Mike’s Apartment Blog

A stalemate in chess occurs when you force your opponent into a position where he cannot legally make a move.  On the surface, this sounds like an ideal position to place them in but in chess it ends up neither a win nor a loss regardless of how much of an advantage you have at the time.

Negotiating opportunities in apartments is similar.  You want to be very careful not to put the seller (or buyer) in a position where they just cannot make a decision.  Sometimes there are laws in place forcing certain things, other times there are (not-so) silent partners with expectations to be met, and other times you may have put the other party in a position where they stand to lose their self-respect.

Getting a deal done is  appears to be very difficult these days.  I have had three opportunities fall apart within the last 6 months.  Of course I am frustrated, but I made the realization I have been overly aggressive in my negotiations.  This just won’t do – there are enough hurdles to overcome these days without creating my own.

If the deal meets your expectations, and you can get past all the standard hurdles (financing/capital/management), don’t start adding your own into the mix.  Pull the trigger.

Well, one of the deals I had been negotiating for month fell apart… again.

Very frustrating. We finally had an agreement on our LOI (letter of intent, a non-binding agreement to lay out the basic terms of the deal) and when I submitted the contract, they bailed.

Makes me question their experience as investor. Many new sellers and agents will play games like this without realizing the impact it has on their credibility. This is a fatal flaw, when you are new the only thing you have is your word. Once that is compromised it is very difficult to get established.

My company works very hard to live up to our commitments and deliverables. That reputation is incredibly important in a local, even national, investment market.

Most people who read this blog and haven’t seen a post in a couple weeks, might think that is because nothing is going on.  Quite the contrary… it has been a madhouse.  Lots has been going on lately and unfortunately this blog suffers.  But, I want to keep ya’ll in the loop (where I can of course).

Cirese Court – Still waiting on the inspection from the city.  They are dragging their feet, which never really made sense to me.  That building was a drug den before we took it over, now it has come together quite nice.  The city seems determined to charge us and delay us wherever possible.  I think this is how difficult neighborhoods get started.  The good news is we are taking this delay to get licensed to run ATR (Alcoholism-To-Recovery) Programs there.  This will allow us to accept grants from the city government, effectively doubling our cash flows.

New Apartment Deal #1 – This is an apartment I have written about previously.  Talk about your on again, off again relationship.  This deal got away from me earlier, when another buyer offered a higher asking price.  They defaulted on the sale (chickened out).  Now it is back in my lap, which we have negotiated a decent deal on involving some seller financing.  I think this is a good opportunity since there is significant value-add.  We are still in the negotiation stage, so I need to keep details fairly secret at this stage.  When we close, I can afford to be more open.

New Apartment Deal #2 – This is a deal in my backyard.  An owner has found himself in trouble with the operations of his building.  We are attempting to partner with him, cut a deal with the bank, and bring some cash to the table.  The resulting upside will come through stablizing the building and holding until rents rebound.  Unfortunately, this may take some time as the Phoenix-metro area is not expected to rebound until 2014.  Again, another deal in which we need to respect the parties involved and maintain secrecy.

New Business – Yes, I decided to help a friend take on a new endeavor.  He is starting a company and needs help in understanding the business side of things.  He is excellent on the core functions, but knows that if he wants to grow this thing, he will need to build it properly.  For this, he has asked my help.  I don’t want to scoop him and give away the premise, but sufficed to say, it is a great opportunity for him and I am helping in return for a small piece of the company.  Goal is to build this business around him, so when it becomes successful I can sidestep the craziness and be bought out (for a premium, of course).  Apartments are my thing, but I can’t resist helping good people get things started!

Guys, opportunity abounds.  If you are in the real estate investment business, now is the absolute best time to take advantage of depressed asset prices.  I am scrambling to grab everything I (and my investors) can.  We may not see another opportunity like this for a long time, if ever!

There it is.  With all the things that are going on, I am lucky my wife still wants to stay married to me – I am going to have to put in some serious family time this upcoming week.

In this case, I mean opportunities.

Right now, my company is vetting two opportunities we had previously bid on in the past.  Both opportunities slipped past because we could not get to an agreeable compromise.  Now the opportunities are back, for whatever reason, and we are bidding on them again.

Negotiations can be tense, especially when there are large dollar descrepancies between offer prices and asking prices.  I have found that most investors are reasonable people and a good, sound and logical explanation behind and offer goes a long way to maintaining a relationship.  If a deal cannot be made now, perhaps it can be made again in the future.

And that is exactly the case now.  Unfortunately, for both opporunities, both the seller and buyer situations have changed.  Sellers are coming back asking for same offer as made before, but buyer has modified offers because the investment landscape has changed.

An important thing to keep in mind is to maintain the relationship with both parties.  In both cases, the folks are reasonable and looking to maximize their returns.  At this point it is a matter of matching expectations if possible.  And if not, part with mutual respect. 

Hey, you might have to work with these folks again in the future.

image courtesy of thunderboltgames.com

 At any rate, the seller and I have gone back and forth with LOIs trying to get to an agreement but have been unsuccessful.  However, I think my last offer has gotten us closer to striking a deal.  Since it’s still in the works I will keep it under wraps, but it appears the seller is flexible in this sale.  He has only a couple of sticking points.  Hopefully I will have more to report later in the week.  Around and around we go…