Couldn’t Die


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7-30-13

Today’s article is by apartment investing expert Michal Ballard. Michal will be teaching apartment investing in the new economy this next Saturday for FREE! Plus you’ll get the chance to ask questions if you’re live on the call. Don’t miss out! You can sign up at http://www.DianesSeminars.com.

Here’s Michal’s story about an apartment deal that just couldn’t die:
About 3 months ago an apartment agent contacted us about an apartment project up the road from another one that we owned in Homewood, Alabama. This property represented a step up from the projects that we normally entertained but the NOI (net operating income) was strong and easily verified, financing was readily available, we had good management right down the road (so economies of scale were attractive), and we had three different investor groups screaming at us to get them a deal to fund.

Also unlike our normal distressed apartment deals, we were dealing with a seller who was NOT itching to get out of the project. He was torn between selling or refinancing and putting the profits to work elsewhere – and trying to figure out what to do. NOTE: The key to seller-motivated properties is finding a seller who is motivated.

Since I was going to Birmingham to look at another potential deal, and to review the properties that we already owned in town, I arranged a tour of the project and studied the offering memorandum. The offer was very brief and was a pocket listing. In other words, it wasn’t wildly offered for sale and the agent was carefully selecting with whom he would share the listing. The seller needed someone who could close before the financing deadline of August 1st.

The Negotiation

After looking at the property, we decided it was a good property. That is assuming we could get it at the right price. Our bank was willing to lend up to 75% at a $7,000,000 valuation. We were hoping to get under contract for $6.5 million or less. We offered $6.1 million with money down immediately and proof of funds for the equity capital, along with a letter from our bank confirming their desire to finance the deal. The seller sat on our offer for a week with no feedback.

Finally we were told that $6.8 million would make this deal happen. We just could not pay that much. We were already stretched at the $6.1 million offer. But, to try to keep the deal alive, we offered $6.15 million. The negotiation stopped. We were too far apart, and they had a better offer.

The Disappointment

Two more weeks went by and our agent got back to us to let us know that the other offer had fallen through. The other buyers had failed to produce any proof of funds or a signed LOI (letter of intent). We were back in business!

We restated the $6.15 million offer. The agent came back to us stressing that if we could get to $6.4 million we would “ring the bell”. We really dug into the numbers, got a better budget together on the rehab, and figured out a way to get comfortable that we could pay that price, do the required minimal rehab and still have comfortable reserves.

We submitted the $6.4 million offer and let our investors know that it looked like we had a deal for them…..one week went by…..two weeks went by…..halfway into week three our agent sheepishly called to say that the seller had decided to re-fi and our deal was off.

At this point, we went back to the investors and told them the deal was done. That’s hard because you’ve spent the time analyzing the deal and showing them why you think it’s a good investment. Luckily we had two other possible deals on the line so we really didn’t have time to be bummed.

The Nerve

Fast forward three weeks. We got another call from the agent saying that the seller has changed their mind again. They would be willing to sell provided they could get assurances that we could get the deal done before August 1st when their loan would go into maturity default. This gave us great pause for thought.

Usually when you are getting agency financing the shortest amount of time you want to commit to is 60 days, and even with that we normally ask for two or three 15-day extensions that we can buy with hard money.

To have the seller walk away the way they did and then come back with such a hurried closing schedule seemed unreasonable and audacious given the circumstances. In order to get this deal done, we would have about 45 days to get comfortable with the deal, get a loan commitment, and a rate lock while risking about $150,000 of our investors monies if we were unable to close by the terms they were demanding. This was simply too aggressive and it looked like we just couldn’t do it.

The Deal Gets Done

In a last ditch effort, we got our bank and the seller’s banks to talk to each other. The agent got the seller on the line with our banker and with us. Somehow, we were able to cobble together an agreement that gave us extra time with no hard money to assure that the loan was a done deal by August 1st. They in turn gave up all of the critical reports that our bank would need during this part of the negotiation. The devil can be in the details, so getting all the paperwork done quickly could make the deal work better.

Bottomline, it all got done.

I would spend more time talking about how exciting this is and how happy we are but I need to get to work. The moral of this story is that you never know what can happen unless you get into the game. And even when you are frustrated and angry, don’t burn any bridges. I was prepared to think that the seller was a major jerk after “playing us” like he did. Now I think I might have identified a guy who has great properties and is getting ready to sell a bunch of them quickly. Just more leads in the pipeline.

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Michal will be teaching an exclusive Live, Special Webinar Event “Earn Huge Profits in Apartment Foreclosures” on Saturday, August 3rd at 9 am pacific, Noon Eastern. You may attend as my guest, but you must reserve your seat at: http://www.DianesSeminars.com .



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