All Forum Posts by: Antonio Pican

Hello,

We are being approached to GC/partner on a spec home with whom the client owns the lot and will be securing the construction financing himself in order to do the deal. We will be drafting up a contract for the lender with X amount cost to build/finance. Once the home is done we will be selling it off and splitting the net profit.  My question is since a lender is involved and I will be drafting up a contract how do I protect myself as to once I hand off the home he doesn't end up pushing me out (there is no sign of such and there is trust but this business)? Do I draft the contract price for higher than the actual build price that would include our estimated profit (sell price) or would a separate agreement between the lot owner be sufficient enough that outlines the deal since we don't know the actual sell price until it goes to market? Trying to keep this as clean as possible. 

Thanks in advance. 

Quote from @Russell Brazil:

Its a 4.5% cap rate and you seem to think theres upside on the rents. What is the prevailing cap rate on the same asset class in that market?  What is the upside on the rent? Sounds like there is $400 a month on upside which is an additonal $48,000 in rent. If the upside was achived the cap rate would jump from 4.5% as currently advertised to a yield on cost of 6.5%.

 Hi Russel,

You are correct with the 5% built back in it will take the cap rate to a 4.25 on my actuals (my numbers were rounded earlier) and when adding the upside in to a 5.6. The cap rates in that market are at ~5/.5% so I can see how the parties arrived at asking. However if using debt to buy the deal DSR is a little over a quarter short and obviously cash flow in negative, so not sure that would be an option unless bringing significantly more to the table. After stabilizing, the CoC 7%, IRR 12%, AAR 14.5% are all still pretty low assuming a sale in year 7 at a 6% cap to be "safe" (fingers crossed) for a 100% ROI.

Anyways its definitely a butt clinching deal because the slightest decompression can really knock you down and underwriting it with 0 vacancy and concessions/bad debt is a no no with turnover costs and a deferred maintenance cost that will undoubtedly show up. 

Maybe after diving even deeper some may be okay with this...but my whole point of the post was it would be super tough for anyone to make it work and deep down the brokers/sellers know and someone may hop in the ring and end up finding out.  

Quote from @Austin Johnson:

sometimes it's that. sometimes it's the seller being in a pinch or demanding a minimal amount. there's a 13 unit here that is listed (and has been listed) at $2.1M. it's worth about $1M. the sellers need their number. hence it wont sell.

 I suppose cannot blame the broker but at the same time may want to advise the seller. It's just crazy really but expected in such a market. 

Hello,

Property details being reported: 
8 Units
5x one bedroom
3x two bedroom
Income @ $102,000 (5% vacancy included)
Expenses @ $43,000
100% occupancy 

Advertised as undisclosed and then after talking to the broker he is saying unless you bring 1.4mil it's not going to happen. My concern lies with who in the right mind would pay this? Using debt or not, the numbers do not make sense. 

Upon underwriting the property which is in a popular area with current avg rent at $1000 with a possible potential up to $1400 since value-add and below market rents is being assumed in the offering. Without getting to technical, with the current numbers and doing pro forma the metrics (cap rate , cash flow, debt service ratio, etc..) are better off with doors shut unless you parking up for 100 years I suppose :/. 

My point here is are these firms just fishing for someone who truly does not know what is going on and hop on the multifamily hype train without a proper understanding? 

Hello BP,

Do you have to get a property under contract prior to pitching the deal? If so, a property selling for 800k-1mil...what are the steps to get it under contract in a multifamily deal, is it a must for a earnest down payment or are these deals typically executed without an edm but an expressed interest given a due diligence period in a reasonable amount of time?

I foresee a common mistake to get excited about a deal and secure potential investors but the property is not under contract. As a "syndicate" or an individual orchestrating the deal with potential investor/partners is this a cost I must be able to provide?

Thank you in advance.

Hello,

I own a lot in an existing neighborhood which homes currently sell for 350k. I am currently a builder myself and was approached by another builder in the neighborhood who is currently building a home down to street to buy my lot and/or partner on my lot to build a home together. I am in with the lot at 40k and he offered me 60k (which I do not want to do). How could we make this deal a win/win for the both of us? I am trying not to use my liquid capital to fund the deal. Could we orchestrate something like he put's up all the money to build it and gets a higher percentage or what do you guys think? To add to this equation, the profit on such home would be about 75-100k.

Thank you in advance.

@Isaac Johnson

I thought if money is flowing out that is a liability.

@Spencer Cornelia

Thank you for the response. So do you just rent wherever/whatever you like and will not buy a house? Or would you eventually after producing enough and pay for it using someone else’s money?

@Brent Shields

Thank you for the explanation. But when should/can you by a house? Is it when you are producing enough and do not care about that liability? Do the pros do it after they have money coming in or do they simply never buy a home and just rent whatever they like ?

Hello,

I keep coming across a lot of discussion buying a house and that it is a liability, not an asset. Well if that is the case then when can I buy a house or should I always rent one? Or do "they" mean to buy a house and with my passive income pay for it so its as someone else is paying for it?

Thank You.