All Forum Posts by: Account Closed

Re-read @Shafi Noss’s post.

I haven’t selected the units yet, but let’s assume my answer is “yes”. Would the units be eligible for a credit?

@Chris Doloriert

@Chris Doloriert

Not sure what you are asking when you say you want to jump into CRE. The easiest way would be to buy a commercial property :)

It sounds like you are only interested in residential which to me (I’m small time but have residential, retail, office and flex commercial properties), is the simplest. Underwriting is important so you might Google APOD and DCF analyses. Spend time studying zoning guidelines and talk to code enforcement about occupancy permits and improvements he/she may require. I suggest hiring a commercial inspector. The nature of the loans is different, but the lender will tell you what to do.

I would never NOT live in a house with an open floor plan so I pretty much disagree with everything @Charles Clark is saying. I have a contemporary single story home with an open floor plan that has large windows on three sides, 2 sets of sliding doors going to separate patios, 20' ceilings and skylights. All this glass makes it so the interior space is contiguous with the exterior space. It is very bright. Segregated houses tend to have small windows and each room has 2-3 walls with no windows at all. The rooms are lit with table lamps and flashlights. Dining rooms are a complete waste of space and are typically used to store stacks of news papers and old computers that don't work. Since there are so many interior walls, one feels obligated to load each room with a bunch of furniture and tiny pieces of art that will fit on the tiny little walls. The kitchen--don't get me started. The idea of being confined to a space that is totally isolated from the rest of the house sounds awful. Don't you want to interact with anyone while you are cooking? Usually, almost always, when one of us are cooking, the other(s) will come out with their laptops and work on the dining table so we can interact. I personally like nice kitchens.

We throw many parties per year (we're pretty cool people). We don't have little clumps of people separated into a bunch of isolated rooms that can't be navigated. All our clumps of people are scattered around a single open space so you can see everyone and don't forget who is there. Moving around between kitchen, dining room atrium, kitchen so each person interacts with more people than they would if they were confined in separate rooms.

Regarding privacy, the bedrooms and office have doors. Oh yeah--the bathrooms have doors , too.

I suggest that you re-read @Jeremy H.

You may start by making your own APOD and DCF analysis

I think spreadsheets are important for commercial properties--all properties, for that matter. Of course, you can use a napkin to get a slice-of-life picture of how it's performing today. You cannot use a napkin to look at historical performance and future projections, though. You need to look at other things that are harder to calculate like, depreciation, cost recovery, taxes, principle pay-down, capital gains/losses, changes in basis...

I made my own spreadsheets to look at all this. Since I made it myself, only I understand how to use it so it wouldn't be useful to you. 

I am planning to install 20 HVAC units in two buildings plus another one in a single family. None of the 3 buildings are anywhere near energy efficient. If I understand correctly, I would NOT be eligible for any tax credits if I simply install Energy Star heat pumps. Correct? I would be using my own guy to do the work, so I would not be paying prevailing wage.

My feeling is that a cap rate can be useful for non-commercial properties. That said, I only have commercial properties, so the cap rate is important for me.

Cap rate is an index that you can use to quantitate risk. You can assess your own risk tolerance and use that value to determine what the property is worth to you. For example, a 4-plex located in Dallas might be a low risk investment so you might give it an index of 0.06, whereas the same property 100 miles away in a C neighborhood would be higher risk so you might say you are comfortable with a value of 0.12. Divide the NOI (let's say $20,000/yr) by the respective cap rates and you will get $330,000 and $170,000, respectively. These numbers represent the max you would pay based on the level of risk you are comfortable with.

All that said, a bank won't use a cap rate for underwriting your propertty. It's only an index you can use in your acquisition spreadsheets.

I use First National bank. I might be biased, though--they are one of my tenants. I used to go hang-gliding in Hickory (early 80s)--Lenoir, actually. I most often went to Boone and Grandfather Mountain, though.

I am small time and have only focussed on small apartment buildings like yours--I buy, renovate and keep 10ish unit properties. I don't have any partners. I am not interested in partnering on your project, so I can be unbiased in my thoughts.

I assume you are looking for an equity investor who will provide money for acquisition and construction and that you will do all the work. (If you plan to hire contractors to do the work, I don't see that you are bringing anything to the table and I cannot imagine anyone who would partner in a deal like that). If I were to invest in a project like this, I wouldn't do it for less than 30% rate of return or a 70-30% equity split where I would get 70% of the cash flows and 70% of the sales proceeds (I think you would be able to find investors in the 15% range or 50/50% split, though). This means you would do a lot better with a hard money lender than you would with me. I personally would never use a HML. Your VA eligibility is a big plus if you plan to hold the property for a long time, but it may be difficult to find an equity partner interested in long-term partnerships. One thing to look into is a construction/permanent loan where the bank would get as is and post construction assessments. You would need to put 20% or so down and the bank would distribute money for renovations as the project moves forward. The loan would switch to a typical mortgage when the construction is done. I don't know if the VA offers loans like this. Make sure you have extensive inspections done and that you walk through the property with the zoning officer.

Here's how my first RE investment went: Bought a 22-unit apartment building in need of total renovations. My construction costs ended out twice that I had budgeted (fortunately I have a day job, so it didn't bury me) and the project took 2 years longer than I had planned (in retrospect, my goal of one year was silly). It was pretty stressful, but I made quite a bit of money when I sold it. I had three major issues. I miscalculated the renovation costs; ran into unexpected expenses (e.g., the stormwater and sewer lines were combined so I had several sewer backups and had a lot of push-back from the municipality before I could redirect stormwater into the street); Contractors didn't show up which gives subsequent contractors with a great excuse for them to not show up (i.e., the domino effect thing).

In summary, don't partner with anyone, borrow money from a HML or preferably from your uncle Billy to get you through construction and then refinance it through the VA.