Mistakes of a prison
#Israeli Entrepreneur of the Week # Post4
A few years ago I was told about an interesting deal in the Sara Valley industrial zone in Be'er Sheva - so a pretty cheap area without much demand.
These are 2 industrial buildings on a plot of one dunam and something:
One pretty good building with a size of 700 sqm
And another storage building of 600 square meters, of which 300 on the ground floor and another 300 second floor that was not suitable for use.
The company that sells the property is a large company, a public company! And I was told that they would continue to rent from the buyer the large building of 700 square meters for 7 years in a lease that embodies a return of 8% on the price of the entire property.
To me it sounds amazing - the guaranteed rent will pay off the loan without fear, after all it is a public company!
And I have another 600 square meters left to have fun with - all I will rent from them is a gift.
I got the deal through a Be'er Sheva realtor who came to the deal through an entrepreneur who considered purchasing the deal himself and these two wanted something like 100,000 NIS to transfer the deal to me and this in addition to the brokerage fee that the original broker, the one who brought the deal from the sellers wanted - worth it.
I did not have the equity for the deal so I brought in an investor partner.
We met with the company management, shook hands and received a draft contract.
They were flexible in terms of payment provided that the first payment at the time of the contract would be NIS 500,000. Worked out for us… The purchase contract was signed, the lease contract was also transferred, the first payment was transferred, the brokerage fee was paid and also the other "fees".
Two weeks after signing the contract the partner sent me a news item from Globes - the public company we bought from went into a creditors settlement process due to insolvency, not before they bought the share of their main investor - a US capital fund in a round sum of…
500,000 ₪.
that's where I suspected ?
We continued the transaction with the trustee appointed by a court.
We had to complete the purchase according to the contract but without the lease because of which we actually purchased the property.
And after a few months we owned a white elephant in the Sarah Valley and a respectable mortgage with a not inconsiderable monthly repayment that was supposed to be covered by the rent. "Not bad"…
I found myself renting out this property in partial parts to temporary tenants, some not the highest quality just to cover part of the monthly mortgage repayment and for someone to pay part of the property tax…
What is low quality tenants you ask?
One of them did not pay for several months and after a lot of false demands and promises on his part that he would pay, I had to come and change a lock, the tenant on his part did not like it so much hand in hand, we spent the evening together in custody…
Another example?
Another tenant who was actually cool - quiet, no demands, always paid on time and made no problems until one day he suddenly stopped paying and disappeared. When we entered the property to take it over again, we discovered a serious laboratory there - "Breaking the Lines" style and then we also understood where the tenant had gone…
After several years of playing "Scratch" of rentals, we sold the property at a price similar to what we bought it - the so-called "tooth and nail" with a slight financial loss, a hard blow to the ego and many experiences…
So what do I come to tell you in this story?
That a little check on this seller / tenant instead of settling for the impressive title "Public Company" would have saved me all this mess.
In this case, it could have ended up in a simple Google search, in other cases you might have to put in a little effort but it's worth it!
*Full disclosure: I posted this story before in another group. There is so much content in these groups, so what are the chances that you will read twice or remember?
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