Those were the profound words spoken by former commercial passenger jet pilot Jill. For the last 17 years, Jill has flown large jetliners and most recently flew for a major airline until she decided to leave and work for herself.
Recently, Jill, one my clients, closed on her first commercial deal, a 41 unit apartment building. I was amazed how she juggled flying across the US, investing in SFRs and fixing them up, making offers on large apartment buildings, playing with three grandkids, training horses, and riding dirt bikes. Whatever she was on, I wanted some!
I managed to catch up (and stop her!) with Jill the other day and sat her down for an interview. Here it is:
Me: Hi Jill.
Jill: Hi Peter!
Me: Really? Why did you leave such a job?
Jill: Desire to sleep in own bed every night for the first time in 17 years. For several years since 9/11 when the entire aviation industry changed for worse I have been trying to find something that got me as excited about going to work as flying used to and I think I found it! I love the whole quest from finding the perfect deal or not so perfect, going through negotiations, planning, etc. It exercises my mind. I like the detective part of due diligence and speaking with people in different professions. I truly enjoy meeting with the local professionals and learning what is happening in their community. Maybe it all boils down to me being basically nosey and asking people questions with a purpose, I have found most will try to help.
Me: So real estate, particularly apartments?
Jill: Yes! Great returns for my effort!
Me: I understand you just closed your first deal. Tell me something about it if you don’t mind.
Jill: Yes, I found a 41 unit apartment for $975,000. The brochure struck all the right caveats so I did what you told me Peter and I made an offer sight unseen. Negotiations took quite awhile, I think I used every tip you offered, and darn if you weren't spot on. Unfortunately when the offer finally got accepted the whole banking industry went panic room on me, my line of credit evaporated overnight and there went my down payment! So that left allot of learning to be done. I stuck with it though and now am on the easy side of the learning curve….I hope!
Me: What attracted you to the deal?
Jill: The listing had a picture and cap rate that fit the profile that I was looking for i.e. 10% cap or better and good mix building.
Me: How many units, location, class?
Jill: First bldg has 23 1/bed units and second bldg has 17 2/bed units & 1 1/bed unit. It is a class B, location is in a working class neighborhood. Many of the tenants have lived in bldg for more than 2 yrs and consider it home. Very stable area, it is known as an economically disadvantaged area but they did not experience the highs or lows of this recent cycle.
Me: How did the negotiations go? What were some of the challenges and how did you overcome them?
Jill: Negotiations took awhile, mostly due to my being up in the air and in different time zones. It was hard to get anything done fast mostly via email, the seller did not speak English as a first language. I worked through the listing agent, fortunately I had a good one, but the single biggest stumbling block was the bank that held the assumable mortgage. On initial discovery by the bank they rejected me based on “I am out-of-state” so I had to break through that barrier of not being from there. Once I got them past that it was kinda like dealing with the FAA, one piece of info at a time. Then they would reject or demand another document, never the whole thing at one time. It now is clear they were changing their rules every contact I had with them as the whole banking industry imploded. Or maybe they ran my DNA and I came out alien or something. Anyway, finally it came together. I started April and I closed Nov. Oh, and I ended up negotiating $60,000 off the asking price thanks to my dear coach, you!
Me: So, what did your financing end up looking like?
Jill: I assumed owner’s existing plus added $30,000 in escrow for roof/parking lot repairs, owner carried $100K for 5 yrs at 6.5%interest-only and I raised $140,000 down payment from private investors to be paid 8%, quarterly payments. Plus, I’ll give my investors 20% of the profits when I sell in 7 yrs.
Me: How did you raise the $140,000 down payment?
Jill: My family members.
Me: Were you able to negotiate credits? How?
Jill: I got a $15,000 cash credit at closing back from seller. I got it because I asked for it Peter! Also, initially the bank did not want the owner to carry back more than 5% but when the banks started to lose ground the bank decided that having owner carry a second mortgage of $100,000 wasn't too bad after all.
Me: What were your personal out-of-pocket costs to close this deal?
Jill: About $8,000 of my own. The rest was from cash credits, owner-carry, and family members.
Me: No way.
Jill: Yes, way!
Me: What are you personally cash-flowing per month?
Jill: The property managers are sending me $2,000 per month. So far so good!
Me: What’s your exit strategy Jill?
Jill: I plan on selling in 5 years, investors have agreed to stay in until property appraises at $1.5M in which case they will make a better than 56% return on their money. The sellers note is due in 5 yrs but I will have enough paid down so I should be able to refi that amount if need be.
Me: Congratulations Jill on a job well done on your first deal! You are awesome! Let’s get the next one closed too!