Sold Gallina Industrial Land: After 30 years of trying other Brokers, Tom Goebel, Got the “Done Deal”
Real estate can be a funny thing. Way back in my early career we had started to syndicate or call it ‘joint venture’ real estate investments. My Dad was someone tired or burnt out on residential but could still get very excited about “investment property”. We had already acquired a 40 unit apartment building, a nine acre commercial corner and a 750 acre lakefront farm. This one 80 acre parcel was located at 10 mile and Griswold near South Lyon Michigan and was directly in the path of progress. Municipal water, sewer were sure to make their way down 10 mile from NW Detroit suburbs to the sleepy little town. Griswold was a rough gravel road but it did not take much foresight to know that the side road being a section line road was to be paved. So we made an offer. The property had sat on the market for 2 full years with no offers. The day we made the offer, there was a 2nd offer that beat us out. That is real estate, nothing for 2 years and 2 within 24 hours.
More recently and still a pending sale at this writing, Mr. Gallina has been trying to sell his 66 acres for 30 years. It is sell once 20 years ago but the buyer defaulted during a recession and the owner, Mr. Gallina had to repossess and foreclose. I was hired two years ago almost to the week. The price had been reduced numerous times from $3,000 per acre to most recently $2,000 per acre. So after two years on the market I get a call from Sam the Realtor who says he is going to make an offer. Then within a half an hour I get a call from Sam the investor who I naturally confused with the first caller also saying he was going to make an offer.
The investor Sam acted quickly and return an offer and photo of an escrow deposit. This is during the Covid-19 Pandemic so lots of interesting adjustments away from what used to be standard business practices. The first Sam the Realtor did not submit but the hunting lease tenant was given a heads up and he did submit. Offers were $105,000 cash and $135,000 on 5% down (risky) seller financing.
The timing of offers on what could be considered “stale properties” coincides with the Community Federal Credit Union sale wherein 3 offers came in within 1 day of the expiration of a medium term listing. Moral here is “never give up the ship”.
Actually, there is more to the story about cash $105,000 vs $135,000 at 6%, self-amortizing. The approach has to include ‘what can I sell the paper for’ which is a straight math question and you hit the nail on the head saying that it has to be compared to today’s ‘safe rate’, opportunity cost or other % standard acceptable to the market. The drill down deeper real estate trick of the trade is that the “discount” to sell “seasoned paper” vs “green (new) paper” goes like this. In rough terms, one might expect a 20% discount to sell the mortgage right at or after closing. Actually did this for Dan Goebel with simultaneous closings back in the 22% interest rate days when there were no new mortgages being granted.To reduce the discount to say 10% when you are the seller 1) get a credit report and financial statement on the buyer (guarantor) 2) season the paper by receipt of 12 monthly payments. 3) An appraisal on the property (collateral), survey and mortgage title are less important but help. In this example, the discount selling fresh paper at 20% is $135000- 27,000= $108,000 net. Whereas seasoning one year is $135,000-$13,500 = $121,500.The brokers do not want to handle the 2nd sale of paper because it is like selling a property twice and getting paid once. In this real life case, the seller at 86 had already repossessed the property once and was attracted to the cash. As a financial planner, he should have known the time value of money, and the ability to sell the paper. I think that he just did not want to go through the hoops.The moral of the story, don’t be afraid of taking money on time, do the math and when you buy or sell, think “Seasoned” paper.Love Dad