All Forum Posts by: Brian Briscoe

@Jonathan Wildy

You can get average construction costs for your area. My insurance policies all have replacement costs (ie rebuilding after a fire or something) on each property and my broker says the national average is around $100/sqft... That’ll be higher than new construction costs because it includes tear down and clean up too.... and of course it varies by location.

Anyway, contact a developer in your area and ask the question....

@Angel Ayala

Many ways to structure the deal with investors....

Definitely call around to lenders/banks/brokers to understand what financing options you’ll have available. For smaller properties (under $1 million), local banks will usually have best products. They may have restrictions on how you being others in to the deal too.

For investors, you can offer a fixed return on their money, an equity share, or a combination of the two. On one of our current offerings, we’re giving investors 10% return on investment and then 50% of cash flow after they’re paid... On a different offering, we did 6% plus 75% of cash flow. If you’re giving them equity, they’ll also get a portion of proceeds from the sale too....

As others have mentioned, pay attention to SEC rules. Technically anytime you ask others to invest with you, you need to file with the SEC. If all your investors are close friends or family, you may take a small risk and not do it... you’re call. We still pay an attorney to do it every time.

Hope that helps.

@SALIAH S.

Financing for 6-8 units... start calling local banks and ask about their products for investment properties. Ask about how much you’ll need to put down, loan term (how long will they lend you the money), loan amortization schedule (usually 25 or 30 years), credit and income requirements, interest only options, and how they determine interest rates (usually index plus spread). They’ll also have insurance requirements and may escrow taxes and insurance like a home loan....

@Kathy Austin

I would definitely lean to keeping utilities individually metered. You're not going to get a huge ROI by installing solar because most tenants don't account for utility costs when searching for housing... that means offering lower utility costs to tenants won't correspond to a significant increase in rent paid. Also, centrally billed accounts give tenants no incentive to conserve electricity so they'll be more likely to run their A/C 24/7 and you'll pay for it....

Bottom line, unless you’re going solar because you want to save the planet, stick to what you have.

@David A Perez we have a 40-unit with a PM that has an office within a mile. We have off site management there for 8% of collected rents. For this size with the current rents, this is the most efficient way to manage. Total annual rents are around $400k... we couldn’t put someone on site for $32k and it wouldn’t be managed much better if we did.

As others say, break point for onsite management is somewhere around 75 units, but it depends on rents, condition, cost of living, etc.

One example... we’re under contract on an 80-unit with average rents of $525. Each full time on-site person will cost us about $45k in this particular are. We also will pay the management company a fee (some do percentage, some do flat fees). So, two part-time employees plus paying the management company will cost us about $75k on a complex that grosses $475k. In this case, the rents are too low for this to be incredibly efficient, but we’ll have higher occupancy and a much cleaner and well maintained property....

At higher rent points or more units, you start seeing more benefit to onsite management. If rents were double, we’d still need two part time employees, but pay a smaller percentage of gross rents making it more efficient (of course, if rents are double, prevailing wages would also be higher, but not a 1-1 correlation).

@Jeff Quinlan Have you tried calling the company and asking to get out? Just explain that you intend on going a different direction than the previous owner and have no desire to continue with them. Companies that put customer service as a top priority may just let you out. If that doesn’t work, consider the attorney route. Where are you at?

@Kent Ritter

I vote experience. There are many pervious replies that answer why much better than I can.

Now, if you’re considering a less-experienced syndicator, the skin in the game is absolutely vital: both in terms of dollars invested and liability. Knowing my name is on the bottom line on the properties we have under management is not something I take lightly.

@Nik S.

Regarding all the comments on saving money on attorneys... I look at attorneys like I look at heart surgeons: I’m not looking for the one with the lowest rate. Regarding how much to spend, that depends on the size of the transaction. The larger the transaction, the less impactful an attorney’s fee (and more important to get it done right).

True, in some states you can escape transfer taxes or reassessments at transfer. May be a good idea to proceed this way if seller will allow and it saves you enough money once all the legal work is done.

True, you inherit encumberances on the former LLC. Try this... have the owner create a brand new entity a few days before closing and transfer the asset. This way, you save due diligence costs on the old entity and get all the benefits on the transfer....

Disclaimer... I haven’t actually done this yet. We are working this angle on one we have under contract now.

@Danielle N.

What size properties are you looking at? This answer is based on our experience (3 loans) in apartments from 16-40 units. Not sure how smaller units, like quads, may work out. We create single purpose LLCs for each individual property owned by another LLC. Not exactly a series structure.

If it’s a non-recourse loan, the entity doesn’t matter much... the loan is given based on the strength of the asset and experience of the team. If it’s a recourse loan, you’re putting your personal credit on the line along with the property. Once again, the entity that holds the property is less important in getting the loan.

Now, we had to provide the entity documentation to the lenders in each case, so they do review them. Never once had a substantial question on the entities or structure in the process though.

Next project for us includes a loan assumption... new territory.