By Carole Hawkins
The sharks were swirling, but they were slow to bite.
Six hopeful real estate dealmakers –– or minnows as they’re called –– pitched their money-making properties to a panel of seasoned investors at the Jacksonville Real Estate Investors Association’s first-ever Shark Tank event. They came looking for financing, or perhaps, a partnership.
The tempered enthusiasm shown by the sharks was a lesson: There’s a lot to learn when it comes to property investing.
“I’m out” was a refrain the minnow investors heard over and over again, despite their sincere promises of earning millions of dollars. Or maybe, tens of thousands.
The veteran investors didn’t like properties in sketchy neighborhoods, deals with razor-thin equity or worries over non-permitted improvements by past owners.
There was a cheap rental in Brentwood that needed repairs and there was land to be had for development in the Bahamas.
There was a $4.44 million rental complex in Riverside that needed a 30 percent down payment.
But the deal was a mismatch. The sharks mainly work in the single-family world.
“That’s OK. But, I know you’ve got a lot of money, Mr. Investor,” Marilyn De Simone, a retired English teacher, said to one of the sharks.
Despite the setbacks, the minnows kept baiting the hook, hoping for a keeper.
The final minnow, Eli Silverman, presented his deal: A Southside home valued at $220,000 that was selling for $170,000, plus an extra $5,000 for repairs.
When they heard the seller-financing had fallen through, four of the five sharks opted out.
But investor Sherrie Porter, who’s also a landlord, told Silverman to renegotiate with the homeowner, and make sure to get a first-position mortgage.
“Then I’m in,” Porter told Silverman.
The audience of 165 roared with approval.
Even though the dealmaking was scarce, the Shark Tank gave members real-world experience on what investment partners look for, said JaxREIA President Jeff Bell.
“People came up with potential deals and the sharks let them know what steps they were still missing,” he said.
For instance, many private money lenders want their partner to go 50-50 on financing, not get 100 percent of the money from them.
Sometimes inexperienced lenders don’t realize a deal is more than putting together a seller and a private money lender.
They need to have equity in the project to purchase the home legally.
“You’re trying to sell a house for your neighbor and only a licensed Realtor can do that,” Porter told one of the minnows.
The minnows weren’t the only ones learning lessons, Bell said. Standing at the front of the room, he couldn’t believe how many people he saw taking notes.
“We wanted it to be educational,” he said, “and people were furiously writing down everything the sharks said.”
Minnow: Deb Burkett, a landlord who wants to unload her three-bedroom Brentwood rental.
The hook: Wants $20,000 to pay off a $10,000 mortgage, $8,000 for repairs and $2,000 “just in case.”
The bait: Offering 30 percent of the profit upon sale of the home, valued at $40,000-$50,000. It rents for $650-$700 per month.
Sharks said:
• It’s a smaller deal than a cash partner normally wants.
• Put more skin in the game – either pony up for repairs or use another home for equity, one you own outright.
Final words: “Are you in the war zone there (in that neighborhood)?” asked Sherrie Porter, landlord and investor.
“That depends. Are you carrying?” Burkett responded.
Minnow: Marilyn De Simone, a retired teacher who wants to own part of a $4.44 million rental complex in Riverside.
The hook: Wants 10 percent ownership for putting the deal together. Needs $1.3 million for a down payment and the seller would finance the balance at 8 percent interest. Other expenses total $5,473 per month.
The bait: Thirty-two fully-renovated, fully-occupied rentals that earn $31,372 in rent monthly.
Sharks said:
• Eight percent interest puts your expenses too high. Check your numbers. Your seller should be able to tell you a cap rate.
• It could be a good deal, but you need to work with a commercial real estate agent to get all the numbers you need, like rent rolls, cap rates and net operating income.
Final words: David Doyle, landlord and investor: “I don’t have that kind of money. If I did, I’d be gone on my boat.”
Minnow: Cher Davis, a novice investor who wants to wholesale a home rehabbed by the owner.
The hook: Wants an investor to purchase the house for $122,629, which includes the owner’s price, closing costs and compensation to Davis.
The bait: Has a contract to purchase that gives her 30 days to flip it to another buyer. Home could resell as-is for $128,640 or an investor could add another $15,000 to $20,000 in upgrades.
Sharks said:
• The extra rehab puts the cost at $142,000 for a house that’s only worth $128,000. Where do I make any money?
• If the owner is a new rehabber, you’re going to have to make sure he pulled permits if you want to sell the house.
Final words: David Doyle, landlord and investor: “To resell to another buyer, you should have equitable interest in the property. If you have a contract with a lot of weasel clauses, I’m not sure what sort of equitable interest you have.”
Minnow: Troy Marquois, a 26-year contractor who wants to buy and rehab a 3-bedroom 11/2-bathroom REO on the Northside, listing for $46,800.
The hook: Wants purchase money plus $30,000 to $35,000 for the rehab.
The bait: Will pay 8 percent monthly interest or 10 percent after the house is flipped. Will pay $5,000 toward the rehab, plus sweat equity. Home’s after-repair value is $132,000.
Sharks said:
• A private lender typically charges 3 points plus 1 percent interest per month, not 8 percent to 10 percent annually.
• The family room is not part of the original home. Check to make sure the addition was permitted or you may not be able to insure the property.
Final words: Cameron Gaskill, renovations/investor: “Your rehab and comp numbers do add up. But you’re just not in a part of town I want to work in.”
Minnow: Eli Silverman, a beginning investor looking to swing his second deal — a 3-bedroom, 2-bathroom Southside home owned outright by the seller.
The hook: The seller-financed deal needs a $20,000 down payment plus $1,400 a month. Full balance is due after 22 months. The owner won’t deed over the property until the home is flipped or refinanced.
The bait: After-repair value is $220,000. Silverman will pay for $5,000 in repairs using a line of credit. The home could rent for $1,200 to $1,800 to finance the monthly payments.
Sharks said:
• The equity is tight since rent collected will be nearly the same as the mortgage payments. Renegotiate and give no money down with instant monthly payments or give money down but no monthly payments for two years.
• If the owner holds the deed until you find other financing, then you’re offering your investor a second-position mortgage. In case of foreclosure, she gets paid first, not us. You need a deal with a first-position mortgage.
Final words: Orlando Caballero, private money lender: “You could re-do this deal and get better terms. Talk to her again and gain her confidence.”
Minnow: Bilal Saleem, a U.S. and Bahamian national who’s offering land on Eleuthera to build 40 beachfront homes.
The hook: Selling the lots for development.
The bait: Retired doctors from America already live there. The country has a population of more than 3,500.
Sharks said:
• This is outside the country and I have no knowledge of the laws there.
• I’m all for building houses, but you need more details in your pitch.
Final words: Orlando Caballero, private money lender: “It’s a huge deal. Larger than I would be able to do.”