All Forum Posts by: Bruce Petersen

ZERO question, I would always go the MF route.  Larger potential payoff and easier.

I have many friends that live in Austin and buy SF in SA and do just fine.  There are right ways and wrong ways to invest and if done "right" you can do it rather easily but is always a little more difficult if you self manage out of town and I would always self manage.  All of those friends I mentioned self manage.

I think it's obvious to state that you need to find DEALS and not just buy anything because it's cheap, I will assume you know that.

Old Captial in Dallas for me as well.  They got me my first loan in MF on a 48 unit with zero experience and no job (I had retired, not homeless :-))

It is supposed to be a combination of asset age, amenities and rent per square foot.  All of these criteria would be compared to the sub market you are in and will vary. 

For age of construction, I would call anything 10 years or newer "A" with respect to age of asset. B would be 10-20 y.o. and C would be 30-40 y.o.

Like previously mentioned this is an art and definitely not a science.  For example, I own a 256 unit apartment complex in Central Texas that was built in 1984 so by my above comment you would assume it is a C but because of the amenity package and neighborhood it's every bit a B.

I know not totally clear definition but hopefully this help.

@Dan P.

Yes, that example is pretty normal.  Listings agents are basically highly paid used car salesman.  Having said that, most of them are very good people but understand they are trying to get their client and themselves top dollar.  

You are in a different and much more sophisticated arena with MF so it is up to you to uncover what the  more appropriate numbers are.  With experience you are able to build out a complete and detailed expense proforma based on your knowledge of what an asset will take to run on everything from staffing, marketing, admin, legal, utilities, etc...

Your approach of 50% Op Exp is usually close enough, if it's not an ABP property, for back of napkin numbers to see if the deal is worth digging deeper on.  Then you have to verify their proforma rents and even if they are relatively accurate in the current market, will that market hold out for you as you try to drive the rents higher?

Always be extremely careful when making an offer based on ANY proforma in a hot market, you can get burned if it corrects on you. 

I've never owned a SF rental and lending is different.  

Within MF I know that if you have a non-recourse loan (non contingent) it isn't held against you in applying for additional loans, don't know if SF lender will see it the same way though?

"That the asking prices are predominantly fiction?"  No, the ask is their ask, it's not fiction.  You may not agree on value but that is their ask.  

Welcome to buying businesses, it's a totally different ball game than SF.  Offer what you are comfortable with and not based on their proforma assumptions.  You need to also be careful if its a listed deal with a brokerage, if you offer too low you run the real risk of that broker/agent tuning you out on future listings.  MF is a small universe, play well with others and conduct yourself professionally.  If you are way off you may want pass on the deal. 

Preferred is generally not guaranteed.  The sponsor doesn't get any of their "cut" until you, the passive investor, get your 8% preferred return.

If there isn't sufficient cash flow to pay the 8% most deals are structured where that shortfall throughout the project is made up on a capital transaction (loan proceed or sale) first, then the sponsor will start to get their cut on that cap transaction.

Remember that in this scenario the sponsor doesn't get anything until the passive gets their 8%, if no 8% then no piece for the sponsor.   

Every deal is different so you must read the docs and understand what you are investing in before giving your money.

In simple terms, the CAP rate is the return you would earn on the deal if you paid all cash and had no loan on it.

NOI = 100k

CAP = 8 (expressed as .08)

100k / .08 = $1,250,000 Value

If you paid $1,250,000 for the property and it generated $100,000 in NOI (Operating Profit) you have got yourself an 8% annual return.

Yes, offer what works for you and pay no mind to the appraisal.

You will likely not change his mind, sellers of mom-and-pops are emotional and usually insist their baby is worth way more than it is.