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About 2 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.

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 – which was very brief as this was a pocket listing (not listed for sale and the agent was carefully selecting who he would share this info with – looking for the right buyer who could close the deal comfortably before the refinancing was due on August 1^st).

The Negotiation

After viewing the property and where it sits in the marketplace we were eager to get the project – if we could get it at a good 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 get us over the line.  We just could not pay that much (we already felt stretched at the $6.1 million) – we offered $6.15 million and the negotiation basically 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 buyers had failed to produce any proof of funds or a signed LOI (letter of intent) so we were back in business.  We restated the $6.150 offer and 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 rehab (very minimal) 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.

It really bites to go back to investors and tell them you lost a deal, but luckily we had two others on the line so we really didn’t have time to be bummed, although this really was a great property.

The Nerve

Fast forward to three weeks later (which was just last week).  We get another call from the agent saying that the seller has changed their mind again and would be willing to sell provided they could get assurances that we could get the deal done before August 1^st 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 – but this was where their line was drawn.  In order to get this deal 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 weren’t going to get it done.

The Deal Gets Done

In a last ditch effort we got our bank and the selelrs banksto talk to each other, and the agent got the seller on the line with us and our banker and we somehow 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 1 – before we went hard with our earnest money.  They in turn gave up all of the critical reports that our bank would need during this part of the negotiation so that the bank could give a much better prognosis on the timeline.

Today, I signed the purchase sale agreement and now we have two deals in closing, concurrently, representing $11.5 million and over 400 units.  One will be closing June 20^th and the other in late July.

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.

Now it’s time for you to do the same. Hope you join me Tomorrow Night so I can show you how…  Here’s your happy investing ending… Coach Michal

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Michal will be teaching an exclusive Live, Special Webinar Event “Earn Huge Profits in Apartment Foreclosures” tomorrow night, June 12th, Wednesday, at 6pm Pacific, 9pm Eastern – for Foreclosures.com clients only. You may attend as my guest, but you must reserve your seat in advance and join us on time to secure your seat. We have limited capacity and expect a sell out. Talk to you tomorrow! Alexis