All Forum Posts by: BOB CRANEY

I am in a very similar situation as you are as far as trying to transition to MF from SF and small MF i currently have in my 13 unit portfolio. If you arent already listening to some daily podcasts i would recommend these couple.

-Old Capital Podcast- 

Far and away the best one out there and its run by some super experienced finance guys and active multifamily operators who have been into 7000+ units. They get into the deep weeds and really break down the process, financing and do case study type breakdowns with guests. You can soak up these podcasts and listen over and over until you can understand some of the real benefits to owning MF in buildings of 50+

Lifetime Cashflow through Real Estate with Rod Khleif 

I like his podcast for a lot of the same reasons as OL Capital but wish he talked less about himself and a more about the deals his guests have done. He pitches his stuff a little to much for me

Wheelbarrow Profits- Jake and Gino

Good info from some guys who are out there doing deals. They are still newer to the business but have around 1000 units and have not syndicated. I like their genuiness and light hearted exchanges. The are trying to build some other tie in businesses to help grow their syndication platform but they may be diluting themselves a little since they dont have more years of experience and several thousands of units that have gone full cycle.

Apartment investing with Michael Blank

He is the Host and gets pretty deep into the weeds on some deal breakdowns with his guests. He is a little self serving as he has a platform that encourages other investors to partner with him so i take from the show what i can and filter the pitchy stuff out. He seems to have been involved with several hundred units of syndication and he breakdown of the process is easy to understand. 

Pillars of Wealth Creation - Todd Dexheimer

I enjoy his shows content although Todd is a littl less colorful and entertaining as some. He is doing deals and offers some good content. His guests are sometimes a little to pitchy and out hawking their own wares so i dont always listen to a whole show without jumping out. 

The Scale that most people tout as a benefit to MF investing really only starts to make sense with 50+ units. As an example, When you have a Garden style 3 unit building you are efficiently spreading your roofing cost over more units than you would be than if you have a 1 story or even 2 story building with the same amount of gross floor space. Plumbing wise, 20 units might all feed into 1 main sewer. It also simplifies the ongoing costs of certain things with 1, tax bill, insurance policy etc. I think some of the benefits are overstated in relation to Multi family sizes of 16-30 units as the higher unit counts create costs and issues you may not have in smaller MF buildings. In larger complexes, expectations of tenants for amenities not common for smaller unit counts.. (ex pool, workout gym, dog park, tot lot) .  Realistically i dont think you would need any regular onsite personnel in properties of up to 20-30 units and could probably manage something like that with a decent group of subs and some good solid tenant screening. You can really only afford decent 3rd party mgmt with a larger property that can support it with a lot of units. 

That size properties are you targeting and why ?

@Alexandra Hansil

It all sounds so easy to just rent out your house and move on to a better set up for yourself. As others have said, you are not prepared to be a Landlord, let alone a long distance one. Water problems of the kind that require 2 sump pumps and constant monitoring are not going to make a good rental situation. Cut your losses and offer to let her out of the lease with her full security deposit back. Any lawyer who specializes in this type of litigation will eat your lunch. Even if it doesn’t go to court you could spend thousands trying to defend yourself on legal counsel of your own that will involve you flying back from Florida for every little thing.

Sell the pond your calling a rental and get on with your Florida life.

@Matthew Swearingen

Your not really making any money on houses like this....ask me how I know. If this is your first SF rental then you have no history of actual #s to base your underwriting on and can only go on educated guesses or your management companies best estimates.

You have only figured 5% to vacancy which equates to only 2.5 weeks of vacancy per year. Realistically unless you have a speedy, crack team in place that can get the place rent ready and re-rented in only 2.5 weeks, it’s not enough vacancy as a %. I would count on at least 1 month vacancy in your underwriting. As have been pointed out by others there will be a Larger initial cost to rent and then turnover cost when using 3rd party management due to the way most nickel and dime you and add their markup to the cost to ready property to re-rent.

Also see no mention of a monthly Cap Ex figure. If you plan to pay these items from cashflow or from your deep pocket, I hope you have a decent cash reserve because the major items don’t last forever and are expensive to fix/change out when their useful life it over.

Do yourself a favor and buy only 2-4 unit deals to start. They will cash flow way better based on the per unit cost vs the cashflow from rents.

It’s like the cost of six pack of soda vs buying six individual sodas.... the cost can be 2-4 times more when you buy the soda individually. It’s a simplified example but it it’s easy to comprehend.

Originally posted by @Brian Burke:

@BOB CRANEY if you bought property at the last market cycle peak and managed to survive, and still own them, you've accomplished something that many others couldn't.  The experience you received along the way has most likely taught you a lot of lessons, enough that you've collected an awareness of the risks of investing in real estate and an understanding of how it all works.  If that's enough to earn you the title of a "sophisticated investor" (and it probably is, but since that term isn't specifically defined I suppose it could be argued either way) you can qualify to invest in many syndications.

Syndications are most often created under one of two exemptions to the registration requirements as a public securities offering.  One of these is rule 506(c) which allows sponsors to market their offerings publicly, as long as they only accept accredited investors (and they have to take steps to verify that the investors they admit are accredited).

The other common exemption is rule 506(b).  This rule allows the syndicator to raise an unlimited amount of money from an unlimited number of accredited investors as long as the syndicator does not advertise for those investors with a general solicitation.  Investments can also be accepted from up to 35 non-accredited investors as long as they have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.  Perhaps you qualify to invest under this provision.

If you want to invest in syndications, you need to find sponsors that use the 506(b) exemption, and you can't find them through advertising or any general solicitation.  The best way is to form a relationship with them, which is one of the ways that sponsors demonstrate that investors weren't introduced through a general solicitation.

Aside from investing in syndications, if your goal is to own real estate directly, and you want to move up to larger properties, there is no "rule" to prevent you from doing so.  Don't listen to those of us who say that we'd never own 20 to 75 unit properties because of this or that.  We say that because we have been there, done that, and got the T-shirt.  It's part of the right of passage of growing from doing 4-plexes to doing 200+ units.  If you can survive a 50-unit property, you can survive most of anything.  Just like you survived buying in 2007 and holding to 2019.  It's part of the growth process.  You wouldn't want to do it again, but it prepared you for the next stage of your growth.  If I didn't buy a 60-unit property way back when, doors wouldn't have opened for me that have led to thousands of units since.

Thanks for the detailed response. Ironically i just listened to the Podcast you did with Ben Leybovich which i enjoyed immensely. I am at a stage where i cant stand listening to the newbie level how to get started stuff anymore. I liked the next level conversation and topics covered... maybe next time Ben will actually let you do some of the talking.. LOL  

I do fell like i weathered a storm I didnt even truly understand and i saw a lot of other investors ship sink in the waves of the turmoil. That saying "You dont know, what you dont know" means a lot more to me now than I have experienced it.  Having been on the sidelines for an extend period while getting your feet back under you is extremely humbling. Im sick to have missed some of the great opportunities that have been available in the last few years but its water under the bridge and im looking forward now, with the experience of the past as a better guide. 

I am looking to get a more sophisticated underwriting software so i can start breaking down deals to get comfortable with the numerous differences between smaller deals and the small to midsize MF. Do you use a proprietary software or do you have something commercially available. A few I have heard of are

1.Michael Blanks Syndicated deal analyzer, 

2. Obsidian Capital has a spreadsheet

3. Brad Sumrok has a software i have seen in a podcast but it doesnt seem to be openly avail for purchase

I am starting to with the basics as recommended by the many like yourself you crawled, walked, jogged and only when ready started Running. 

@alinatrgub

I have always been actively involved in all my properties and with the small size of my portfolio its the only way i have been comfortable doing it. Im not sure how other investors make any real money on SF or small Multifamilys with 3rd party management and all the other markups that come with that model of ownership, the margins are thin. I am recently 51 and seeing things differently now that both my parents have passed away. I feel like I need to make a solid run in the next 5-7 years and then move to a more passive role where i am able to enjoy the fruits of my labor with less of a time commitment on a regular basis. 

The sales position i am in is one i had to take to keep from being swallowed up in the 2007-8 crash. I live a decent lifestyle and have 2 kids in college with one more behind them but the corporate world is draining for many reasons. I am highly motivated and not afraid of a high level of commitment to learning this next phase of my investment career. I learn, listen, watch or read something every day and I love learning all this next level information. Time to start making some new connections outside my small circle to people who are where i want to be, doing the things i want to do 

Experienced in SF and small multifamily 1-4 units. Currently have 13 units across 8 buildings that i have had for 7-10 years in C areas. Appreciation since the crash has been really slow to come back and many of my properties are just under the sales prices that were around in 2007-08. I will walk with some equity if i liquidate several of the ones running at break even cash flow. 

All in, i will have about $400k to work with. I have done a lot of study and due to my income and net worth I dont technically qualify as an Accredited investor and as such i cant participate in a high % of most syndications. 

With the cash i have and experience in rehabbing, managing my own properties, I am tempted to make a play for a 20 -30 unit building, 1-1.5 million, with a heavy value add component. I have a few monied friends who have expressed an interest in participating in the financing of the right deal either as JV partners or just straight private lenders. I am hesitant to proceed with this path only because all i read/hear about being is that no mans land in between 20-75 unit count and how its so much better to be at 75 units minimum to make scale work with 3rd party management. I have found it really easy to manage up to 16 units only part time 5-10 hrs a week so i cant even imagine 30 units being more that 15-20 hrs a week at most.

It seems like the 2 camps are either stay small and accumulate small multis 5-20 units each or figure out how to be able to go big and participate in a larger syndication as a LP and eventually as a Key Principal. 

Who can lay out a path here that makes sense for someone in my position. Working a pretty safe low 6 figure sales job, but need a stronger plan to Job replace current job income. 

@Aleksandra Schultz

Any property I own was one we bought and renovated with the idea of renting it long term. Over 95% of my applicants and active/tenants have been single mothers with 1-2 children. With that profile in mind I renovate to meet their needs with tons of closet space and shelving and also some extra storage for all those kid related toys and seasonal items we all have. Families whether they are single parents or couples grow they staged and they need the right kind of room and space to accommodate all their stuff. Another thing I build in is the biggest kitchen pantry I can fit. It’s a lot cheaper than cabinets and gives a tenant a place to put al their food and several of the large countertop appliances they all seem to have...rice cooker, toaster oven, deep fryer etc

Think long, long term when making choices about what your putting in so it will last without having to be replaced every 4-6 years. Carpet has been a bad choice for me and I wish I had set aside more over the years to rip it out and go with a commercial sheet vinyl or grade ceramic tile. The few houses I did with ceramic in a lot of rooms look as new as the day they were installed. If tenants want something warm underfoot, they get their own area rug that accents their furniture.

I always imagine a prospect looking at 2-4 apartment rental options. It’s not hard to be better than the Avg apartment complex, so you put in some long term flash in the pan that hits for you as value.

You should mystery shop some of you local competition to get a flavor of what you up against. I also like model homes since they are usually showing the latest design details you can copy cheaply for your rentals.

@Chinmay J. Tenants portion of the rent is based strictly as a % of the tenants income. The portion the tenant pays is not tied of the total rent cost. I have multiple section 8 tenants and have had their portion of the payment vary. One went from $500 on a $1400 rent to $0 when they lost their job. The housing authority picked up the difference until they found employment again.

Title says it all

@Jennifer Marshall Look at the Formica and wilsonart high end laminate options. They look just like the real granite. Go to LOWE’s or HD to see the samples they have and some of the stock tops they have to see a larger sample. I wouldn’t buy there but they have lots of displays. If you have the budget you can upgrade the edge to a Bevel or 1/2 bullnose to make it look more realistic. I just used a Wilaonart HD in a rehab I’m finishing and it was nIce