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SHOW NOTES FOR EPISODE 165 – BEST OF OLD DAWG’S REI NETWORK – FUNDING YOUR FIRST BIG REAL ESTATE DEAL
When you acquire a larger property that is priced beyond your cash-on-hand, you need to find the money to cover the down payment, closing costs, and repairs/rehab expenses. You also need to have someone sign on the loan with a net worth more than the property. Where do you go to find that kind of money and a person to sign for the loan? In this episode, Nizan Mosery (who was featured back in episode #025) shares his own personal experience finding the funds and people to make his first big deal happen.
What You Will Learn
- What are the key things to look for in a good deal
- What’s the best way to use an LOI (Letter of Intent) for your advantage
- A clause you should include in your LOI that will allow you the time you need to complete your due diligence.
- Why real estate investing is like running 12 marathons all at the same time
- How to get a big property as a newbie
- The importance of having a great team
- How to raise money without asking for it
About Our Guest
Nizan Mosery
Nizan Mosery has been involved in real estate for the past 20 years and currently owns over $120 million in properties nationally and internationally. While living in New York, he owned a construction company and worked on numerous single family homes, multi-family and commercial projects of up to 300 units. In 2009, he relocated to Florida and became a licensed real estate professional, serving the South Florida market. He owns K.E.A.N. Realty Solutions a Florida-based real estate brokerage firm and one of the first Commercial ReMax franchises in South Florida. Nizan and his team head up the multi-family division. He is the also owner and C.E.O. of K.E.A.N. Management Solutions, a hands-on boutique professional management company. His background ranges from managing commercial assets, recognizing emerging markets, property management, syndication, mentoring and advanced creative financing solutions.
A Test Case Scenario
Bill created an example of an investor (John) and a property the investor found to see how Nizan would approach the situation.
- Investor has SFRs, duplexes, 16-unit
- Has good credit in 740s
- Has mortgages on some of the properties
- Wants to buy a 154-unit apartment
- $5,000,000 offer price
- 15-20% under market in price
- Class “C” in B or B- area
- Built in 1975
- Needs upgrades, amenities (pool, dog park, picnic area)
- Needs $250,000 in upgrades
- Mom and Pop owner, owned for 20 years
- Needs to come up with $1,000,000
Nizan’s Response
- Nizan would buy it
- However, there is something that he doesn’t like – built in 1975
- The reason he doesn’t like the age is that if he holds the property for 5-7 years, 1975 will sound that much older to a potential buyer
- What he prefers, is to buy slightly newer properties that are:
- In the path of progress
- In a strong growth market
- That has at least 2-3 different economic driving factors (i.e. government jobs, health care, education, technology companies coming in). That way, if one industry doesn’t fair well, the others can pick-up and make the difference.
- That generally hold on to a property from 3-5 or 5-7 years, depending on the types of renovations or repositioning they have to do so if there are major renovations, they have the option to hold on to the property a little longer to do those renovations.
- Change the demographics, upgrade the level of tenant that will be able to pay a higher rent to boost the NOI
- With these things, you can show a proven track record to be able to sell it off at a lower CAP rate and a higher value
- What he can do is really try to make it look good, updated, work with configuration of the apartments to get them to be able to compete with
- Likes deferred maintenance
- Likes mom and pop
- Comparing this to a 16-unit, the process is the same, the numbers are just bigger
Steps to Purchase
- Issue LOI (Letter of Intent)
- Tells the seller you want to purchase the property
- Proposes purchase price
- Timeframe for due diligence (usually asks for 30-45 business days to do due diligence)
- Timeframe for financing contingency
- Proposed closing date
- GOLDEN NUGGET INFO – At times owners will wait to submit some requested documents until right before the due diligence period is over, which gives buyer limited time to review. To prevent this from happening, Nizan includes this phrase in your LOI, “The effective date of this LOI shall begin once all documents that are listed in our letter of intent have been submitted to the buyer and have been signed off on by the seller as being true.”
- Included list of documents or “Exhibit A” includes:
- Financials
- Trailing 12
- Trailing 24
- Income and Expense Reports
- Current Rent Roll
- All of the leases of all the tenants
- Tenant applications
- All contracts from all vendors
- After everything has been reviewed and you’ve hashed out all the terms, then ask the seller to have their attorney put together a Purchase and Sales Agreement (PSA) with the terms and agreements determined through the LOI and then send it to the buyer.
- Why not have your own attorney draft up the PSA? It is better to have the seller pay their attorney to put this together, take their PSA with your LOI, submit it to your attorney and say, “Make sure the PSA agrees with LOI terms, not one-sided, equally represents and protects both sides.” Costs a lot less
- Time Frame:
- Before the LOI is submitted, ask for Updated Current Rent Roll, Updated Trailing 12 (P&L) financials, Renovations Expenses
- LOI submitted (is only good for 5 days) In the LOI, he also mentions that the seller has 10 days to sign the PSA.
- Once signed PSA is received, deep due diligence begins
- Ernest money: 1% of purchase price
- If you have to raise money for your syndication, you’ll need more than 60 days
- If it’s a “Hot Property”
- Others will be bidding against you
- If you have a strong team and track record
- Put in a strong offer
- There will be a call for “Best and Final” offer, sometimes narrowing down to top 3
- Seller will come back with revised terms
- You may be able to rework numbers but if you can’t be ready to walk away
How to Get a Property if you are a Newbie
- How he was able to get into a property without the experience
- Partnering with another group that also wanted to buy the same property that was qualified
- Also, he could find a person to co-sponsor the loan
- “Doing this business is like running 12 marathons at the same time”
- To be successful you need to cross the finish line at the same time for ALL the marathons
- The marathons include:
- Finding the property
- Raising the money
- Finding a sponsor
- Finding a team
- Finding an SEC attorney
- Putting you package together
- Doing your due diligence
- Finding a mortgage broker or a lender
- Getting qualified
- Filling out your personal financial statement and schedule of real estate owned
- These are all being done at the same time
- Before you put your property under contract
- While you are building your relationships with brokers
- While you are building your relationships with sellers
- While you’re doing you direct mailing
- Start building your “power team” (people you’ll bring in who have a strong network of people):
- Real estate attorney
- SEC attorney
- Investors
- Start talking to everyone you know
How to Get the Money
- Nizan has never asked anyone for money
- The way you raise money: Tell John, “Once we have this property under contract, we’ve done our due diligence and we’ve put our investment package together. We now have our projections, our numbers and you’re teamed up with me and my team and this is our track record, what we do then is take our investment summary” and takes that to his entire network and says
- You know I’m in commercial real estate
- You know I raise money from private individuals life yourself
- And this is our track record
- I’ve come across an asset that we feel is an incredible opportunity and I would really appreciate if you would take a look at it and tell me what you think and if you think it is something for you, I recommend you move quickly because this is a first-come-first-serve basis and once I’ve raised all the funds we need, it is closed and you will miss out. And I don’t want you to lose out. And who do you know that would be interested in an opportunity like this?
- He raises money by raising strong, deep, personal relationships with people
- The way you raise money: Tell John, “Once we have this property under contract, we’ve done our due diligence and we’ve put our investment package together. We now have our projections, our numbers and you’re teamed up with me and my team and this is our track record, what we do then is take our investment summary” and takes that to his entire network and says
Finding a Sponsor
- Looking for sponsors for the first time is difficult
- It has to be with building trust and building that relationship
- They want to know that they won’t lose that money
- Once you succeeded and they got their money back, it’s much easier to ask again
- Know your Criteria First – before approaching a sponsor!
- For example:
- C to C+ asset
- Built between 1970 and 1978
- In these specific markets
- At no more than $5million
- Heavy renovation
- Find a sponsor that is compatible with your criteria
- For example:
Partnering with Others
- He partners with some and sponsors others
- If he works with a newbie, he’s most interested in working people who have great relationships with brokers and know how to underwrite a deal
If Someone Asks Him to be Their Sponsor
- The first question he asks potential partners is, “What are your expectations for us? Do you need us to:
- Underwrite
- Review
- Walk the property with inspectors
- Raise money
- Bring in and work with our SEC attorneys to get it set up
- Or do you just need me to sign a piece of paper and be a guide
- Affects the percentage of ownership
- There is great value in getting someone on your team who is more experienced and has been there and done that
How Nizan Got the Backing for His First Big Deal
- A true life example where Nizan needed help getting his first deal
- Made $80k in a flip and now had a little experience in flipping and working with investors but none in multifamily
- Started talking with people in his network and said how “they could help him”
- Told people what he needed from them
- Some people said they had $50K and $100K but wanted a deal under contract
- He didn’t have a deal under contract so he found someone else who had a property under contract, had a track record and was trying to raise funds — he went to them and asked how they could help
- He said, “I understand you have a big raise going on. I like what you’re doing, I like what’s going on and I’d like to know how we could get involved.”
- The person said, “OK. If you’re going to be a part of the general partners you’re going to have a job.
- I want you to give me market surveys every quarter. You’ll have to email the surveys, which must profile what is going on in their immediate market, and the state, every quarter to our investors.
- Make sure the distributions are paid out every quarter
- Make sure all investor communications are going out regularly and smoothly
- For doing the above things, they gave him a percentage of the company. Paid 5% of general partnership
- Most give 65-85% to Limited Partners and the rest goes to the General Partners
- Went back to people with the $50 and $100K and got them to invest in their deals
- As that went well, it gave Nizan and his partner the experience they needed to do other deals
- Shortly thereafter, Nizan met a guy who had a 2-year relationship with a broker who sent him an off-market property, 224 units, $6.7million
- He co-sponsored the loan and benefited from the deal
- He continues to co-sponsor to this day
If You Want to Work With Nizan
- If you want to work with Nizan
- Person should be able to underwrite the property
- Some working knowledge of multifamily
- Email him. Set up conference call
- Will share his underwriting template
- Wants to get involved before LOI is signed
- Will need rental and sales comps
- Can we increase the rents $100?
- Find 3 different Property Management companies – call them and ask about the property and ask questions like:
- What do you know about the market?
- How many units in this area?
- Have you done any renovation?
- What are the issues you see with that property?
- Have you ever managed this property before?
- If you could talk with the existing PM, ask:
- If you had unlimited money to you right now, what are the top 5 things you would do to this property right now?
Nizan’s Closing Thoughts
- When you look at 100 plus units it may seem overwhelming but it isn’t
- When you have the right team in place, you can do this
- Don’t try to do this alone
- When you’re looking for a partner:
- Don’t look for people who do what you can do, look for people that compliment what you do
- Find someone you like and trust
- Build a great team
- Tell everyone what you are doing
- Never ask for money
How to Reach Nizan
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