All Forum Posts by: Carmen Alexe

Jessica,

You are a first time investor. All the reading on the subject you've done is not equivalent with experience. Experience is when you actually own it. Because of this if I were you I would consider a different area and property.

My experience with section 8 tenants is that generally they are the neediest. Maybe not everyone, but they tend to require more attention and more money in repairs.

From a lending standpoint, in case you apply for financing to acquire the property, you may not even get approved on this deal, that is b/c your lack of experience and the caliber of the property would be too high of a risk to the lender. Unless you have a seasoned partner to consider this deal, I'd be looking for another property. I see so much hype around me about the potential of this and the potential of that. Figures on paper mean little, high cap rates mean little, if you have a property located in an area with poor economic growth, low absorption rates, high unemployment, and higher crime. If real estate investing was so easy, we would have way more wealthy investors. Just my two cents worth of knowledge.

John, here are few thoughts that come to mind:

1. The realtor. Look for one with extensive experience in the multifamily market. One who lives and breathes multifamily, one who understand the local market, the general CAP rate for each area of the Dallas market, the crime rate, the demographics, etc. Residential realtors seldom have this knowledge as they are too busy with SFR's.

2. The property. You may want to look for a smaller property in good condition, with no deferred maintenance or major structural problems, in a good location. I say this because I believe you may be an investor with limited experience in the MF sector. If that's the case, you don't need headaches with your first MF property. While owning your first property you'll learn whether the property management company is good enough to handle the day to day tasks of managing. If you're not satisfied with how they work you can explore others (and I'm sure there are plenty in such a big city). That is why you don't need additional projects with your first property such as remodeling and other responsibilities.

Even if you have more extensive experience in the MF sector, with you living in another state - unless you already have and trust the "boots on the ground" to satisfactorily do the renovations - I still think that the type, condition, and location still apply for your first property in Texas.

3. Location. I often see potential buyers get very enthusiastic when seeing high Cap Rates, High ROI's, high Projections, etc. Please keep your feet on the ground and the head on you shoulders. Don't allow emotions to take over. Areas that typically have very high Cap rates are often areas with poor economic features, such as higher unemployment, lower absorption rates, and possibly higher crime. Dallas is a huge metropolitan city so I'd explore areas with good local economic features.

4. Back to the realtor. He/she will have the experience to know which area of the city to direct you to. Thus you may want to ask him/her about the areas where the MF absorption rates are higher. This will be very important to you, b/c your need is to maintain a high occupancy level, with good quality tenants who pay the rent (on time), and less turnover (management companies charge additional fees to rent a new apartment, this means less income to you when you experience high turnover).

When he/she presents you with the areas, you may want to ask how do the absorption rates compare to those of other areas. As questions about the local economy and what makes the area look good for the future. Overall Texas is a great state but it doesn't mean every single county is ideal for investing purposes.

5. Property management. A good CRE realtor should be able to recommend a few companies. If not, do a search. Regardless of how you get their names you should be able to review their websites. Only after looking at the website I'd call and interview the few that I'm impressed with. I wouldn't settle for a company that manages SFR's. Again, you'd want to have a company who strictly focuses on the kind of property you're looking to buy. One that is experienced with the local market and has been in business for a while. When reviewing a property management company, keep an eye for those that also have the ability to act as asset managers. What I mean by that, some of these companies have the ability to help with projections and calculations to increase a building's cash flow, also have "boots on the ground" to do renovations which may be associated with future properties you may purchase in the area.

I'd say this is a good start. And since you're doing a 1031 time is of the essence.

Larry, if the new buyer is buying the property by getting financing, I believe there may be some issues when a lender sees a contract between you and the new buyer. Since you're not the legal owner selling the property the lender may have a hard time basing their LTV on the new assigned purchase price. They may still consider the P.P. of $4MM regardless of what you want to assign it for.

The other issue that may arise is by you increasing the purchase price it may reduce the cap rate and jeopardize the deal because the property may not debt service. Thus the borrower despite the fact that he's prepared to pay a larger amount, his lender won't give him a loan if the property does not debt services. If I'm a rookie buyer, for example, I will most likely need a loan. If I'm a seasoned investor I am experienced enough to know that the work of an assignor does not justify a paycheck of $200K. Not to discourage you, just to save you time and frustration if you think it's easy to assign a deal. Good luck to you.

Oren, I just came across your post and while I noticed it's a bit old (written 2 months ago) I thought to answer regardless. Office/retail financing for foreign entities would be done under a non-recourse loan. A realistic LTV is 60-65% in good markets for great properties. Otherwise the LTV would be lower. Have you already completed your transaction? If you paid cash for it there may still be a solution to finance to get cash-out under a non-recourse loan.

Best wishes,

Carmen

Clayton, all these types of properties are attached. In other words, a duplex, is generally two units attached. A triplex is 3 units attached, and so on and so forth. In the above describes case, you may encounter a grandfathered property. For example, the 6 units apt bldg might have been built before the street was re-zoned by the county. If the county determined that that particular area serves best as a residential SFR neighborhood, they can't make the owner of the 6 unit destroy the property, so he is allowed to retain it as an apt bldg with a grandfathered clause. Now, if there was a builder coming in the neighborhood and buying an acre of land, he would have to build SFR's. The other example you posted, I believe the 6-8 units per acre means that you could short plat the one care parcel into 6-8 lots on each lot being allowed to build one SFR.

Hi Callum, investing in Reit's is like investing in the stock market, you're buying shares of a REIT that fluctuate. If I am not mistaken REIT's tend to be highly leveraged therefore returns may be good for now but once rates start going up it may drive the returns down. REIT's are also predominant in the large industrial warehousing, huge shopping centers, large office buildings. Private Placements are not regulated by SEC and are not traded on any exchange. My knowledge is that they focus most on multifamily properties. There are a couple of ways one can invest in private placements. Debt or Equity. If you invest in Debt you are actually part of a group of investors that make private money loans, usually on multifamily properties. Typical rates are 8-10% annual return on the money. Investing in Equity is like being part of the entire group that finds the deal (usually distressed property), stabilizes the property and then either sells it or held in the company's portfolio, managed and monthly returns distributed (after expenses are being paid for). Usually returns are higher than investing in Debt, maybe around 10-12% annually. Better deals were done right after the real estate bubble burst and there were more distressed properties available at better prices than today. But a good operator with years of experience and the right bank connections can still be a winner. As Brian said, it's important to evaluate the Operator and do the due diligence. I would definitely ask for a listing of properties they have stabilized and sold, the ones they currently hold, and look at how many years they have been around. The private placements are still passive however it's still wise to monitor the properties. I would think that you were approached by a private placement.

James, Here are some lectures worth viewing...

1. The Political Economy of 19th-Century Banking | Thomas J. DiLorenzo http://www.youtube.com/watch?v=Edrt4VHfpvo

2. Economic Cycles Before the Fed | Thomas E Woods, Jr. http://www.youtube.com/watch?v=TxcjT8T3EGU

3. Monetary Lessons from America's Past | Thomas E. Woods, Jr. http://www.youtube.com/watch?v=91OIBnrjzLU

Hi James,

I highly recommend Henry Hazlitt's "Economics in One Lesson". It is an easy read yet so logical and so worth reading. You'll be happy you did. After that may I also recommend:

1. Murray Rothbard "What has government done to our money"
2. Ludwig Von Mises "Human Action"
3. Murray Rothbard "America's Great Depression"

A wealth of knowledge on free market economics (aka Austrian Economics) can be found at www.mises.org It is my firm belief that understanding monetary policy and macroeconomics will enlighten one in the knowledge of history as well.

I just recently signed up with BP and was wondering how in the world to do that. So your question Jason and your answer Jon came at the right time. Thanks;-)

Jon, competing with the govt is difficult. I do sympathize with you. Personally I am not a fan of the too big to fail corporations that are part of the cronyism in America. Why they might do it? If they sell it to you for $30K and the loan balance is say $100K then they would probably be able to claim a $70K loss. But if they donate it they would claim a $100K loss while building their reputation how they help the poor (while they contribute to the destruction of the middle class).