► Hotel for sale by a bank that took it back in foreclosure that appraised for $21 million.
► Lender willing to lend on this at 60% of the appraised value, i.e., $12.6 million.
► My mentor buys it with a partner for $10 million from a bank’s REO inventory, then they sell the hotel to an investor for $12.6 million and they split the difference and pocket about $1.3 million each.
► End result: My mentor and his partner on the deal each get $1.3 million, the end buyer of the hotel gets a hotel that appraised for $21 million for only $12.6 million.
The key to this strategy is that the lender is willing to lend based on the appraised value, not the lesser of the appraised value or the purchase price. This lender is a true LTV (Loan-To-Value) lender, not a LTC (Loan-To-Cost) lender. If you search for them, you’ll find lenders who call themselves LTV lenders but they are really LTC lenders so if you decide to implement this strategy, be sure you find a true LTV lender.
So, are these deals really out there? Well, unless it’s just media hype, there may be a tidal wave of defaults on CMBS (commercial mortgage-backed securities) soon. The trends seem to show that commercial mortgage loan defaults are increasing at an alarming rate so the pressure will be on the banks and the government to relieve this pressure by dumping the inventory of both commercial REO’s (real estate owned) and paper at huge discounts. According to a February 10, 2010 article written by Mark Heschmeyer of the CoStar Group, “CMBS loan liquidations were averaging about $108 million a month in 2008 and last year the average jumped $182 million with November's totaling hitting $255 million and December's ballooning to $585 million, according to CMBS bond rating agency Realpoint. Loans were being liquidated at losses near 66%.”
Combining LTV lenders with the mounting pile of bad commercial mortgage debt is a very viable strategy that takes advantage of the misfortune of others to become wealthy yourself. If you are squeamish and this technique makes you feel too much like a vulture to put into action, keep in mind that this wealth has to go somewhere, so why not to you and me? From my science and engineering studies wayyyyyyy back in the Stone Ages, there is a law upon which all modern-day physical and chemical principles are built called The Law of Conservation of Energy . In a nutshell, this law states that energy is neither created nor destroyed in a closed system but merely changes from one form to another.
Wealth is much like energy in that it is neither created nor destroyed but just moves from place to place. On a purely physical level, it is a zero-sum game where one person must lose wealth for another to gain it. This is very different from value which can be created and destroyed since value is a subjective concept whereas wealth is an objective one. Therefore, it is possible to actually give someone value while taking their wealth, which is what preforeclosure investors do by buying houses from sellers on short sales, i.e., for less than the loan balances, and taking the equity in their homes in exchange for giving the sellers peace of mind by negotiating off potential deficiency charges and other liens.
The above now being stated, we are now looking to add this strategy as follows:
► Apartment complexes anywhere in the continental United States, as long as they are not in war zones, that appraise for $4.2 million or more that we can buy at 60% or less of the appraised value.
► We don’t care how old the appraisal is as long as we can get a formal appraisal.
► We propose a profit share with anyone who brings us a deal as described above that we end up closing on.
So what are you waiting for? What are WE waiting for??? It’s time to stop reading and time to start taking your share of the wealth that was left behind by others.
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