Closing June 29th on first deal. Final words of advice?


#1

Well here I go, I drank the Kool-Aid and it looks like I’m set to close at the end of June. This is a new thing for me and I’m looking for some words of wisdom before the effects kick in.

As some of you may know I’ve been managing this Wisconsin community for about 8 months. Here’s the details.

Private well and 3 septic tanks, all in 2015
I’m certified with the state of WI as an operator

18 lots- $215
8 vacant
No POH
6 TOH
2 homes I own on RTO
2 homes I own on straight rentals
1 home I own is vacant and needs rehabbed
I’m the certified water system operator
1 duplex- $900 total
4-plex- 1/2 full- $700 total
1 small SFH-vacant
12 adjacent acres
Gravel drives

The 4-plex and SFH need some work, a little more than paint and fixtures.
The grounds also need work

Purchase price $225,000
89% bank financed
5 year balloon amortized over 25yrs
First 3 months no interest, no payment
First year and a half at 4%, remainder at 4.25%

$80,000 Line of credit also
89% financed same terms over 6 years

$40,000 private financing for down payment and start-up
8% for 15 years

Tell me your thoughts, bad or good I’ll take it all.


#2

Is this the park with the failed drain field you were talking about? If so how did you resolve that issue?


#3

I appreciate the interest Phillip. This is the park that we discussed septic solutions. Right now it’s just tanks that get pumped and we’d like to find a more financially attractive option, such as a mound system.


#4

How did the test ad pull? Can you definitely fill lots?


#5

Yes, the ad didn’t get the numbers that I’ve heard discussed on other threads but it was enough to satisfy me. I just ran it through Craigslist, after the fact I heard Facebook marketplace is what most people are using in this area. I’ve also filled 5 homes since managing it and could’ve filled more if there were homes available and not just empty lots.


#6

Awesome! It definitely takes some of the burden off when you’ve already been successfully managing the property for some time. Yes, I’ve heard great things about the facebook advertising, but I’m sure it’s not cheap. Filling lots is typically very capital intensive, so unless you’re sitting on a huge chunk of change you’ll probably be filling them relatively slowly anyway. No rush. My only other worry is if you think the property will remain liquid down the road. Usually a small property with lots of unique attributes like that would be allergic to most banks. You’ve obviously secured some great financing terms, so it kind of makes that last comment look silly.


#7

@Sterling How the heck did you get such good terms with the bank? Is it a local branch?


#8

To be honest I’m not entirely sure. It is a local branch, I think they only have three locations. Like I mentioned this is my first real investment property so I wasn’t fully aware of how good the terms actually are.


#9

That’s a good point, do you find properties like this tend to be undesirable for lenders?


#10

Typically, yes. Many lenders won’t lend on parks with private utilities but there are enough that will. The bigger issue is trying to finance a park under 500k in value. This is where it gets really tough. Your only option is usually small local bank financing and it’s still going to be a challenge. The reason being is it’s so close to single family home values but yet such a remarkably different creature, they just don’t want to mess with it. Plus very little to no park mortgage brokers will work on anything under 500k


#11

@Sterling - first of all congrats! Good or bad, there will be more lessons learned from doing it than we could ever teach you on this forum. Cheers for pulling the trigger!


#12

Thanks! I find it amusing how much I stress over it when to most of you this would just be a blip in the radar :slight_smile:


#13

You will make mistakes. Accept that and try to minimize them; and learn from them. And share your experience!


#14

If you could give one item that deserves critical attention what would that be? So the deal is basically closed and is what it is but how about moving forward? Now that it’s my responsibility to make it perform, what should be some key focus points? I will say this, where I feel most fragile is the fundamental economics… which is slightly concerning…


#15

#1 job – collections. Focus on the gross income.


#16

Watch out for 5 year balloon on bank loan ask for option to extend for half point at market rate- you never know when a downturn happens and you cannot refinance or bank changes hands