Story

Carried a folding table into a fourplex owner's kitchen, then stayed for the whole conversation

I've been tagging along with a guy from my gym who owns a few buildings, mostly so I can be useful and listen. Saturday he asked me to help him move a folding table into a fourplex owner's kitchen because the owner's dining set was gone. Owner is 78, wife passed last year, four units, three rented, one empty since March.

My gym guy didn't offer to buy it. He offered to lease the whole building for five years at a fixed monthly number, handle everything, and hold an option to buy at a price they set that day. He'd rent the units out himself and keep the difference. I did not know you could do that. I thought you either bought a building or you rented an apartment in it.

The owner's daughter was on speakerphone and she was sharp. She asked what happens to the option if her father dies during the five years. She asked whether the option would be recorded, and my gym guy said that depends on the state and that their attorney should tell them how it works where they are and whether a memorandum gets filed. She asked who pays for a new furnace in year three. That one took forty minutes and they didn't finish it.

What I noticed is that the option price and the lease payment were two totally separate arguments, and he kept them separate on purpose. Two documents, he said, twice, like it was a rule he'd been taught.

They're meeting again with lawyers. I carried the table back out to his truck.

9 replies

mikeoconnell7SP2APRO6

The daughter on speakerphone is the real counterparty in half of these. Good sign that he answered her instead of talking around her.

dmitri_v6CapitalPRO6

The furnace question taking forty minutes is the right amount of time. In a master lease the capital items are where the whole spread lives or dies. If he's paying a fixed number for five years and eats a compressor and a furnace and a sewer line, his spread was theoretical. I'd want a dollar threshold in there with a name on each side of it.

nicole_adeyemiPassivePRO5

@rigging did they talk about what happens if the owner's estate has to sell? An option can be worth a lot or nothing depending on how it was documented and how your state treats it, and that is exactly a lawyer question.

marcus_hale41CG4A

Fixed rent for five years plus a fixed purchase price is two separate bets on the same building. I've seen people love the first one and lose interest in the second when the price stops looking clever in year four.

brandonlee36Passive

One vacant since March in a fourplex, and a 78 year old owner with no dining table. That building has deferred everything. The spread he's imagining is the turnover cost he hasn't priced yet.

paulgrant17PassivePRO5

Who screens the tenants in that setup, him or the owner?

derekj19SB1B

@wren he would, presumably, since he's the one subletting. Which is the part I'd want to understand, because now he's a landlord to those people without owning the place they live in.

aaron_fitz10 Get yoursPRO6

This is the first version of the strategy that's made sense to me as a thing a person would actually do rather than a chapter heading. Control the building, run it, decide later whether you want it. Though "decide later" is doing a lot of work if the option price was set in a warm kitchen.

aliyah_bAU2APRO6

Two documents, twice, like it was a rule he'd been taught. That line stuck with me. He learned it from somebody who got burned once.