All Forum Posts by: Account Closed

We recently installed Kwikset 909 Smartcode locks on all of our rentals.  Simple to program and simple for guests to access as well. There is an override code feature which makes changing the code easier as you only have to remember your master code.  Runs on AA batteries and there is a traditional key option if the batteries die.  $75 dollars, sturdy happy with the purchase. Good luck in 2019!

I am looking to set up a fund to invest in a specific multi family property with the intention of holding long term. I would like some guidance as to how best to present to inexperienced investors.  Then, more specifically I invest in a funky market as far as structuring of deals and am talking to people who are not comfortable tying up money for long time so I need insight in regards to how to structure a fund that fits these needs. 

This is my first time going to anybody else for money and I am apprehensive about it and want to present the opportunity for what it is, great!, without coming across as pushy or desperate.  Any and all ideas are welcome, whether just spit balling ideas or from prior experience. 

If you have basic advice but don't want to read the massive block of text below I appreciate it all the same.  The bolded text here is a basic outline: 

*Amazing deal 

*presenting to first time investors that have uninvested income

*currently functioning as a 10 cap based on deal price 

*I need capital for large down payment 

*by changing the model can achieve up to 30% annual return  (switching model from long term to short term/vacation rental) 

*I want to structure the fund in a way that gives up no equity, essentially note investing and provide a 5-10% annual return

*return as much capital to the investors as possible within the first 5 years.

THE SPECIFICS

From my side of it I currently have a surplus of deal flow and insufficient capital, we just closed on a deal that required 140k down which wiped out my savings. In my area (Mexico) larger down payments are required and creative financing is not yet a common occurrence.  Bank financing at reasonable rates is also non existent.  The upside is that there is a massive market that is going unfulfilled (short term and monthly rentals).  I have become adept at catering to this market and have a significant sample size track record of large returns with short turn around.  

With the basics out of the way I will lay out broad goals from my perspective and the investors perspective and the outline of the deal. 

ME

My goals for this raise are as follows,

1. Preferably give up 0 equity in the deal, structure it so that it is more similar to short term note investing for the investor.  

2. Offer no less than an annual 5% return and no more than 10%.

3. Have my investors capital returned to them within a period of 5 -7 years.

4. Put up no more than 10% of the initial equity. 

5. Present a simple structure that is easy to understand

THE INVESTORS

I know almost of all of these people personally and they know that I invest in RE and have had success. I will be presenting the deal to a group that if I have to broadly describe would be : inexperienced/first time REInvestors, 5-10k of monthly disposable/uninvested monthly income, a more spending/ less investment based mindset historically. I would like to keep it simple for this group and offer them true value as I would like this to be successful and be able to go back to this well again as more deals come up.  Based on the above factors and my initial inquires the investors that I will be presenting to their priorities will be as follows in order of importance:

 1) short term return of their capital 

2) safety of the investment 

3) return

4) ability to pull out capital early if needed

Most of these folks are people that I have some relationship with and are aware of my track record or have helped me with past projects (not financially).  

THE DEAL

Basics: I know the property manager quite well and have cross checked all information given by the seller, assume that we are operating with perfect information. 

A fourplex of 2bd/2bath condos near the downtown area of Cabo, currently 100% rented at between $950-$1100 monthly.  All four leases are year long and up for renewal in May. As we will be converting at least 3 units to short term/vacation or month to month this is relevant. 

Monthly NOI is currently $3550. Property taxes, utilities, insurance, labor etc. are very inexpensive in this market. The location is great, the properties are in a B-B+ area and in decent shape. The building is 12 years old and had a complete rehab 4 years ago. Property comes essentially furnished and turnkey but I have budgeted 7.5k budget per condo for a total of 30k in cap x. (This includes deep clean, fresh paint, some new furniture, art and some general improvements to increase the appeal as a vacation rental. ) This is my best skill, inexpensively turning a property from long term to short term rental. The 30k will come out of my pocket.

I have worked with this seller for almost a year to structure the deal, initially he wouldn't consider anything other than cash offers and with the lack of bank financing this meant no go for me! We have now structured a deal with seller financing:

Price: $420,000

Terms : 50% Down, Seller Financed 5 Year note @5% 

$210k down Seller Financed over 5 Years @ 5% for 3950 monthly. (Like I said the potential for deals is insane but requires a lot of capital to be a significant player.)

I have 50k to put into this deal aside from the 30k of capx outlined above.  I don't know which where to insert this money yet to be most effective.

I have 3 single family properties in similar but not as good locations that now run at 22%, 26% and 31% annual returns.  I self manage all properties.  The potentially is higher for this deal based on an improved location and comparable stats to everything else I own. 

Right now in Cabo housing both long term and short term is badly needed as we have a growing population of both locals and tourists. Worse case scenario is to turn all units back into long terms and even accounting for vacancy or a 15% reduction in rental rates this is an easy 8 cap property.

THE BIG QUESTION:

I need to find a structure that supports the financing that I have in place and also takes care of the investors and their needs. How do I structure/pitch this investment? I don't mind having to come out of pocket in certain months to cover costs but I believe with the return it will generate that its possible to pay the monthly note and investors returns out of cash flow.

Thank you so much in advance for anyone who took the time to read all of that, sorry for the length. Brevity is not my strong suit. I am happy to follow up with any additional info and am always happy to answer questions regarding Mexico/Cabo.  Thanks!

Alex 

@Bryce Penner Hi Bryce, good to hear! Cabo is an interesting market but the under served portion of the short term rental market seems to be affordable and quality. Something in the ballpark of $90-$200 nightly. The luxury rental marketed is saturated with listing s and the majority of the lower nightly rate stuff isn’t great. 

As far as area specific, we have had the most success and highest occupancy rates with something that is walking distance to downtown Cabo/ the marina. The convince seems to appeal to people. For awhile that area also had a lower price point then the rest of Cabo so we were able to find less expensive properties put some money into them and advertise the location as a selling point. The market has improved downtown and sellers are definitely more aware of the value of what they have but it is still lower price/sq ft then the higher end neighborhoods in Los Cabos, (the Corridor, Pedregal, San Jose hotel zone etc.)

Hope that helps!

@Francisco Cimon 

You are right about a lot of those points. The area has grown a lot since I moved here in 2011. As far as vacation rentals I could not be happier. We are at a roughly 30% NOI across all rentals and while you are right there is more competition it is still nothing compared to a big city. The majority of the listings in Cabo are not optimized to garner bookings and people are not fully taking advantage of the platform.

As far as rentals for locals everytime I have considered that route the math just doesn't add up.  You know Cabo well so I will use a specific example, Roca Vista apartments behind squid roe.  When I was renting long term to locals I was getting roughly 8000 pesos a month about $450.  As a vacation rental the same apartment has net $1100-$1800 monthly for the last two years.  The work is marginally more, I self manage so I do my own check ins and check outs but we are talking about maybe 10 hours extra a month total.  

One of the biggest fears I had when converting all my units from long term to vacation was that they would get trashed by vacation renters but especially through Airbnb/VRBO the opposite has been the case.  The renters we get take better care of the place then the long term renters that we had before.  So as of now vacation rental makes a lot more sense.  

Currently through Santander I can get a 20 year note for 11.5% so you are right about that.  Te loan I was talking about above was through an entity that is marketing itself to foreigners that want to buy property in Mexico.  I decided not to use them and am happy that I didnt take the risk.  

Thanks for the input if you ever come back to Cabo and need a place to stay for a few nights let me know!

I have not! Going to check it out now, thank you very much

@John Underwood we have lock boxes installed at 2 properties but people had difficulty finding the places on their own and we spent as much time giving directions over the phone as if we had physically gone to check them in ourselves.  If Cabo gets a better GPS option in the future that will alleviate a lot of those issues, until then do it ourselves or PM. 

@John Underwood

All of the rentals are in Cabo San Lucas, Mexico.  We are hosting people unfamiliar with the area and without a reliable Google Maps or mapping system so we are always physically going to do check ins and often meet them at a common spot to pick them up and drive them to the condos.  

I have preset systems in place for responding to inquiries and giving people FAQ messages but between all of our properties I am doing roughly 8-12 check ins/ outs a week at an average of 30 minutes per transaction.  Often this takes place weird times during the day and as we add doors that will become an issue. 

I have gone to 100% vacation rental with about 75% of my bookings coming from Airbnb and the remaining 25% coming from VRBO, Booking.com and some local bookings.  For my market this makes the most sense and we are netting 300% more monthly income then we would under traditional rental agreements.  The problem is, as we add doors the workload of doing 6+ checkins/checkouts a month per door is becoming more time consuming.  I have in place a system and people that I cordinate with to clean the condos between stays, take the bedding to the laundry and restock necessary items.  

Does anyone here have experience using a property management service to run their Airbnb business and if so what does that actually entail?  Do they handle the backend side as well for you, responding to messages inapp, setting up check in times?  Do they only do the checkin/ checkout? Is there the necessity to remake the listings with the property manager as the Host? 

And of course the ultimate question is compensation. Any insight into this would be greatly appreciated. 

Any questions about the logistics of the business I am happy to clarify as well. Thanks!

The only other option that I have seen on the financing side is through a Mexican investment bank which offer short term personal loans but they are willing to dig in to the terms of a deal and offer a negotiable rate based on the value they see in the deal.  I have money with Actinver and they will offer short term loans but dont have any mortgage products currently.

The problem with this is generally the length of the loan which I have never seen be more than 5 years.  If you come across any other options please let me know, I appreciate the help

The next logical step for me is to start a fund, but that is a while off and a few more results away from being a viable reality. At least in my market there is not much in the way of funds or pools and there is very little competition for my specific niche.