All Forum Posts by: Bryan Hartlen

@Derrick U. make sure you know where in Phx it is located.  There are still markets in Phx where you want to stay out of. A couple questions:

- sounds like it’s being marketed as a turn key unit.  Good locations in Phx are selling at $130 - 150k a door for turn key class C properties (Cap rate in these areas run in the 5 - 5.5% range).  At $80k a door, you’ll want to look very carefully at the location. 

- only 4 parking spots to 12 units?  You’ll need to discount your rent significantly for units without parking or on-street parking.  Phx public transit isn’t that great - most people want/need a car.  Make sure your rent numbers factor this in.

- For well managed properties we model 45 - 55% expenses and then verify through seller's T12.

- Is your cash flow analysis after debt service?

@Derrick U. you’ve got the right idea but as @Greg Dickerson and @christoper hunter mentioned there’s some fundamentals that you’re going to need to establish that will bring legitimacy and value to a deal. Every real estate deal needs 3 things:  Money, expertise and effort.  You need to be able to contribute in at least one of the areas.  Focus yourself on getting education and networking relationships to build value in these areas. 

The Phoenix MF market is very hot right now at all levels.  The entry level (< 20 units, < $3M) for C class value-add properties are running at 5 - 5.5% cap rate and are often swallowed up quickly by California 1031 money. So you need to be ready to pull the trigger on an offer very quickly and close almost as fast (due diligence and funding).  

Good Luck!

Ok. This was from a seller's perspective.  Thanks for the insight.

Thanks @Greg Dickerson. Why wouldn't broker commissions on the sell side be negotiable?

From a modelling perspective what are the typical seller costs (fixed or % of sale price) that you model for closing costs on small, 10 - 20 door properties?

- Broker’s commission(s), Title, Recording, others?

Which of these can be negotiated?

Unless you believe there's an opportunity to differentiate yourself from the rest of the market or protect from possible significant cost increases (doesn't sound likely with fixed costs) - stick with the norm for the market.  Raise rents.  

- Fixed return vs Joint Venture

- Plan A & Plan B exits

- Developer / Active partners projected profit (my headroom on a fixed return investment)

Drive-bys / walkthroughs on different days and different times.  Some neighborhoods have completely different personalities at night vs day.

Hi @Michael Vaughn.  I would say it depends on the asset class (<$25k, < $50k, etc) and market.  Asset class because FC costs are fixed and affect the classes differently.  Market because the going rate for REOs will be the cap on the premium you’d pay for these notes.  

We estimate roughly $5k to complete FC from start to finish and 6 to 12 months time depending on the state.  The farther down the road the seller is the less time and money you’ll need to spend to get it re-performing.

The question is more, what's it worth to you? Are you a performing note buyer looking to dip your toes into the NPN world or are you NPN buyer that's finding new pipeline source or partially worked assets. If you are the former finding notes closer to FC might be a good thing as it limits risk. If you're the latter then you're paying for part of your value add and your cutting into your returns.

For what it’s worth... in our limited experience, in every situation we purchased a note that already had legal proceedings in play, we tried keeping the seller’s attorney to avoid disruption... it never worked out. We ended up switching and it didn’t save us as much time as we expected.  (Maybe part of the reason the notes we’re being sold mid-process?)

 We also use Polaris at the front-end of our workouts.  For servicing, we were originally with FCI but moved to Evergreen.