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All Forum Posts by: Adam Sherritt

Adam Sherritt has started 6 posts and replied 10 times.

Here is my problem.  I have eager capital begging me for opportunities in the multi-family arena but finding buildings to rehab is proving difficult.  It's not that they aren't out there.  We are in the San Diego region. There are literally THOUSANDS of apartments buildings, but there doesn't seem to be a good/efficient way to FIND them.   

Buildings already listed for sale are easy pickings, and because of this its usually a feeding frenzy.  What interests us more are the buildings not currently for sale but with tired/bored/retiring ownership.  

This is where I could use your input.

My current strategy is this.  Find ALL buildings which meet my criteria (35+ units) in my surrounding cities.  Once I have a list I can start contacting ownership to discuss acquisition.  We have money.  They want money.  Easy enough right?  Not exactly.

My first strategy?  Contact the City to access their databases.  Dead end.  I have contacted city municipalities (building, planning, housing services, ect.) and asked them "do you have a list of apartment buildings in your city with unit count?"  They have all told me  "No, we don't keep that kind of information.  We're not required to."  How a major metropolitan city has no idea how many apartment units they have, or how they are allocated is beyond me.  But it is what it is. 

Strategy #2.  Literally comb Google maps, pin any large buildings that look like apartments.  Once entire city has been combed, research all pins to confirm they are in fact apartments.  Research ownership.  Contact ownership.  Do this for every city.

My question is what do you guys think of this strategy?  Is there a more efficient way?  Often times after I've spent literally hundreds of hours on a project, someone will say to me, "oh, why didn't you do it this (much easier) way?"  Well, I want to learn from my mistakes.  This time I think it's worth my time to ask those more experienced than I before combing through hundreds of aerial photographs.  

I am not afraid of the work.  Sometimes there is no easy way, hell most of the time there is no easy way.  But if there is a more efficient way I am all ears.  

Cheers!

We are in a competition.  An economic competition.  And my intention is to compete with the best of them.  And we're competing at a game that has certain rules and tactics.  That being said in order to compete with the best, you have to know the rules of the game COMPLETELY and understand how its played.  

I barely know how the multi family game is played, but I really, really, really want to learn and am willing to spend whatever I have to to make that happen.  

I am someone who for a long time resisted help from other people because I thought, "hell, I'm smart enough to figure it out myself, I don't need someone to teach me."  And guess what?  I was right.  I could learn it myself.  And I did.  I would dive into the forums, tutorials, podcasts, video's ect. of any subject I was interested in learning.  But it was a very sporadic consumption of knowledge.  I'd be over here one moment, and over there the next.  There was no roadmap, it's literally "pick an article, read it, pick another one, read."  But there's no direction.  And without direction it is hard to measure progress.  It's hard to get excited.  And if you're not excited, you're fighting an uphill battle.  

Then I took a course on securing venture capital and man, was my mind blown away.  For 6 weeks I had a curated list of things to read, listen to, and tests on my understanding.  The beginning was especially enjoyable because all the content was written for someone who was ignorant to the subject (WHICH I WAS!) and was easily understood, allowing me to move on to more complicated concepts.  I was able to build a strong foundation of understanding on which to build.  I cannot stress how important this is.  Not only was my knowledge MORE than what I believe I could have gotten with a self education, but more importantly the knowledge was well built.

When you self educate and just "dive in" to a subject, you never know where you're going to land.  It could be in a book intended for someone who's had tons of experience.  And the result is you struggle through the material with frustration and self doubt.  I'm speaking from experience. 

Am I looking for a program that will teach me everything?  No, of course not.  Such a program doesn't exist.  Only experience can give you that.  But I am looking for something that will say, "With this course you can remove yourself from ignorance.  At the end of it you will have a better than most understanding of the key concepts of multi family investing.  With this understanding you can make fast and real progress."

If you've gotten this far I truly appreciate your time and thoughts.  This is great community and resource and the fact that this place exists and is free is truly mind blowing.

Post: My experience w (OTA) Online Trading Academy Real Estate

Adam SherrittPosted
  • Carlsbad, CA
  • Posts 10
  • Votes 11

Hey guys, 

So a while back I went to a free seminar put on by Online Trading Academy (http://www.otarealestate.com/) at their offices in Irvine, CA.  They said that for $100 you could purchase a 3-day weekend course.  I decided why not, and my partner and I attended.

The weekend was informative, I am just starting out in the multi-family game and a lot of the information discussed checked out.  But day 2 I started to see that the "course" wasn't really a course, but rather a pitch for furthering your education through them.

On day 2 they set you up with your "counselor."  During the breaks they would talk to you, see how everything is going ect.  Then on day three they dropped the price of the courses.  Here is my thing, I am all for investing in education and furthering myself.  For an 8 week class it was something like $20,000 - for one course!  I think they had a package that included two 8 week classes for $32,000.  

Now, at this point I wasn't walking for the door.  It wasn't till I spoke with my counselor regarding payment that I was like "uh...there is something sketchy going on here."

On day three (Sunday) towards the end of the pitch I was in my counselor's office.  She said, "So, you are interested in the course I see."  I told her I was, but that I wanted to do more research on the school and just look into what people say online about it all.  She then told me that in order to secure the course for $32,000 I would have to sign up that moment, that no research period was allowed. 

This is a Real Estate school who doesn't allow due diligence.  I mean, are you serious?!

And told her that.  I said, "Look, you are a broker and I am a developer, if any seller was to tell us that there is no inspection period or due diligence period we would run for the hills.  And you are telling me I can't get one with this school?"  She told me "Well, we have a money back guarantee, you can get a refund within 7 days."  I told her, "no, I want to be able to do my research prior to any deposit and retain the ability to purchase the course for the price stated today."  She told me she would talk to the guys upstairs and "see what she could do."  There was no way I was giving these people 32k of my money only to not see something in the fine print about the "refund policy."  I could totally see them pulling the whole, "Oh we require cancellation by mail, and since you couldn't get a hold of anyone and had to leave a voicemail, your cancellation didn't go through.  Sooooory."

During our next meeting she told me that, "Ok, they said you can take a week to make a decision and lock in this price."

And here is the weird thing.  I go online and didn't really see ANYTHING on this school.  Sure there was a Yelp page, but Yelp is a scam artist in their own right.  They've been caught multiple times allowing businesses to pay to remove unflattering ads, or what they call "unhelpful."  And of course, all the Yelp reviews were stellar.

There was no independent discussion of this school anywhere.  Which honestly really surprised me.  How does a school, that wreaks of con artists, that charges $30-50k for classes not have any accredited reviews, news reports, ect?  That right there sent me running.  

But it gets better.  

I called them about 6 months after my "3 day course" to see if I could pay another $100 and do the 3-day course again.  I just wanted to sit through that brilliant sales pitch again and appreciate it for all its glory.  Plus, I might have learned a thing or two.  So I call them up, and they tell me, "uh, it looks like you have already taken the 3 day course."  I respond, "Yea, I know, but it's been a while since I took it, and I kinda want a refresher."  The guy says, "Well, I can sign you up for our ($20k) courses."  I tell him no, and repeat that I'm just interested in the $100 3-day pitch.  He says, "um, let me transfer you to one of our counselors."  He transfers me to someone, I get a voice mail, I leave a message, and never hear from them again.  

Anyone else have any experience with this company?

Originally posted by @Nick B.:

@Adam Sherritt, I assume you're dealing directly with a seller. In that case I would not mention offer price without seeing their financials first.

BTW, estimating expenses as being 30% of gross may be too low. At any rate, you need to come up with realistic proforma expenses if you cannot find the real one. The same property managers who gave you the rents may give you an idea of the expenses are going to be.

Hey Nick,

I thought it might be low, but figured I'd run it past you guys. Thanks for the thought. I am not currently dealing directly with sellers, but rather am interested in certain buildings and am contacting the owners to see if there is any interest in selling.


Originally posted by @Justin R.:

@Adam Sherritt That offer price is what differentiates your letter from a carpet bomb mailing campaign.

You could play it up and further demonstrate your level of seriousness by saying something like: "This offer is based on our assumption that the property contains a mix of 1 and 2 bedroom units totaling 16 rentable units, along with our initial research of publicly available information."

If the point is to get them interested enough to talk, showing you've already spent time and effort can only help.

Good luck!

Thanks Justin. I really appreciate the input regarding including some description of the mix. Definitely adds another personal touch layer.

Originally posted by @Clint Hale:

Clint, this was a great help.  Thank you for the tip on the closing statement, I think it's important to explain any reasons for a discrepancy in terms of an offer.  

I think the overall consensus here is that including a price is the route to go. This is what I originally assumed, but felt that hearing from this great community was a good idea. This is going to be my first round of LOI's, so I am sure I will learn a lot from the results. And you better believe I'll share my lessons with those on here. Love this place!

Hey guys, 

I am about to send out a Letter of Intent to a few buildings in the area and was wondering if you could give me some advice. 

I created the following Letter of Interest (LOI) to send to roughly 10 buildings we have identified as opportunities in the North San Diego region. The buildings are in the 8 to 32 unit range and are candidates for forced appreciation.

I came to estimated property value using VALUE=NOI/CAP.

NOI was estimated by calling the prop. manager and just asking how many units were in the complex, what the mix of units was, and how much each would rent to a new tenant for. As for expenses, since I don't have real numbers I just used 30% of Gross Income.

CAP was determined by talking with a contact who works as a multifamily broker here in San Diego and was told a safe number for beginning cost analysis would be 3.97%

Now to my question, my partner and I have different thoughts as to the first letter to send to the ownership.  He thinks we should send out a "this is who we are and would you be interested in selling?  If so please contact us to discuss further."  

My thought, and I have attached the letter I have created, is to send them a "this is who we are and we are interested in buying your property for $________.)  I believe this grabs their attention with a real number, even though it may not be the right number.  Thats where negotiations start!

I don't really like my partners approach for a few reasons.  One being that it shows no "skin in-the-game" or initiative.  To send a plain "are you interested?" letter takes almost no effort and a seller inherently knows this.  It also makes them feel like one in a million.  There is nothing to make the seller think that they are being paid attention to.  Its a one size fits all letter. A letter that has a somewhat realistic number shows that you at least know something about the property and have done preliminary research.

Thanks guys!

Thanks all for the great responses. I think the overall consensus is to send a LOI to the owners, and work only on the buildings that show interest. This is a smart thought. I remember a meeting with an investor last year sometime and while I was asking him about evaluating financials his first question was, "how many do you have under contract?" My answer was zero. He was adamant about only spending time on buildings that you are contracted with.

Hey guys,

I'll start with my questions:

  1. Do you know of anyone who has tried a strategy like mine?
  2. In your professional opinion, Is it possible or am I wasting my limited time?
  3. If I'm not being crazy, what advice would you have for me?

I am aware that in order for one to be motivated towards a goal they need to be actively working on that goal.  Motivation rarely comes first, and it can be fleeting.  I want to work on this, but I am struggling

I am having trouble moving the ball forward when it comes to investing in multi-family. Part of the problem is that my strategy is a little different from the normal route of acquiring buildings here in BiggerPockets, and I'm not really sure how to move forward. Hoping you guys could give me some guidance.

We have a couple of real investors (private as well as capital firms) that are interested in what we are calling our "Off Market Opportunities Program" as long as we can actually get the program to work. 

In a nut shell we have identified multiple underutilized 1960's era 5-20 unit buildings in our area that we believe would bring in higher rents if upgraded. These buildings are located inCOASTAL Southern California, all buildings have either a 0% vacancy rate, or close to it. They rarely, if ever, post available units online, its essentially all word-of-mouth.

The reason we are targeting buildings that are not currently for sale is because we believe in the power of just asking.  You'd be amazed the things you can get if you simply just ask.  We want to explore that philosophy in the multi-family market.

Another reason for us looking at buildings that are not for sale is that we are trying to reduce competition.  In Southern California, as in any hot market, (San Fran, Vancouver) the second a multi-family building hits the market, there is a sea of offers.  We are trying to find our niché. 

The problem is...these buildings are not for sale. This makes writing an offer difficult as I am not aware of their expenses. This also poses a problem because viewing the units is near impossible due to the 0% vacancy. Prospective tenants aren't very discerning regarding the units; due to the lack of supply they are just happy to get a place in town (affluent area, not a lot of lower income rentals.)

I have contacted all the buildings inquiring about rents, so I am generally aware of how much they bring in and what their mix is. But have no idea what their perceived CAP is (CAP is also hard to nail down due to almost no multifamily buildings being sold in the last few years in this area), nor do I know what their operating expenses are.

My strategy at this point is (and please, any input is appreciated): 

  1. Locate potential re-positionable buildings. (done)
  2. Estimate buildings current value based off current income, est. expenses, est. CAP, and est. improvement costs.
  3. Est. what we believe the building could bring in post-improvements.  
  4. Based on above, Write offer.
  5. Send offer to seller and see if there's any interest in selling.
  6. Adjust strategy and repeat.

Now, for the record I have never purchased a multi-family building. I have never written an offer. My background is in land development / entitlements.  But I am very interested in forced appreciation and creating a income generating portfolio.  

Hello everyone.  I apologize for my lack of involvement in this thread up to now.  Out of country emergencies are no fun...or cheap haha. 

I so appreciate the help with this deal.  It sounds like the majority of you are at a consensus that this deal is not worth pursuing.  I agree with you.  I'm pulling muscles just thinking about the numbers.  But I think it's important to go over deals that do not work and FULLY understand why they do not work.

Some of the things I have gathered from the comments made are the following:

Estimated rents are too low.  

- There may be some truth to this, but I don't believe they are drastically low.  My sister rents a 2 bd/ 1 ba on the same street and pays $1,425 (carpet, coil stove, older cabinets, water paid by landlord.)  She secured this lease last year sometime, so it's relatively accurate. 

Do not use 50% rule

- It is wiser to develop a market specific expense rate due to utilities cost / revenue ratio's varying widely across markets. 

Purchase Price High Due to Potential Income Valuation 

- Seller could derived purchase price by using a future income valuation.

Purchase Price High Due to Redevelopment Potential

- Zoning laws restrict any addition to height and parking restrictions limit any additional units.  

Low NOI and Negative Cash Flow are acceptable if YOY Appreciation Yeilds Acceptable Returns. 

- A negative cashflow is workable if your YOY investment appreciation is enough to give you a positive net income at time of sale. 

Also, I would like to attach both my cashflow spreadsheet and the appraisal for the property, but I do not see where to attach files.  Am I missing something?

Hey guys, 

So I've heard this rumor that the goal in real estate is to actually make money.  With that being said I am very confused as to how this deal would make sense to anyone. 

Now I am still cutting my teeth when it comes to analyzing multifamily deals, but I figured I would show you guys my numbers with the hopes you can tell me where/if I went wrong.

Asking Price: $2,100,000 (has offer of $2,000,000)

Number of units: 

EGR (Effective Gross Revenue): $7,160 / mo.

Operating Expenses: $2,952 / mo. (not verified, this # was pulled from appraisal which used a "market derived expenses" technique to generate expenses.  I have asked seller for actual expense sheet.)

Now, if you run the 50% rule with these initial numbers (and assume a 20% down with 3.6% financing) you get an NOI of $3,580 ($7,160/2) and a mortgage payment (P&I + insurance + prop. tax) of $9,614 for a total of -$6,034 in cash flow. Not exactly the $800 ( 8 x $100) in cash flow that we are looking for.

Now, the appraiser forecasted EGR at $9,705 (36% increase.)  Ok, not bad, maybe that helps the bottom line...

Yea, not even close...In order to cashflow $800 (8x100) for this deal the rents would have to be set at $2,503/unit.  That is a 106% increase from "potential" and 180% higher than current!!!  

So my question for you guys is how does any investor make sense of this deal at $2.1m? Even with free money you'd only have a 2.05% ROI. At that point U.S. Treasuries are a better deal at 2.75%.