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Updated over 4 years ago, 03/23/2020
are my goals not big enough
I have 3 SFH investment properties. It's almost my 1 year anniversary. I want transition to apartments ASAP.
I was writing my goals down. I caught myself writing, "I want to buy a 30 unit building in 3 years". My thinking was I need 3 years so I can get more experience to do more SFH to build a more reputable track record to raise private money.
Am I thinkIng too small ? is 3 years too slow?
Originally posted by @Evan Polaski:
@Jason Malabute to answer your how much capital do you need question: that is entirely dependent on the property. Typically for commercial loans you will be in the 70-75% LTV range. Are you offering a preferred return that might need to be funded before NOI catches up? If so, you need to raise that shortfall too. What about capex? How much and how is that funded, loan or equity?
Add up these needs and you will get to your capital requirements for the deal.
But then you add in your liquidity needs for the loan. This can't be raised, but needs to be with the guarantor. This liquidity ranges from 10% of loan amount to 9 or 12 months of PI payments.
Finally, for the loan, you need a 1:1 net worth to loan amount. So to get a $1mm loan, you will need a $1mm net worth or more. I have heard mixed messages about whether your personal residence can be included in that calculation. Some loan brokers say no, and some say yes.
It is because of these requirements that most people grow slowly. If you go the faster route, most people need a loan guarantor which may be hard to find. And then, as mentioned, you have to be confident that you can do what you say to investors and have a risk level to learn on their dime. This piece is why many new operators have higher prefs and lower carried interest on their deals. It is the only way they can offer their investors better returns than the established players for taking a bigger risk.
I heard Grant Cardone say don't let the capital you physically have limit the size of the deal. Can you explain how this is feasible ?
@Jason Ma Grant is saying, if you build an investor pool then you aren’t limited by your capital. And while he is correct, he is downplaying the truths of the market a certain bit. He is marketing his deals to his 1+million social media following and stating they cannot do real estate on their own at any real scale.
Again, this is a partial truth, and part of his sales pitch. He is raising millions in $5k+ chunks. But when he got started he was playing by the same rules. His loan terms still likely require 1:1 net worth:loan balance, and some level of liquidity. As I mentioned, if you have a rich family member or friend that will co-sign the loan, then you can get a loan.
If you have people that are willing to invest in your deal, then you will have the capital.
@Jason Ma I would challenge the premise of your question. The location isn’t a determining factor between syndicate or buy on your own, it’s just one of the criteria required to identify your goal.
You’ve identified you want 30 units, what else? What’s your target cap rate, cash flow, etc.? Is it more important for you to be in a specific market, and shape your strategy around that? Or do you just want a 30 unit and don’t care where it is?
Then think through the strategies based on your criteria. You can syndicate or go solo on any property regardless of the price or location. Sure it’ll probably be more expensive in California than in Indiana, but all that does is inform how much money you need to raise and not define the way you find that money
The point is, get specific about what you want and go for it. You can always change it, but if your only goal is a number of units and you don’t set any other criteria, you’ll never make progress because you have too many options
As for Raleigh, I’m not familiar with the market except that I know it’s generally good. I’m in Charlotte and haven’t yet looked into the Raleigh area...I’m certainly interested though!
#2 Mobile Home Park Investing Contributor
- San Antonio, TX
@Jason Malabute If you're looking to do bigger deals, it's best to start small and go from there. If you want to get into multi family, talk to a few people in your area to see how they're doing. Learn your market first. See what the demand is, type of clientele where small multi-family properties exist, and the fix-up costs investors are having to make with their own properties in your area.
If you can do a smaller deal before doing a larger one, you'll get experience on a small scale. Plus, it's easier to get out of a smaller deal than a bigger one. This will give you more time and less money involved (than a bigger deal) to see if multi-family properties are right for you.
Good luck!
Originally posted by @Rachel H.:
@Jason Malabute If you're looking to do bigger deals, it's best to start small and go from there. If you want to get into multi family, talk to a few people in your area to see how they're doing. Learn your market first. See what the demand is, type of clientele where small multi-family properties exist, and the fix-up costs investors are having to make with their own properties in your area.
If you can do a smaller deal before doing a larger one, you'll get experience on a small scale. Plus, it's easier to get out of a smaller deal than a bigger one. This will give you more time and less money involved (than a bigger deal) to see if multi-family properties are right for you.
Good luck!
thank you
Originally posted by @Patrick Menefee:
@Jason Ma I would challenge the premise of your question. The location isn’t a determining factor between syndicate or buy on your own, it’s just one of the criteria required to identify your goal.
You’ve identified you want 30 units, what else? What’s your target cap rate, cash flow, etc.? Is it more important for you to be in a specific market, and shape your strategy around that? Or do you just want a 30 unit and don’t care where it is?
Then think through the strategies based on your criteria. You can syndicate or go solo on any property regardless of the price or location. Sure it’ll probably be more expensive in California than in Indiana, but all that does is inform how much money you need to raise and not define the way you find that money
The point is, get specific about what you want and go for it. You can always change it, but if your only goal is a number of units and you don’t set any other criteria, you’ll never make progress because you have too many options
As for Raleigh, I’m not familiar with the market except that I know it’s generally good. I’m in Charlotte and haven’t yet looked into the Raleigh area...I’m certainly interested though!
yeah I will definitely fill in the details as I learn more about the market
Originally posted by @Evan Polaski:
@Jason Ma Grant is saying, if you build an investor pool then you aren’t limited by your capital. And while he is correct, he is downplaying the truths of the market a certain bit. He is marketing his deals to his 1+million social media following and stating they cannot do real estate on their own at any real scale.
Again, this is a partial truth, and part of his sales pitch. He is raising millions in $5k+ chunks. But when he got started he was playing by the same rules. His loan terms still likely require 1:1 net worth:loan balance, and some level of liquidity. As I mentioned, if you have a rich family member or friend that will co-sign the loan, then you can get a loan.
If you have people that are willing to invest in your deal, then you will have the capital.
thanks for clarifying