How does ReFi work in the commercial side of things?

Question

I have bought 8 properties in the past 4 and refinanced them all and since I bought them cheap enough I was able to pull my cash out and or profit while still renting them.  I created this post because my goal is to in one way or another own an apartment building 5,10,20 units (commercial) and I have so many questions.

1. Developing small apartment 10-20 units....How does one do research on weather his location has a better than not chance of working out?

2. Just throwing random numbers if i built and it cost me 1 million, it being brand new would the bank let me get most of my money out (given all the numbers added up and it was fully leased)? If so does it work the same as residential?

3. Can i get the money upfront to build it instead? How?

4. Lets say I am interested in an already existing complex, and I think  I can install some new utilities of sorts that will end up saving a lot (charge parking, washing, etc), thus increasing its worth.  But how can I see the current owners numbers?

More questions will flow but this is all i have for the night as I must rest.  Have a good Sunday everyone!

Tj Hines · Answer

@Douglas Gratz

1. Developing small apartment 10-20 units....How does one do research
 on weather his location has a better than not chance of working out? (Take a look at the jobs in the area. Are jobs being created or are employers leaving? Is the area considered in the path of progress? How many other units are coming online in the area. In a lot of markets at the moment we are seeing hyper supply, be careful)

2.
 Just throwing random numbers if i built and it cost me 1 million, it 
being brand new would the bank let me get most of my money out (given 
all the numbers added up and it was fully leased)? If so does it work 
the same as residential? (Depends on how much equity is the bldg. Were you able to build a cheap nominal cost per sqft? Not sure if this would be the best situation to pull equity early)

3. Can i get the money upfront to build it instead? How? (You may be able to qualify for a construction loan and raise equity from investors. This will all depend on your track record.)

4.
 Lets say I am interested in an already existing complex, and I think  I
 can install some new utilities of sorts that will end up saving a lot 
(charge parking, washing, etc), thus increasing its worth.  But how can I
 see the current owners numbers? (Simply request for the owner to provide the T12, T6, or T3, which are none other technical terms for a P&L)

Greg Dickerson · Answer

A good deal is relative. Its entirely up to the individual and depends on your goals and your return requirements. The main thing is it needs to cashflow after debt service and return on equity at a minimum.

Greg Dickerson · Answer

1. Make sure there is demand for residential units. You do a market analysis just like when you are purchasing existing assets. A good PM company can help you determine if your site will work.

2. Yes you can refinance the property after stabilization. The LTV will depend on the lender, the property, your financials etc. Every bank is different and offer different products, rates and terms so you need to shop it around.

3. Yes the bank will loan you a percentage of the total project cost including the land. Usually 75% LTC so you will have to come up with the down payment. This will be a construction loan with a permanent mortgage on the back end.

4. You ask for all the financials for the property from the owner. If its a listed property they should have that ready. If not you will need to estimate  income and expenses.

Mark Langdon · Answer

Sent you a PM. A simple phone call could help answer many of your questions.

Ryan Webster · Answer

@Douglas Gratz

Stay out of the building/development until you are supremely confident in your numbers and your ability to exicute. There is much more risk than purchasing an existing property. You'll have alot of front end expenses and zero income as you navigate through the lease up process. Also it is very expensive to build do you'll need a market with high demand, high rents, great absorption rates. Also a top notch property managment team to get it lease up and profitable.

Financing for these is fairly easy to secure if you have experience, and a good business plan. I'd recommend finding an experienced partner if you are set on developing.

As far as the value add on existing units the formula is noi/ market cap rate =property value. Ask your broker or the property owner for the trailing 12 month financials and rent roll to determine current value and identify potential value add. Cbre does a bi annual cap rate survey in most major market you can also ask you broker for the market cap rate and comps. Just be sure that the comps provided are as similar as possible to your subject property. I'd recommend you read best ever apartment sydication, and ABC's of real estate investing. To better understand how to value multifamily.

Douglas Gratz · Answer

and...how do i compare and contrast other similar apartments to see if I am getting the deal i need to make the numbers work (for example, on loop net, practicing a little, but how can I have a good idea of good deal or bad) ?