How to finance this deal

[Ian Ray]

Hello everyone,

          So, down to business.  I have 3 pocket listings a broker friend sent to me that are things I can't pass on.  I have no multifamily experience and very little liquid, but I feel these deals speak for themselves.  They are stabilized assets with high occupancy rates and great rental history.  These deals are in the Metro Charlotte area, and have value add components as well to force appreciation.   

          As they currently sit, with no updates or value add plays, we are looking at cap rates of 8.5 on a 1 million dollar price tag, 9.6 on a 2 million price tag, and 9.1 on a 1.2 million price tag.  All properties have rent at least 15% below market, and would not take much to update to market standard.  

         As a novice in this market segment, I have ZERO issues with partnering with a more experienced investor, and giving up a sizable portion of the deal in order to acquire it, and then refinancing them out once I am eligible to do so with the property in our possession.  

On one of the deals, the Seller is so motivated he is willing to offer a substantial carry back at the closing table in order to help me cover costs of financing and help buy down whomever I bring in to the deal.  He really just wants to retire and not have to actively manage.

       I say all this to ask my real question: How the hell do I present this professionally to a person or institution so they can feel reasonably inclined to take a chance on me and the deals?  I feel like they are too good to pass up in the Charlotte market, due to a plethora of factors.

Thank you in advanced        

[Greg Scharlemann]

@Ian Ray - Start with underwriting the deals . At a really high level you will want to model current performance vs. future performance, what it will take to get to the future and how you will get there. 

In today's multifamily world, most are looking for the value add deal. Where do we spend money in order to increase rents and how can expenses be trimmed. Maybe it's through interior improvements or exterior upgrades. Maybe you're reducing expense by submetering water or implementing a RUBS program. There are a lot of different ways to approach it.

Once you figure out the business plan, the next step is determining how you're going to fund it. You can get a loan to cover a lot of the cost, but you will still need equity for the down payment, closing costs and often times repair/upgrade costs. This is where syndication comes in. If your underwriting and business plan shows you can drive rents and improve NOI, you can raise money from investors looking for a return. You get a percentage of the cash flow and so do they. Everyone wins.

Generally investors want IRR of 13%+ and average cash on cash return over 9%. But all investors are different so that's not written in stone.

Hopefully that helps with some direction. Happy to assist further if you have more questions.

@Tony Robinson - similar here, although on a 6 unit it's probably harder to syndicate and you're looking more for a partner. You do the work, they provide the cash and you split the deal 50/50, 40/60, whatever you can get them to agree to. Start by underwriting it and then solve for your investors returns. If it's 10/90 (you only get 10% of the deal) in order to get your money partner a decent return, it may not be worth the effort.