Can I Pay for Consultation for a 30 Unit Deal?

Question

I love BP and it’s community.

I am looking at a 30 Unit Apartment Deal and this would be my first.  I could use some more senior consulting from a deal standpoint.  I would want to compensate this consulting and thought what better forum then BP for this help.

There is a 87 page breakdown of the Apartment Complex, located in the Rust Belt, Newly Rehabed and it’s projected CoC and Cap Rates are solid.  More details when I can land in the right person to assist in the consulting of this type of deal.

Thanks in advance to the people of BP.

Toben B. · Answer

I paid a few hundred bucks for the Michael blank training last year and closed my first apartment building with some of the knowledge I learned. The training was for how to do a syndication but I found the info on how to do the valuation most helpful and did not do a syndication. It’s only 16 units but I bought it right and it is doing slightly better than expected. This year I am now looking at larger apartment buildings in the 30-40 unit range.  Not really an expert yet but I can give some free advice.

Are there a top 10 questions to ask before buying/bidding an apartment complex? I would do the Michael blank training

What are the top 5 financials that one should focus on first the see if the deal is even worth bidding on? Ebitda then drill in to the details.

Do the 1%, 70% rule etc. apply to apartment buildings as well? No they do not. First calculate ebitda then find out the correct cap rate.  A rule of thumb to get you started is take the monthly rent roll  x 12.  Then assume 90 percent is collected and multiply by 0.9. Then assume 50% expenses and multiply by 0.5.  This would be a ballpark ebitda on a class C apartment.  Now apply whatever a local and reasonable cap rate to the specific location and class.  Also I found brokers severely inflate the asking prices so just do your own analysis and ignore asking price.

Once bid is accepted, top 5 things to do before closing on the property? #1 get 3 years financials. If they don’t want to then the bank will require it anyway.  I posted a thread asking for due diligence items and then created my own list from it.  You can find the list in these forums. If your loan is over $1 million there are great rates right now. You will get higher rates for lower loan and lower population

Anthony Vicino · Answer

Great questions.

We've got a podcast, Multifamily Investing Made Simple, and the first 10 or so episodes will answer pretty much all your questions, but here's the quick and dirty.Are there a top 10 questions to ask before buying/bidding an apartment complex?Here's a couple questions to consider, though honestly, if you're asking us these questions, I would suggest you give a read to Ken McElroys' ABC of Real Estate Investing or The Complete Guide to Buying Apartments by Steve Berges.

1) What's the whisper?  The whisper is slang for the ballpark number the seller is looking to get. This can guide your underwriting efforts so you aren't wasting your time way underbidding and save you money from way overbidding.

2) How old are...(the mechanicals, roof, parking lot). Gotta know how old, and therefore likely to break, everything in the building is.

3) What's market rent? Broker might give you some pie in the sky numbers. Never trust them. Do your own research.

4) Why's the seller selling? Understanding the seller's motivation can help you craft a deal they are more likely to accept. Are they looking to get the most money or the quickest close? These things matter.What are the top 5 financials that one should focus on first the see if the deal is even worth bidding on?1) In your market you should have a good sense for the cap rate of the asset type you're considering, and the general price/unit for your area/asset class. Off the top of my head, I know Class C apartments in my market sell for around $100k/door. If I find something at $80, right off the bat, I'm intrigued. At $120, it's a pass.

2) Rent versus Market Rent - This is where value is created. We look for properties that have between $100-200 worth of upward potential/unit.

3) NOI - From this number, in conjunction with cap rate, you'll generate a ballpark valuation for the building. NOI is calculating by subtracting Operational Expenses from Revenue. Don't trust broker or seller expense numbers. A 50% expense ratio is a good starting point for underwriting purposes.Do the 1%, 70% rule etc. apply to apartment buildings as well?No. Rules of thumb don't work with apartment buildings. These are big properties and lots of money is at stake. You need to be certain in your assumptions. Rules of thumbs just don't scale.Once bid is accepted, top 5 things to do before closing on the property?

Financial, Physical, and Legal Due Diligence. There's a lot to this. We recorded two podcasts on the topic. I recommend checking those out.

Brian Adams · Answer

@Michael Thelin before you spend your money on consulting/coaching, my suggestion is to spend some time in these forums to learn and read some books to get answers to your questions.

Jerel Ehlert · Answer

While an investment advisor might be good, use a securities lawyer. There are LOTS of ways to legally make a good deal bad for passive investors. Once you hand over cash, the only rights you have are in the legal documents.

AJ Shepard · Answer

@Michael Thelin

First of all great work in going after a deal.  I feel like I have a bit of experience but am always looking to get more.  My general opinion is that it’s a lot harder to make home runs in larger complexes, but conversely it’s harder to lose your shorts too.

If you’re looking at a 30 unit complex you should probably have a broker in the area that you trust, I’m assuming that you have a couple finance partners as well.  Hopefully they have already told you that it is a good deal.

You’ve run the numbers and it pencils.  Do you have a good cash on cash return each year (6-12%).  If you were to sell it after renovations do you have a good IRR?  When we’re doing deals for ourselves we can get the juice on IRRs up to 40-50% with refinances after a value add.  When we’re taking on investors we are in 17-20% range.

Have you identified where you can fail?  Have you figured out ways to mitigate that?  Have you got a good feel for how much repairs are in the area, and how much it will take for you to get them done?  Are you managing yourself or do you have an incredible manager or many options?  Do you have every cost you can think of, and costs that you can’t included?

Still concerned?  Find someone in the area that wants to partner, or find some people that want to partner.  This business is not always about doing it yourself, but bringing the team together!

Good luck!

Michael Thelin · Answer

@Anthony Vicino

Are there a top 10 questions to ask before buying/bidding an apartment complex?

What are the top 5 financials that one should focus on first the see if the deal is even worth bidding on?

Do the 1%, 70% rule etc. apply to apartment buildings as well?

Once bid is accepted, top 5 things to do before closing on the property?

Thanks for helping me be more specific.

Frank Hinck · Answer

@Michael Thelin

Call @ben leybovich

Anthony Vicino · Answer

Most consultation of this sort is going to be pretty pricey as the people you really want to be taking advice from know the value of their time. The people willing to take a smaller fee are maybe people you don't really want advice from anyhow.

With that said, as you know, there's a wealth of knowledge here on BP to get you zeroed in on the target.

Might be helpful to know more about your background, the deal, and your desired outcome? With that info we can point you in the right direction and hopefully save you a bit of money/heartache in the process.

Brian Adams · Answer

@Michael Thelin I offer consulting.

I am really expensive though. Feel free to send me a message.