To Real Estate Investors Who Want to Quit Work Someday, and have “Brass Balls” enough to Take Advantage of an Opportunity few People Ever Get
This is one of those deals that doesn’t come along too often-you won’t see this on the mls, you won’t hear about it from anyone else, and it won’t show up at the trustee’s sale downtown. It’s part of a secretive, little-known “shadow market” of the investment world that is actually one of the oldest and most traditional ways to make money with undervalued property-but this is NOT for the average hold-me-by-the-hand apartment investor. You really, really need to know what you’re doing and like in “Glengarry Glen Ross”, have “brass balls”! Figuratively, of course.
Well, What Is the Deal Anyway?
Eight units in Pacific Beach, west of Ingraham, corner of Grand and Gresham. Six blocks to beach. $102,000 gross rents per year (conservative potential). Total investment to acquire the property, between $930,000-$965,000. The last time this sold was in 2006 for $1,469,000.
It doesn’t take a rocket scientist to see the numbers work out pretty well on this one: $8,500 gross per month compared to what your expenses are leaves a lot of room for excellent cashflow. Even if you knock off 15% for expenses, vacancy rate, management fee, maintenance, etc, off of the gross rents, at an initial investment price of $965,000 (the higher number), you’re looking at a 9% cap rate. In a market where 5%-6% are considered great. In the best rental market to own in, Pacific Beach.
If you put a loan on $965,000 at 40% LTV and 7%, your principle and interest on a thirty year fixed is $3,852.10. It sure leaves a nice chunk of cash behind for taxes, maintenance and everything else, doesn’t it?
So What’s the Catch? Why does this Deal Exist and What’s My Risk?
Plain and simple, a local bank will sell their first deed of trust “note” at a discount to qualified buyers. So for somewhere in the low to mid nine’s, you can get a building worth at least a million two five to million three two.
This is not a short sale, not a reo, not bank-owned, and not a deed in lieu of foreclosure.
This is where a buyer exchanges money for the assignment of a note in first position over to them, and the new buyer assumes the previous bank’s position. Still with me?! This means you have to foreclose on the defaulted owner of record in order to get the property or compel him to sign a deed in lieu of foreclosure.
Keep in mind that this property is already teetering on the edge of the trustee’s sale, had a NOD filed ages ago, and is in the foreclosure process DEEP. The borrower’s six month forbearance is expiring shortly. If he cures the default by this time, (not likely) you make several hundred thousand in a month. If he doesn’t, the bank files for a trustee’s sale to take place in two weeks, and you get at the property in a couple weeks.
This borrower is (was) a prominent local developer at the beach in big time trouble with all his properties; he’s already been granted a six month forebearance. The strategy is to either foreclose on said borrower, or compel him to sign a deed in lieu of foreclosure (where you then just get the property). The risk is that you have to negotiate directly with the defaulted borrower to get the deed in lieu of foreclosure or go through the foreclosure process, although in this case it’s right near the end.
At a minimum, you need to have done this before and or retain qualified legal counsel. Worst case scenario the defaulted borrower could file bankruptcy and hold the process up, although a judge would likely look at the forbearance already granted without payment and not allow that to hold up the trustee’s sale. Likely.
Well, What’s the Advantage to Me Then?
First and foremost, price. I don’t need to tell you that these numbers are unheard of at the beach. Or maybe I do-if that’s the case, THIS IS ONE HECK OF A DEAL.
Next on the list, it’s not on the open market. If this was out there as a short sale or reo, there would be a dozen or more offers. If you’ve looked at units with me, you know the unit-buying frenzy.
If you are interested and want much greater detail, including:
-a video walkthrough
-more details and leverage you could use on the borrower (to obtain a deed in lieu of foreclosure instead of foreclosing) that I didn’t mention here
-a ten year cashflow analysis
-condition and estimated renovation numbers
-added value opportunities to boost rents
Just input your name and email below. I’ll send it over to you. If you want a chance to get your questions answered, input your phone number-not required. It’s ok even if you just want to know how this whole process works.
Do it in the next three days, while this opportunity is still available.
