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Well, my friends, we started the year talking about your plan, your goal for this year, what you were going to accomplish. And I have to tell you, my life is just clicking along like you would not believe. I’ve had an incredible amount of positive things happen in the past couple of weeks, and it’s just blowing and going.
Setting Up Goals
I’d love to share them all with you and go into them but it would sound more or less like I was bragging and that’s not really what I want to do. What I want to share with you is that a massive amount of positive things have come into my life over the last nine months because we set those goals up at the beginning of the year.
We’ve got financial things that have occurred. We’ve got process things that had to get through that have occurred. We have physical fitness goals that have been accomplished. And I’ve already planned out my two-week ski vacation. I just got back from two weeks in California to do my west coast tour. Now I’m already setting up for my Thanksgiving two-week skiing trip.
Plan in Advance
So you see I plan in advance. I’ve got to have this stuff done in advance or it won’t get done ‘cause life just sort of creeps up on you and boom, boom, boom, boom, boom. I’m also looking for my third apartment complex this year. I’ve done two, I’ve had three or four others under contract, but they just didn’t work out—hey, that’s the way it works.
We’re out there taking action and eventually something will end up working out. Of the two that we purchased, just fabulous results, we’re moving ahead on these properties making great gains. And when I share the results with you later on in the year when we finally hit our goals you’re going to be surprised what you can do financially with a real estate deal in just one year.
Sample Deal
Having said that, my plan for today is to spend some time going over a real estate deal. I got an email that came from a young lady—Ryan, who asks this question:
“On September 15th on the Del Walmsley Show you mentioned that your daughter if she had $160,000 she could buy an apartment complex and retire herself for the rest of her life. I could get together around 160,000 easily within a few months. Could Del go over the specifics of a sample deal that could create that? How many units? What class of property? What kind of rehab — et cetera, et cetera.”
And I started thinking about this and it just hit me that, you know, I haven’t done this one time, I’ve done this many, many, many times and so it would be very easy to give an example of a deal.
But what I’m going to do differently is I’m actually going to share a deal with you what I did about ten years ago. And I want to take you through the process. It’s going to be a long process because there’s a lot to this explanation and this deal.
I think you’re going to be interested in seeing how profitable a single real estate deal with $160,000 could actually be. So I hope you enjoy it.
A Long Process
Let’s talk about what you could buy with $150,000. About ten years ago I bought a property that was a 64-unit apartment complex. It was 1974 construction, flat roof mansards, which are like shingles on the side of the roof that comes down the sides of the building. The property was very beautiful although in very bad repair when I purchased the property, but it had tremendous landscaping. When you drove up to it it looked really beautiful although it was a bit older.
At the time it was probably I the largest property I had ever purchased by myself for myself, and I did buy it all for myself. I purchased it from a guy that was a multi, multi, multi zillionaire who had purchased the property for his brother. His brother was a complete idiot, and his brother was completely useless.
Negotiating
This guy owned resorts, class A apartment complexes, hotels, and he was the smarter of the brothers in the family. The other brother was that one you know where they say the apple doesn’t fall far from the tree but it can roll a long distance. He was the spoiled little brat baby brother that his mother made him take care of. So he bought him a 64-unit apartment complex, paid in full and they owned it free and clear.
Now, this property produced somewhere over $100,000 in income and around 13,000 or something like that in net-operating income. But he had no mortgage so the guy made all that money. That’s how much he made a year on the particular property.
I proceeded to get a contract for it and the property was for sale for $1.2 million. I negotiated them down to $900,000 to go into contract. The deal was I was going to put $150,000 down and he, the seller, was going to owner-finance the property for $750,000 mortgage.
Difficult to Finance
The reason that he was willing to owner-finance the property was because it was in such bad repair, and it was in a market and condition that’s similar to what we are now where financing is tighter, so the options available for a property that wasn’t run correctly and operated at its maximum potential were such that it was hard to get financing on something like that.
And in addition to tha,t owner financing was a fairly common type of occurrence because interest rates were so high. In fact, my interest rate on this particular loan was 8.5 percent interest. Now, with the 8.5 percent interest that would have produced about a $70,000 mortgage payment a year for me so I’d make 30 grand a year. That’s the kind of the numbers we’re looking at.
Inspection
Now, after I went into contract I went into feasibility, and the first thing I did was I went over and I inspected the property. And I kind of did a sneak preview of the property and walked in, and what I found was at 11:00 o’clock in the morning there was nobody in the office.
I ran around and found the maintenance man, and the maintenance man told me that the manager who was 80 years old—and when I saw this lady I mean she was totally way past her prime, should not have been operating a business, couldn’t get her wig on straight—worked one hour a day. She opened the office from 9:00 in the morning till 10:00 o’clock in the morning and then she shut it back down again.
Making it Right
Now, I don’t know if you know anything about business or sales of any kind at all, but just use your common logic—how do you sell things like apartment leases if you’re not open? Seems pretty difficult to me. And the lady had vacancies. There was a tremendous amount of vacancy on the property. There was at least 15 vacant units that I knew of when I took it over or when we were in the feasibility.
So here was an operation where the property was losing a tremendous amount of money and they weren’t even trying to fix it. And that’s only the beginning ‘cause the story gets even crazier as you go down the line. And we’re going to cover this because everything that you find wrong in one of these properties is an opportunity to make it right and to make it big.
