Is this broker telling me legit info on MF investments?

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Is this broker telling me legit info on MF investments?

Jack B.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes

Offering to save me on real estate commissions by selling to a REIT. Email below. What do you think, good deal or no? Also, is it typical to get a 30 year loan for MF like SFH or are they shorter, 5-10 year loans? This guy is offering to sell for a "flat fee" plus a 1% loan origination fee when I 1031 into new properties. I suppose it depends on what the flat fee actually is...Assuming I buy a 2 million dollar complex I'm looking at paying him 20K just for that. Depending on the flat fee amount, it might be cheaper to list myself on the MLS and negotiate the buyer agent commission.

-----------------------Couple suggestions:

1. One larger multi-family building is better than a few of similar quality. The primary advantage of multi-family is economy of scale. A single property is going to decrease your operating costs and make the property more profitable.

The other reason, is that closing costs are going to start adding up with more properties. They can be significant.

2. I would recommend selling your portfolio through a residential broker that specializes in Chinese investors trying to get special visas OR sell them together to a real estate investment trust (REIT) that specializes in single-family housing.

I know Seattle is hot right now, but doing them one by one is going to be a time and energy suck, but I am not an expert on Chinese single-family investors.

I can help with a portfolio sale to REITs, which is going to be faster than selling piecemeal and you bypass paying a real estate agent's commission. REITs have the longest investment time horizon and deepest pockets. That would be a flat fee on my end for the financial modeling, pitchbook/prospectus, and communication with their acquisitions divisions.

So, my pitch would be that I can get you through this transformation from Seattle single-family to your Tampa/Orlando multi-family properties in a total of 2-3 months, instead of definitely 8+ months for selling 1-by-1, and bypass paying commissions. In exchange, I would take a flat fee, a fraction of a commission, for the REIT work and a 1% loan origination fee paid by the eventual lender on the new property/properties.

Netting you a few percentage points on the whole transaction and significant time saved. 

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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y

The really great brokers  and agents will be in demand and get paid top dollar for services performed. You have to ask yourself ( Why are other brokers and agents SO EAGER to work for less? They wreak of desperation ).

When investors contact me for commercial retail real estate these discussions don't even happen with commission. If they do the investor goes to my delete file in a matter of seconds.

If an investor doesn't value my services and they are contacting me (crazy..but it happens) then I don't need them. If a broker or agent builds a constant funnel of business then they can choose to only take the business that fits their model.

Typically out of every 10 contacts about 4 will go to a closing. The rest are either flaky, unrealistic, trying to do a deal larger than their capability,etc.

I make more in commission than standard rates typically because I dig for off market properties and get a larger fee.

If you believe you are in an ultra hot market then just market yourself and get an attorney to help you out. You will be doing the job of the broker/agent for screening buyers and doing the transaction. If you are fine with that for your time then go for it. 

I always think it's funny to hear conversations about " We don't need brokers or agents, the fees are too high, but please help us at a reduced rate, and by the way again we really didn't need the help. lol" Talking in general and not about the person who created this discussion. 

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  • Mark Allen
    Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes
    9y
    What's his background and rep? What's he think he can sell your portfolio for? How many similar deals did he close in 2016? My team brokers SFR portfolios and MF, but our fee is on the sale of the portfolio. We facilitate your 1031x and put you in deals for free. We do this around the country, and we have a solid rep by delivering on our word since 2009. BTW, there's only a handful of REITs and many of them have strict criteria. We push just as many high net worth, or our traditional MF buyers into SFR portfolios because Institutional buyers tend to have more strict criteria. I'm happy to provide you an opinion of value on your portfolio and see if it's line with his underwriting. Definitely do not commit without understanding his prior success and what you will NET in the sale.
    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y

    The REIT is interesting - - up to the point where you start paying a proportional share of taxes and maintenance fees.

    The basic information from your broker is true as far as I understand.

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  • Mark Allen
    Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes
    9y
    Oh, and because he's just feeding to the handful of REITs, I'd assume very few if any would meet their criteria. It's best to put your portfolio out to the entire world to drive multiple offers and have you walk away with the highest and best. I.e. He may value your portfolio at $5M and you receive one offer at $4.8M. When in reality, several international buyers and high net worth folks would have paid upwards of $5.4M
    0Reply
  • Mark Allen
    Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes
    9y
    Fannie provides 25-30 year amortization (fixed rate)with a 10 year term, non-recourse. Usually interest only for 1-3 years, too.
    0Reply
  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Mark Allen:

    Fannie provides 25-30 year amortization (fixed rate)with a 10 year term, non-recourse. Usually interest only for 1-3 years, too.

    Any prepayment penalties, etc.? His fees just from the purchase of new properties seems really high. If I buy a 4 million dollar apartment complex, it would have been cheaper to list on the MLS myself for a flat fee and negotiate the buyers agent fee down to 2%.

    The formula he gave me for how the REIT would value the SFH's was NOI/Cap rate. I sent him some of the financials such as the leases, books, etc. Basically based on what my NOI and cap rates are for each property, they would sell for the same as retail, assuming the REIT buys all of them. Half are expensive properties, the others, middle of the road or starter. You make sense in that opening up to the general market will allow me to get a higher sale price. I figure if I list well below market I can avoid it lingering on the MLS because it's overpriced and get it into a multiple offer highest and best offer situation as you said. Man I like your thinking... That was my plan that I learned from @Phil Pustejovsky, until I had talked to the guy who found me on Reddit finance forums...

    Some of his other advice seems legit though. It makes sense to buy one larger complex as opposed to several smaller ones. The amount of work, not to mention the closing costs...

    That's one thing I've hated about SFH. The closing costs eat a tremendous amount of money, transaction costs buying or selling are a huge drain. I think I will have paid almost 200K in fees when all is said and done. Ridiculous...

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  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    @Mark Allen

    Do you prefer discussing your fees in the thread or via PM? I'd be curious to see what your fees are and some of the 1031 deals you've done, especially from SFH to MFH of 20-100 units.

    0Reply
  • Mark Allen
    Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes
    9y
    Jack B. It depends on the size of the portfolio, but standard is 6% just like listing individually on the MLS. We just listed 475 homes in Chicago at $50M+ and wouldn't ask for a 6% fee, but a 20 home portfolio valued at $2M would warrant a 6% fee. Btw, this Chicago portfolio already has three LOIs and Chicago isn't even a hot market. The value isn't in a reduced fee, because we'll make that up in multiple offers driving up the price. The value is in economies of scale with savings in time, tax liability with exchange opps, closing costs, and dealing with tenants (compared to individual showings and coordinating with tenants). It's standard in the commercial world to put clients into deals for no fee, but typically brokers that put you into a MF deal expect you to let them list it at the end of the holding period.
    0Reply
  • Mark Allen
    Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes
    9y
    Jack B. Typically there are pre-payment penalties (yield maintenance) and it all depends on the lender. Typically, FNMA loans are assumable, which is why you'll see investors assume the loan and pay remaining to seller to dodge prepayment penalties.
    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @Jack B.:
    Originally posted by @Mark Allen:

    Fannie provides 25-30 year amortization (fixed rate)with a 10 year term, non-recourse. Usually interest only for 1-3 years, too.

    Some of his other advice seems legit though. It makes sense to buy one larger complex as opposed to several smaller ones. The amount of work, not to mention the closing costs...

    That's one thing I've hated about SFH. The closing costs eat a tremendous amount of money, transaction costs buying or selling are a huge drain. I think I will have paid almost 200K in fees when all is said and done. Ridiculous...

     200k is excessive unless it includes the mortgage payoff.

    I closed on a MFU fmv @ $775k and closing costs sans mortgage payoff was only 79k.

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    9y

    The really great brokers  and agents will be in demand and get paid top dollar for services performed. You have to ask yourself ( Why are other brokers and agents SO EAGER to work for less? They wreak of desperation ).

    When investors contact me for commercial retail real estate these discussions don't even happen with commission. If they do the investor goes to my delete file in a matter of seconds.

    If an investor doesn't value my services and they are contacting me (crazy..but it happens) then I don't need them. If a broker or agent builds a constant funnel of business then they can choose to only take the business that fits their model.

    Typically out of every 10 contacts about 4 will go to a closing. The rest are either flaky, unrealistic, trying to do a deal larger than their capability,etc.

    I make more in commission than standard rates typically because I dig for off market properties and get a larger fee.

    If you believe you are in an ultra hot market then just market yourself and get an attorney to help you out. You will be doing the job of the broker/agent for screening buyers and doing the transaction. If you are fine with that for your time then go for it. 

    I always think it's funny to hear conversations about " We don't need brokers or agents, the fees are too high, but please help us at a reduced rate, and by the way again we really didn't need the help. lol" Talking in general and not about the person who created this discussion. 

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    1Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @Joel Owens:

    Typically out of every 10 contacts about 4 will go to a closing. The rest are either flaky, unrealistic, trying to do a deal larger than their capability,etc.


     

     Boy, that's true of a large proportion of what we see here!  Unrealistic expectations and not learning to walk before they attempt to run!

    0Reply
  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Jeff B.:
    Originally posted by @Jack B.:
    Originally posted by @Mark Allen:

    Fannie provides 25-30 year amortization (fixed rate)with a 10 year term, non-recourse. Usually interest only for 1-3 years, too.

    Some of his other advice seems legit though. It makes sense to buy one larger complex as opposed to several smaller ones. The amount of work, not to mention the closing costs...

    That's one thing I've hated about SFH. The closing costs eat a tremendous amount of money, transaction costs buying or selling are a huge drain. I think I will have paid almost 200K in fees when all is said and done. Ridiculous...

     200k is excessive unless it includes the mortgage payoff.

    I closed on a MFU fmv @ $775k and closing costs sans mortgage payoff was only 79k.

     You paid 79K in closing costs on a 775K deal?? That seems high.

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @Jack B.:
    Originally posted by @Jeff B.:
    Originally posted by @Jack B.:
    Originally posted by @Mark Allen:

    Fannie provides 25-30 year amortization (fixed rate)with a 10 year term, non-recourse. Usually interest only for 1-3 years, too.

    Some of his other advice seems legit though. It makes sense to buy one larger complex as opposed to several smaller ones. The amount of work, not to mention the closing costs...

    That's one thing I've hated about SFH. The closing costs eat a tremendous amount of money, transaction costs buying or selling are a huge drain. I think I will have paid almost 200K in fees when all is said and done. Ridiculous...

     200k is excessive unless it includes the mortgage payoff.

    I closed on a MFU fmv @ $775k and closing costs sans mortgage payoff was only 79k.

     You paid 79K in closing costs on a 775K deal?? That seems high.

     It's California and that includes title insurance taxes et al :sigh:

    0Reply
  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Jeff B.:
    Originally posted by @Jack B.:
    Originally posted by @Jeff B.:
    Originally posted by @Jack B.:
    Originally posted by @Mark Allen:

    Fannie provides 25-30 year amortization (fixed rate)with a 10 year term, non-recourse. Usually interest only for 1-3 years, too.

    Some of his other advice seems legit though. It makes sense to buy one larger complex as opposed to several smaller ones. The amount of work, not to mention the closing costs...

    That's one thing I've hated about SFH. The closing costs eat a tremendous amount of money, transaction costs buying or selling are a huge drain. I think I will have paid almost 200K in fees when all is said and done. Ridiculous...

     200k is excessive unless it includes the mortgage payoff.

    I closed on a MFU fmv @ $775k and closing costs sans mortgage payoff was only 79k.

     You paid 79K in closing costs on a 775K deal?? That seems high.

     It's California and that includes title insurance taxes et al :sigh:

     Sweet Jebus. Unless your property taxes are 70K a year you got ripped off. I just bought a new house in Seattle for just a hair under your MF purchase price and paid about 7K in closing costs, title, taxes et al.

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y

    @Jack B.  My closing costs quoted was all inclusive; Commissions included

    And your cited 200k was reasonable?  Enough

    0Reply
  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Jeff B.:

    @Jack B.  And your 200k was reasonable?  Enough

     200K (actually closer to 130k if I 1031, the 200K counts capital gains and recapture if I don't 1031) buying AND selling 2 million worth of real estate. You paid almost half of what I paid just to BUY one 800K property, not even factoring in any form of taxes like capital gains taxes for selling like I did....Again, I just paid 7K in closing costs on a house in Seattle that costs a hair less than your MF in California...You got ripped off, like it or not.

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @Jack B.:
    Originally posted by @Jeff B.:

    @Jack B.  And your 200k was reasonable?  Enough

     200K (actually closer to 130k if I 1031) buying AND selling 2 million worth of real estate. You paid almost half of what I paid just to BUY one 800K property....Again, I just paid 7K in closing costs on a house in Seattle that costs a hair less than your MF in California...You got ripped off.

     AHH; perhaps I wasn't clear,  I SOLD and paid commissions, not a simple purchase transaction

    0Reply
  • Jack B.
    OP
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Jeff B.:
    Originally posted by @Jack B.:
    Originally posted by @Jeff B.:

    @Jack B.  And your 200k was reasonable?  Enough

     200K (actually closer to 130k if I 1031) buying AND selling 2 million worth of real estate. You paid almost half of what I paid just to BUY one 800K property....Again, I just paid 7K in closing costs on a house in Seattle that costs a hair less than your MF in California...You got ripped off.

     AHH; perhaps I wasn't clear,  I SOLD and paid commissions, not a simple purchase transaction

     Much more reasonable since you are paying the brokers commission. No way to get the buyer to eat the closing costs? That's one thing I hate about real estate. The transaction costs are outrageous!

    0Reply
  • Mark Creason
    Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes
    9y

    Real Estate agents earn their fees as they have historically sold property for more than by owner transactions.  In most by owner deals, the buyer wants to negotiate the price down because the seller is saving the commission.

    Mark

    1Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    9y

    If you buy for example a 4 million multifamily property.

    Capital markets mortgage broker fee 1% of the loan balance or 30,000 based on a  1 million down payment.

    Sometimes lenders will let you roll in the mortgage broker costs into the loan proceeds but that is usually putting 40 to 50% down. When you are putting say 25 to 30% down generally not as it drives the LTV to high up for the lender to be comfortable with the numbers.

    Appraisal: 4,500

    Site inspection: 2,000

    Survey: 2.500

    Phase one: 2,000

    Owner property insurance policy: 8,000

    Pre-paid escrows and lender reserves: 10,000

    Title policy: 6,000

    Buyer commercial attorney: 12,000

    Total: 77,000

    This is just a general idea.

    While you do save on costs buying something larger to close it you still have substantial costs involved.

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