Does anyone have any experience with Apartments in Receivership?
Does anyone have any experience dealing with properties in receivership? I keep finding properties in receivership in my searches, but I have no idea what I need to know to see if they would be worth going after. I have been told many times that if you go after just the easy properties you find you will have a lot of competition. Even though I don't mind competition, I feel that others have been told the same or similar things! That being said, if others find properties in receivership and know nothing or little about this, then they will probably tend to leave them alone too, thus creating a niche I would be interested in filling. The only way I can fill that niche though would be to learn about receivership and become proficient in this field. I feel the best way to do that is to ask questions and learn from any sources I can.
I have found apartment complexes for around $7k per unit in pretty good areas. The problem is that you have to deal with the courts for the receivership. I don't particularly have the money to be trained by an attorney for these skills, so maybe someone here knows something that can help or would be interested in working with me if we find properties that are in receivership. Please contact me if you have knowledge in this area and can share it with me. The way I look at things is in any real estate transactions everyone involved should be winning! I'm not the kind of man who is out to exploit someone in their problems. I know what that is like as it has happened to me. I'm sure we can find plenty of properties that will create enough money to help us grow far beyond our goals, unless your goal is to become the richest real estate investor on the planet or similar! That might be a bit of a problem. I can say for myself though that my goals are quite high, both from flipping for cash and passive cash flow.
I am eager to hear from people about receivership or any other type of niche that may interest you. In this group there are probably others needing expertise in particular areas that can benefit from the experience of the group. Make your needs known and maybe you can find what you require too!
Good luck to all!!!
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I am NOT an expert on this subject matter and I do NOT have experience on this subject matter. The purpose of this discussion is just an illustration utilizing some principles, and it is more like brainstorming, and trying to establish some sort of focal point to begin with. It is highly recommended that you seek guidance that is qualified to give you guidance. So please bare it with me:
I think you have basically two ways to deal with this type of asset, either you take ownership or provide finance to qualified sponsor.
1. Acquiring the asset and take ownership
I remember I read FDIC press release some time ago:
At sale, the FDIC places the receivership assets into a new entity in partnership with the winning bidder with financing provided. Bids are taken and LLC Membership Interest is sold to 3rd party. Bidders must be pre-qualified, have demonstrated financial capacity and the ability to manage and dispose of similar loan portfolios, and have certified eligibility to purchase FDIC receivership assets.
The Key is have to have someone can a strong sponsor to take the asset and bring the value of property up and refinance, then cash out the FDIC.
Another significant liquidation method ground is the FDIC’s loss sharing agreement, a preferred method for the FDIC to dispense with failed bank loan portfolio. If you have a cash line up one way the other, one can acquire assets very cheap. It will be a major vale added opportunity and this type of deal make sense to only certain type of people. There is one caution though. Do not fall in to repositioning fallacy. Remember what brings value to a multi-value business; the contracts. The only way to get more valuable contracts is to get higher-paying customers/residents. The fact that a unit has been completely rehabbed and is absolutely beautiful does not mean that a new tenant base is set to move in. Repositioning an asset has two components. First, you must turn the units so that a new class of residents will want to move in and then you have to reposition the tenant base so that you begin receiving the larger valued contracts.
2. Facilitate the Bridge financing for qualified sponsor. This is the route that you do not take ownership, but rather arrange the financing and the ones can be profited by the serve provide. Either way, the following basic information is needed to evaluate the opportunity start off.
A) Current NOI
B) Pro-forma NOI
C) Existing Debt or Capital Structure
D) Sources and Uses
E) Exit strategy
The once can use the following is the sample strategies based on the situation.
. Partial Subordination-pay the current lender partial cash and have the lender to subordinate to 2nd position of the trust deed, take 1st position lien against the property partially paid to the lender and the rest will be used for rehab and bring the property value up then refinance.
. Debt to Equity Swap-Pay partial of current lender and split the back end profit 50/50 after renovated. The current lender needs to be willing to settle less than the current UPB. After the renovation and the asset starts to performing, may be able to buy back the equity interest back.
. Buy the note at a discount from lender.
. Bring a new qualified sponsor and have the bridge funder provide Debtor-in-Possession finance.
Anyway, 2 most important elements are: 1. Access to cash or financing ( hedge fund, private money, bridge funder etc) 2. Qualified sponsor to be partner with.
Qualified sponsor is the NEW key element in the current environment. Hope this give you some idea what maybe able to do.
Jim
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