All Forum Posts by: Marc C.

How about calling a couple of local commercial appraisers? 

Well, they may want what I want, right? I mean, I will be getting all the leases, bank statements, rent rolls, 3 years of the property manager's P&L statements, and tax returns. It's all in PDF format, so if a lender needs something, it's easy to send. 

I know! True in my area, too! It's all fix and flip. Wholesale. Fix and flip. Yawn. 

So, I started my own Meetup group, Apartment Investor Breakfast Club. We meet monthly; get 12-20 people showing up and paying $10 that is donated to charity. For speakers, we've so far had a broker, lender, property manager, and will next have someone from the local housing authority talk about Section 8. 

What has disappointed me is that even this group, almost no one owns a commercial property, and most of the interest is in 4plexes. As far as meeting possible investors for my future deals, I think I've met one. 

That is Brandon Turner's stomping grounds. Numerous posts, books, podcasts he's done over the years. 

Basically, you're talking rural area. Few employers. Low job growth. Low population growth. High percentage of low income tenants. Hence the higher cap rates. Brandon will confirm all that. 

Oh, not this question again. What, is it weekly now? 

Direct mail, followed by cold calls. Followed by repeat direct mail. Followed by cold calls. You try to build a relationship with landlords who are likely to retire in the next couple of years. You want to be the first person they call. It's been on the podcast a thousand times. 

Actually posted about this a couple of months ago after the Trump Effect brought MF interest rates up .75%. 

It's all about the cash returns. YES, it now costs more to borrow. So, if x% cap bought you x% CoC return 3 mos. ago, the same x% cap rate now brings you a lower cash return. How to avoid that? Pay a lower price or put less down. Since the latter isn't feasible in most deals, you need to pay less for properties today than you did on Nov. 7, 2016. How much less depends on your spreadsheet calculations.

Cap rates DO go up. The Law of Averages is a law. Things revert to the mean in most cases. 

How to avoid? You need to be using an EXIT cap in your calculations that is higher than your purchase cap. For example, I'm currently in an area with 7.2% average caps. Do I think they will be 7.2% in 5 years? 10 years? Nope. So, I plug in an 8.5% cap rate as my exit cap. Result? Little to no appreciation; possible decline in values. What to do? Buy at an 8.5% cap now, or do something to the building that will make it still be a 7.2% cap in 5 years. 

As for loans: You are taking a big risk if you take out a loan with a 5 year call right now. Look for 10 year money so you can make it through the downturn. 

Does that mean we should cower in fear and not buy commercial RE? No, that's not logical. Proper planning and budgeting is always key. Once again, it's all in what you pay when you buy. Play with all the possible scenarios and always choose a conservative approach.  And NEVER believe the broker's pro-forma. Ever. Never. 

It depends on the condition of the property. Was it just rehabbed?

I use as a Wild *** Guess $300/unit for personal property replacements (stoves, window coverings, carpet), plus another $300/unit for major building upgrades or repairs. That is IN ADDITION to what I budget for actual repairs, which is typically 5-7%. 

But again, it depends on the age and condition of the property. 

Hmmmm. 90% LTV is a pretty rare find. 10% down often results in insufficient cash flow to make the bank's 1.2 or 1.25 debt service coverage ratio.

Why not just ask the seller to carry the whole thing? If he or she is retiring, then they should be interested. 

The other option is to buy a smaller building. 

Nic, your profile says 'Lender from Chandler, Arizona' but you're seeking a lender in your post. Doesn't make much sense. 

This could be done with 2-4 unit dwellings using FHA financing with 3.5% down if you live in one unit for at least a year. A Fannie Mae traditional loan with mortgage insurance might also let you do it for 10% down, even if you don't live there. Of course, your income + 75% of the rental income must be enough to meet federal Debt-to-Income guidelines (somewhere around 43% max, I think).

But you said "5+ units" and "10% down" and "no seller carry back" in the same post. Those 3 don't go together well. This company was posted in another post on the same subject: http://www.clarityreturns.com/financing/. I seriously doubt you will find a long-term lender who will take that deal at an interest rate that will work unless you're buying at a huge discount. Often, 10% down results in not enough cash flow to meet the lender's Debt Service Coverage Ratio requirement of 1.2 or 1.25. If you don't know what that means, you have a lot of work to do. 

All of the above has been posted here or covered on the podcasts dozens of times. Good luck to you, and get busy.  

Don't bail yet. Hang in there and learn. Tax records only get you so far. 

First off, DO make an offer with seller financing that works for you. Get 5 years or more, as you don't want the loan to come due during a down cycle in lending. Explain that you will pay his price if he'll take your terms. 

If you can't get seller financing, then make sure he understands you'll need a discount and more time. Get the deal signed, then do "forensic" accounting to show your bank it cash flows. You need more details. You need to see 36 mos. bank statements to verify the rents are actually hitting the account. You need to see a Profit & Loss statement from his bookkeeper's accounting software or you'll have to build it yourself. You need to see 3 years of receipts or account records that show exactly what check went for, and then you can build a report the way YOU (your banker) wants it to look. You may need the help of a bookkeeper or accountant or a relative with some Excel skills. 

Either that, or walk and get a bigger property where it's worth going to all this trouble.