Structuring a Chimorel Real Estate Deal
Our first acquisition was a 10+ acre farm in Delaware. Our next acquisitions are likely to be
1) Other farm acreage with barns /out buildings, home.
2) Churches with 80+ parking spaces.
3) Multi-family units with .25+ acres.
4) Small warehouses with .5+/- acres.
Picture Examples & Make It Happen
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All Chimorel property acquisitions Anticipate a Significant Donation, which if pursued to its logical conclusion invariably provide a creative, flexible seller with a better total return than would otherwise be possible.
We tend to listen to the seller’s needs first and discuss potential strategies prior to making an offer with the intention of determining a workable deal rather than wasting a lot of time with back and forth contracts that lead to frustration on both sides. Our standards are pretty high, but with suitable flexibility we can work out an agreeable deal for almost any property that meets our needs. You could say we will buy any property that works.
Under the right circumstances, we will do 10-25% down deals through our developing pool of investors and our own available cash. If the seller wants to be the investor we can provide a higher total return. If we bring in our own investors, then the deal will be structured to provide the investor a 12 to 20% annual return for two years and the seller value will most likely be reduced.
Below we structure creative alternatives intended to provide each seller with the best total return. These include a 100% Donation by the Seller, a Charitable Remainder Trust, a Bargain Sale, a Seller Second Mortgage, an Investor/Seller Mix, Rent With the Requirement to Purchase and a Management Contract with the Requirement to Sell. We are open to your creative suggestions and can design many other creative alternatives depending on the seller’s long term needs.
100% Seller Donation or Seller Found Donor: It may take some creativity to wrap your head around how this strategy can provide the highest total return. A 100% total donation to Chimorel immediately eliminates property taxes, so when a distressed property’s taxes are eating you alive, this makes immediate sense. You get to write off the donation. You may also receive naming rights, potential free publicity and ongoing sponsorship at Chimorel events hosted at your property.
Now comes the higher return on your investment. Because you make a substantial donation to Chimorel, we will work with you to create a Special Project potentially equal to or greater than the original value you were anticipating. So if your property was worth $300,000 or better yet $25,000,000+, you get immediate relief from property taxes; a cash return approximately equivalent to your tax bracket; as well as, potential naming rights, publicity and sponsorship advertising that might be equivalent to 25-100+% of the value of your property. We can structure initial management of the project to increase your initial cash flow. If you are willing to work with us, we will establish one or more Special Projects designed to fund something that is important to you. Realize that this is a joint effort and the amount generated will have a lot to do with your active participation. The actual value of each Special Project you establish can be less than, approximately equal to or significantly more than the original value of your property, which might be a very valuable alternative for a church, a nonprofit or an investor seeking to fund missions, programs or more investments.
A 50+% donation based on fair market value can achieve many of the same benefits at a lower scale. Ask us about a substantial donation on a 12 unit property when we established an institution for pre-delinquent youth. Typically, we will pay the seller costs involved in closing the transaction when we receive a substantial donation. The transaction can work when you make the donation or when you find the donor who receives the benefits from the transaction. A substantial donation is the equivalent of a bargain sale.
Potential Benefits
- Immediate property tax relief.
- Naming Rights.
- Tax write off = to tax bracket.
- Free publicity & ongoing sponsorship.
- Management Agreement: increase your initial cash flow.
- Special Project, potentially equal to or greater than property value.
Charitable Remainder Trust: A CRT can be created by the seller or the seller can step into a CRT we create. A CRT gives a significant deduction, as well as, a lifetime or set period income to the seller. For deals where there is adequate cash flow or where solid cash flow can be created, this is our second preferred nothing down alternative. A Charitable Remainder Trust is likely to enable us to provide significant value to the seller and can be combined with other alternatives to provide the Seller with the highest value when we acquire more than one property from the seller.
Seller Takes Back a Second Mortgage: With a 25+% second mortgage, where we take on a first mortgage, the property is fairly valued and cash flow is adequate, a nothing down deal can be structured which provides the seller with realistic somewhat higher value. As rents are raised, expenses monitored carefully and Chimorel adds value (as described below), most likely Chimorel would refinance in three to five years and pay off the seller’s second mortgage. The Seller’s taking back a second mortgage with reasonable terms has the effect of waiving Chimorel’s donation expectation. If you have a current mortgage, we can either assume the first or establish a first and pay off your mortgage.
Investor/Seller Mix: When the investor and seller each provide part of the down payment, Chimorel is likely to expect the equivalent of 10+% donation based on fair market value. A 10-20+% discount from fair market value would be the equivalent of a donation and might be considered a bargain sale. We give our investors a 12-20% annual return for two years, based on the amount of their investment and their willingness to support our cause. At the end of two years we take the investors out giving them their money back plus a 24-40% total return.
The seller can be an investor. At $1,000,000+, the seller could earn a 20% ROI/yr for two years. We anticipate the value of the property will grow approximately 3-8+% during the first two years, based on increased rents and careful expense control. Of course each property will have its own unique characteristics.
At the end of two years, we anticipate refinancing the property and or selling the property to Chimorel Group LLC. The investor can receive the tax write off created by expenses and depreciation during their two year investment, estimated to be equivalent to approximately 5-7%/yr. Any differential will come from what we call Added Value, as described below. Before we actually buy a property we will establish a management plan which in part determines how an investor will actually receive his/her/its ROI.
Lease with the Requirement to Purchase: Here is an example of an offer we considered on an approximately $2,000.000 equine farm. “Lease with an upfront payment of $50,000 for eight months. $50,000 paid in advance every six months thereafter until we raise $700,000 through our auction program. Lease payments will be included in the down payment. “
There are many lease/purchase alternatives; however, we anticipate that lease payments will become part of the down payment and that the lease will always lead to a sale. The picture on the right is of the equine farm.
Manage with the Requirement to Sell: A management contract is an excellent vehicle to transition the sale of a property, but it comes with risk we must evaluate and mitigate. The contract might involve the equivalent of a partnership or other relationship. For example, a Seller may have a vacant property which requires renovation and management beyond their current time constraints or capacity. When we can establish a clear path to Chimorel ownership, we will negotiate a suitable contract. We will also establish powerful incentives to fulfill the agreement established. The picture is similar to a 32 unit property we managed with the option to purchase.
Our next acquisitions will include old schools, recycling centers, small shopping centers and large warehouses.
Fair Market Value Equal
- 50-100 times average gross monthly rents.
- 11% cap rate.
- 2+% cash flow.
- Per acre & per square foot expectations.
- Location & Selection Grid
Expect to get involved in our mission !!!
- To earn the highest commissions.
- To receive the greatest value.
We will look at all of a seller’s properties.
- And may make an offer.
- Or ask for a first right of refusal.
Flexibility is important …
- As a Seller, as a Realtor, as an Investor.
- Nothing down yields highest offer.
- We can wait until you understand.
4% x $50,000,000 = $2 million
- Greater Columbus area within approximately 3 years.
- Major US and global cities thereafter.
- Supporting projects, investors, affilliate nonprofits, creativity = increased earning capacity.
We will also consider restaurants and conference centers with 500-1000 parking, as well as, abandoned auto dealerships apartment complexes, motels and small hotels.
Fair Market Value | Philosophy | 1st Refusal Right | Nothing Down | Commissions
Determining Fair Market Value: Our first criteria for fair market value is 50-100 times average annual gross monthly rents. This is typically a maximum value, based on long term stable 3-5 year rent history. Unstable rents and other factors move toward a lower multiple.
Our second criteria for fair market value is an 11% cap rate. This is typically a median value, which may be adjusted based on rent stability, crime statistics, average traffic and other relevant factors.
Our third criteria for fair market value is consistent annual cash flow equal to or greater than 2% of purchase price. Long term, 5% or higher is better.
Of course, location is important. We will evaluate a seller paid appraisal. Our fair market value will stem primarily from actual current NOI and will reflect other appropriate factors. In the event of a vacant property, market value is determined by a discount from a realistic assessment developed through a solid management plan. Seller & Realtor flexibility gives us reason to structure a deal which provides higher total value.
A Little Philosophy: We are all connected at a profoundly deep level. When we work together to make the world a little better, we strengthen each other and ourselves. This basic concept sustains all we do at Chimorel. If you, the sellers you bring to us, the investors who participate, the nonprofits we work with, the individuals and families we support, the businesses we strengthen and everyone else we work with become serious about working cooperatively together, everyone benefits. Some may not choose to work together or may not appreciate this interconnected philosophy. When sellers aren’t ready to support our efforts to make the world a little better, we can wait.
First Right of Refusal: If a Seller has other properties, Chimorel may acquire part or all of them as part of the deal. The Seller may also provide us a First Right of Refusal to acquire the additional properties in the future. If properly structured, the first right of refusal could be considered a significant donation.
Many Other Nothing Down Deals: There are certainly hundreds of other possible nothing down deals, many of which are a little hokey. Keep in mind our objective to generate 2+% cash flow each year from acquisitions to support Chimorel programs. We are open to your pramatic suggestions. We seek to establish positive value for the seller and for Chimorel by thinking creatively. We are not interesting in structuring nothing down deals which are risky, which are overvalued, which benefit only the seller or which will cause problems with the IRS. When everyone involved steps in to seek creative, realistic solutions, something miraculous happens. When one or more of the parties involved expect someone else to do it all, the deal is likely to wait for a while to get done.
Realtor Commissions: We prefer to pay an approximate 4% commission on properties we acquire, split equitably between our realtor and the Seller’s realtor. $50,000,000 in acquisitions = approximately $2,000,000 in commissions. The commission is typically paid on the non-donation part of a sale, especially when the property is valued high to achieve a tax benefit. For 100% donations, we will negotiate a fair commission. Involved realtors who participate in finding investors, developing creative deals, identifying nonprofit affiliates for auction events and other valuable involvement can negotiate a reasonable higher commission.
Added Value Crowd Funding: We work closely with Urban Outreach Marketing, located in Louisville, KY. Urban Outreach has extensive experience with crowd funding for nonprofits, raising capital through crowd funding, angel investors and an accredited investor network.
Chimorel will be conducting ongoing crowd funding campaigns as part of raising its acquisition capital. We are working diligently to expand our investor network and crowdfunding opportunities. Each Seller and Realtor will have the opportunity to participate in developing our crowd funding source of funds, which supports being able to provide a 12-20% annual return and take investors out at the end of two years.
Added Value Naming Rights, Donor Recognition, Sponsorship: Many of the properties we acquire will provide naming rights, as well as, donor recognition using bricks, panels, rooms, equipment and other items. A $1,000,000 donation could offer a 20 year naming right on a $10,000,000 property. Inscribed bricks = $350-$1500/brick. Moveable partitions in our warehouse auction areas will provide $5000-$50,000+ for five to ten year naming rights. Room inscriptions will provide $10,000+ naming opportunities. Event Sponsorship is another source of funding to provide take out capital.
Added Value Nonprofit/Special Project Affiliates: Our large warehouse, restaurant, conference center, church and similar acquisitions will provide weekly and monthly opportunities for us to raise funds with affiliate nonprofit and Special Project members.
Each warehouse will establish an Auction program to conduct 5-10 auctions/mo. Each restaurant or conference facility could hold 1 to 5+ weekly auctions. Each auction can raise $50,000 to $1,000,000/event. Chimorel efforts will allocate approximately 40% of funds raised to cover expenses and repay investors. Once an investor has been taken out at the end of two years, auctions become an ongoing source of funding for new acquisitions and programs.
Added Value Rent to Own: For apartments, multifamily and individual home acquisitions our intention is to provide transitional housing which moves from work for rent to rent to own opportunities.
Rent to own opportunities will be accomplished through direct sales of homes and condominium conversions. Typically, for less than they pay in rent a typical family can own the place they live in. After renovation individuals and families can acquire property as we support their movement from welfare to work to increasing incomes. Sales of properties will free up cash for ongoing acquisitions and provide profits to strengthen our programs. Rent to Own is likely to be an indirect or long term source for taking out investors after two years.
Added Value via Renovation: We have renovated a number of properties using strategies which significantly reduce the cost of renovation. This includes renovating Warren’s home. He turned a 1700 sf house into a 5400 sf home saving 40% from normal building costs. We teach others how build/renovate using a similar strategy through our Home Builder program. With renovations Chimorel undertakes, we add a variety of donation, volunteer labor and other nonprofit strategies to our cost saving strategies to reduce the cost of renovation by 25 to 50+%. Renovated properties and increased rents enable us to refinance properties as another take out alternative.
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Property Donation: The 100%/50% Donation, Charitable Remainder Trust and Bargain Sale options are all donation possibilities. A 25+% Second or First Mortgage at 5% or less for 20 years or longer on property we consider priced at fair market value is the equivalent of a significant donation.
Added Value Options: Actively participating in one or more of our Added Value Options which provide or support others in providing significant donations is a donation possibility. For example, you might refer churches, other religious organizations and nonprofit organizations which raise a total equivalent to 25+% of the value of your property. Chimorel typically receives 40% of the auction proceeds, thus your referrals might generate approximately 10% of the funds needed to acquire your property. Each Auction is expected to generate $50,000 to $1,000,000+.
ROI / Multiple Properties: You could seek and involve or be an investor who accepts 12% instead of 20% annual ROI. You could sell one or more properties at full value, thus higher than our fair market value, but at a value which does not make the IRS or other monitoring agencies go tilt, then do a Bargain Sale or a 50% or 100% donation on one or more other properties.
Equipment: You could facilitate donations of equipment you or someone you know owns. Chimorel recycled 3000+ computers for Ohio Health, sending 500 to a program in Africa. We have recycled thousands of computers for hundreds of large & small companies, as well as, hundreds of homeowners. Introduce us to a company that donates 1000+ computers and related equipment. You can facilitate donations of kitchen equipment, semi/box trucks & trailers, buses, pickups and vans with low mileage, fork lifts, a skid steer, 60+” zero turn lawnmowers and other useful equipment with adequate value.
Significant Donation: A significant donation is at least 10% of our fair market value or a higher discount from the asking price for property Chimorel acquires. The donation can come directly from the seller or from someone the seller or seller’s realtor involves. This creative imagination strategy is intended to facilitate partners in each transaction.
Creative Involvement: It is our intention to develop many opportunities for people to actively work together and to facilitate a broadening of our collective creativity. Those eager to make a quick buck from an ambitious nonprofit without involvement, will receive a lower offer or we will more likely wait until they are receptive. This creative involvement seeks and rewards a special kind of Realtor.
