Archive for October, 2008

As you may have noticed, something was glaringly missing from my Wednesday Post: My Million Dollar Day.

It was intentional.

What I didn’t include were the many, many thank-you’s that I owe to the various people that have played a part in my “Apartment Quest”. To think that I could have done this myself is ridiculous. It’s been a long road since I started this quest back in January, and the list of people that I want to thank is endless. So I wanted to make sure that I did this under a separate post.

I want to take the opportunity thank the following people for in some way making a truly material contribution to this achievement. Please forgive me if I have left you out:

Andrew Kuhn
Catherine Hartkop
Chris Burrell
Darin G
Dave Geraghty
Doug Shellig
Eric Stanton
John Mcalauf
John M
Linda Hagan
Mark Dundon
Mark Ijlal
Marty B
My father, Dennis Fassett Sr.
Nora Chenail
Pat Parke

And a couple of others that for various reasons, one nefarious, must remain anonymous. You know who you are.

Two people that I want specifically thank are:

Eric Brown of Urbane Apartments. Eric I very much appreciated your advice, guidance and feedback. I very much appreciate the time that you took explaining your organization and approach to purchasing and managing multi-family buildings.

Josh Otting, owner of Apartment Realty and Management. Josh I want to thank you for your patience and guidance through this process, and I particularly appreciate your deft and calm handling and disposition of every single issue that has come up since we started all this in April.

But most importantly – I want to thank my wife Marily. She’s my biggest fan and my greatest supporter. She never had a single doubt about this through the entire process, even though I wavered. As always she’s the reason behind my action.

Thank you.

Yesterday was a good day in my real estate business. 

A pretty good day in fact.

Because yesterday I bought a little over $1 million in real estate. One 20 unit apartment building and one single family home. (And didn’t use one penny of my own money. But that’s a topic for another post.) Not only that, but I had an offer accepted for what will be my 11th single family rental home, and a colleague that I’m helping to buy his first rental had HIS offer accepted as well.

But like most things all of this didn’t just happen. If you’ve been following my travails you know that I’ve been slogging through the process for months (since April 5th to be exact) on the apartment building, and at various times thought that it just wasn’t going to happen.

Now I’m not going to give myself tennis elbow patting myself on the back about this because it’s not my style, but I was fortunate that two of my strengths match up well with my two fundamental take-aways from this experience. And they are:

• Patience is key. The process required to buy an apartment building takes time. A lot of time. No matter what. On my single family homes my all-time record is 11 days between offer acceptance and closing. That’s not going to happen with an apartment buildings. Personally I scoffed at it when everyone told me that it would take six months to close. I’m not scoffing any more. There is no way to short-cut the process, and I don’t think that you’d want to when you’re spending a million dollars. This is a marathon not a sprint so plan accordingly.

• Persistence is critical. My first deal died through no fault of my own, and this deal died three times since April. But the location is spectacular, the numbers are spectacular and there was/is substantial upside so I was not going to be denied as long as the fundamentals remained the same. Out of all the skills or traits necessary to bring this to closing I’d say that without a doubt that dogged, focused persistence is the most important.

 
I can’t tell you how excited I am to get started harvesting the upside potential on this building. (The best part about it was that my kids invested in this building as well. They cashed in their savings bonds and all four are now earning 10% interest on their money.)

But lost in this discussion and dwarfed by the building in terms of dollars is the little single family home that I closed on in the afternoon. Now you wouldn’t BELIEVE the grief that I continue to get for my dogged pursuit of single family rental homes, especially since I’ve made the leap to apartment buildings.

But not only do the numbers make sense, they’re off the charts. It’s a three bedroom one and a half bath bungalow in the best school district in the state, Grosse Pointe. It’s all brick, has a full partially finished basement, central air, a two car garage, refinished hardwood floors, nice paint (actual colors) and all appliances. The roof and mechanicals are in great shape as well. It’s in better than move-in condiiton.

I bought it for $60,000 yesterday and had it rented for $1075 per month last week. A house across the street sold for $137,000 in 2005. So cash flow and upside. And oh yeah by the way – my private investor funded this 100%. And it STILL cash flows around $300 net per month. And it will cash flow on Day 1.

So my question back to my grief-giving friends and colleagues is – why not?

So yes I’d say that we had a good day yesterday in my real estate business. A million dollar day. A BSD day.

Are you curious about what it takes to buy your first apartment building? You’d be shocked by how simple it is, even the first time. I’m offering a free seminar next week to talk about it. For more information go on over to ApartmentSeminar.com. The session is almost full so act quickly if you’d like to attend.

It’s been a while since I posted something to this topic. July I think. Mostly because I’ve found that when dealing with adults in commercial real estate the deal process is about as exciting as watching paint dry. And I hate painting.

So let me bring you up to speed.

We last left this thread with my last deal dead and me starting the lawsuit process for the return of my earnest money deposit. Well if you can believe it, this hasn’t been resolved yet. The reason? Mr Seller, being the third grader that he is, is ducking the process server. So I’m still chasing him for his signature. But on the bright side, Mr Drama Queen is now in a world of hurt. Now I’m (generally) not someone that revels in the misfortune of others, but in this case I’m making an exception. You see, in anticipation of selling the building to me, he refinanced the building and took on a commercial mortgage with an interest rate that resets daily, and with all the volatility in the credit markets his interest rate is now so high that his building isn’t generating positive cash flow for him any more. I’m really broken up about this as you can tell. 

The good news is that I have made progress on another building that I first looked at back in April. This one is located near the GM Tech Center in Warren, and there’s a lot to like about it.

First is the location. The Tech Center is a good area to be near, because it’s probably the last GM facility that will close if they continue their collapse and walk away from the Ren Cen. Second, it had an assumable (for no fee) 15 year low-interest land contract with no underlying mortgage, and third it was being managed less than efficiently by an owner that had reached the point of wanting to retire, so there is some low hanging fruit to boost ROI performance.

Much to my surprise this process has moved along completely drama-free except for a couple of small mistakes and mis-communications.

We agreed on price. The inspection went well with no major issues arising. The Phase 1 environmental inspection was completely clean, and the financing is a breeze because of the assumable land contract. We’ve even filled a couple of vacancies as we have approached the close.

Now don’t get me wrong, there was a lot of tough back and forth negotiating along the way. Several disagreements, miscommunications, and mis-clarifications. But end the end it was a straightforward and unemotional process that was primarily focused, at least from my perspective, on the numbers.

As I mentioned before, I had always heard that commercial real estate was where the big boys and girls played. And this deal validated that belief pretty well.

I cross the finish line on October 29th at 10am.

I just received three tickets in the mail. THREE! From the City of Harper Woods.

It seems that the fine people in their Building Department believed that I was on the wrong side of the law when I bought two properties in their fine city earlier this year. And then again when I rented one of them a couple of weeks later.

Three stinking tickets. And not the kind you can simply pay to make go away. Nope. These were court cases slated for a hearing on 11/17/08 in District Court 32A at 10:30am. Fines of $500 each.

Serious stuff.

At least for most people it would be.

To be honest it really wasn’t a big deal to open the envelopes. I was more curious than anything else when I was asked to sign for three pieces of mail from them sent certified return receipt. They were very official looking.

Two of the tickets accused me of – the horror!- having the AUDACITY to buy a home there and not get a Certificate of Occupancy after I bought the home. The third one was kind of funny. And it was a pile-on: it was for RENTING a home that (they said) I had bought without a current Certificate of Occupancy.

Reading all this stuff made me feel like public enemy #1.

But they were all wet. (The people in the building department. Not the letters)

Why?

Because I do things by the book in my real estate business. And you wouldn’t believe the grief that I get for doing it that way.  Seems folks just love to cut corners and save a few bucks here and there if they can get away with it.

But instead of my blood running cold and a sweat breaking out in beads on my forehead and seeing $1,500 vanish before my eyes I smiled and calmly walked over to my file cabinet and in about three minutes found the documentation that I needed. Because I had a process that made sure that nothing fell through the cracks AND because I followed that process.

And after 1 fax, 10 minutes on the phone and three apologies from the fine folks at the City of Harper Woods all three tickets were dismissed.

Now don’t get me wrong – even though they’ve been a little disorganized lately, Harper Woods is a great city to buy in and the city employees have always been great.

It’s just that that $1,500 looks much better in my pocket than in theirs.

I saw an interesting discussion on twitter last evening. As you might expect, there has been some serious discussion about the economy and the stock market (which are two DIFFERENT things BTW).

As you may know, twitter is heavily populated by “Web 2.0″ types that know far more about social media and the internet that I do (or maybe than I ever will). They’re in lots of different fields, and many are actually (gasp!) using twitter and social media as a way to make money or at least  promote their cause to make money. I know, I know, the thought of actually making money when so many are suffering is scandalous.

In particular a pair of posts on the subject of the economy by someone that should know better stood out to me. He said:

“When wealthy invest in growth – GREAT! When wealthy buy up assets at rock-bottom prices cuz they’re the only ones who can: AWFUL!”

“Wealth doesn’t get destroyed in a depression — it just moves around. And by around, I mean “up”.”

I was very surprised to read these posts. I wasn’t surprised to see them on twitter, because the mush-brain socialist crowd is disproportionately represented there, but I was surprised to read it coming from that particular person because both statements show a fundamental lack of understanding of basic economics. Especially in this “internet age”, and especially when written by someone that’s using social media as a promotional tool.

Statement #1 is just bizarre – isn’t buying something low so you can at some point in the future sell it “high” one of the most basic fundamental tenets of the free market and capitalism? I think so – in fact my entire real estate business is predicated on that ONE idea. My client at work – the one that makes cars – thinks so. Starbucks, where I bought my coffee this morning thinks so. And the guy that owns the car wash that I went to yesterday thinks so.

In fact the ONLY way that a business can make a profit is to buy or create something and then sell it for MORE than it cost to make it. That’s the definition of profit. And that’s the definition of business.

And the bit about the “wealthy” being the only ones that can is a bunch of class warfare garbage. The fact is, over the last three years two things were widely available: 

1. ANYONE with a pulse could have easily built up a “portfolio” of unsecured business credit that amounted to hundreds of thousands of dollars (ask me how I know). I’m sure even the most ardent socialist would agree with me that that kind of capital opens lots of doors, and
2. ANYONE with a pulse could have bought investment real estate (aka “productive assets”) at rock bottom prices, and could now be reaping the benefits.

And statement #2 that wealth just moves up is – well – misguided. I was going to say silly but I’m stretching here to be as charitable as possible.

The truth is that wealth moves around all the time. Up down, and sideways. The people that produce know this in spades – they take calculated risks, and when the risks pay off then their wealth increases. When the risks fail their wealth decreases. That’s the nature of the beast.

Wealth doesn’t just float around in the ether waiting for a Vanderbilt or Rockefeller to come along. That’s hogwash. This economy both rewards and punishes risk taking (at least it USED to punish it).

So that even in a depression, wealth moves to the people that GO OUT AND GET IT.

The socialists and liberals would have us believe that there is an unequal access to opportunity in this country. I’m telling you that that’s a bunch of BS.

Because this is not about the Haves and Have-Nots.

Far from it.

It’s about the Will and Will-Nots.

When you understand the difference you can be successful in this country. Not before.