All Forum Posts by: Chase McArthur

@Anthony R.

Caps in that area are a shy over 8. Youre right, you dont have any decent comps haha. There is one property at 1900 E 28st that is going for 250k at a 15 cap, but I'm not sure how many units it is. Theres a portfolio deal of 11 units going for 40k a unit. So going off that logic you'd be looking at 160 for yours. But typically portfolios are discounted so its probably a safe assumption, depending on value add potential, that you could safely ask 150-160 for yours.

@Lisa Sims

Need more info. Is it a portfolio of all SFH? Are they individually deeded? Is it one large unit?

@Anthony R.

Your estimate puts it at around a 7-9 cap. There's nothing at all in your market that has sold in the last 12 months that is anywhere near a reasonable comp?

In markets like yours, youre going to basically set the market. In those plays you essentially throw it out there and sees what bites.

Truth be told, youre going to need a broker who has access to outside investors. And I don't mean some local broker who will slap your stuff on Loopnet. Someone with a real outside network of qualified buyers that will look at your property. By having that type of exposure you will be more likely to get what you set it at.

What town is it located in, I will do some digging for you.

@Gilbert Vigil

It looks like you have yourself a golden opportunity as well as a potentially dangerous situation. How much research have you done? Do you know what your overall investment goal is? Is it wealth preservation, cash flow, capital appreciation etc.?

There are plenty of opportunities out there to be had, but you have to figure out what your best approach will be. Your investment decision should also be based off of how much of a windfall you have found yourself with. Not that you need to disclose this, but having found yourself with tens of thousands vs hundreds of thousands vs a few million will drastically dictate how you will move forward. Real estate is only one avenue to consider. That being said your financial success with any investment you make will be determined by your ability to mitigate risks. I would seriously consider a diversified play, don't put all that you have in one investment.

A cash flow producing asset is going to be your best given that you dont currently have anything coming in. You need something that will allow you to subsist while your money is growing.

Also be very VERY careful about who you trust your investment with. There are a lot of hungry wannabe real estate moguls out there that will do all they can to "sell" you their deal. This is where all of your valuable research will be necessary. Know enough to protect yourself.

Good luck and let me know if theres anything I can help you with.

@John Stone

Befriend an awesome broker

@Ricky Rigsbee

Personally, I wouldn't pay for it. Its a standard excel model that can be found with a little googling. All this is, is a back of the envelope quick tool that gives you a very broad idea of whether or not an investment is actually worth looking further into. In absolutely no way would I ever depend on such a broad analysis to ultimately determine my decision.

This tool is basically designed to help you decide whether or not to submit your LOI for further diligence. If your LOI is accepted and you are give your window, you would need to use a way more comprehensive analysis tool. As I said before you can get a more advanced excel model for free elsewhere. I have one I will send you if you would like. But again, it should only be used as a snap shot tool.

@Erik Pfundstein

The answers you get will vary from person to person, but IMO a waterfall needs to be structured with defined hurdle rates. If you are investing the least money with the heaviest workload then a structure should be built that requires you to work for your returns, as you are taking the least risk.

The splits will have to be agreed upon between you and your investors. As I am not financially involved in your deal I don't feel comfortable telling you how to structure that.

Personally, the smaller your investment the larger your hurdle with a caveat, you should at least get a minimum return that is in line with your initial investment. However, if you are going to be the one managing the bulk of the deal, a managment fee should be included in your structure that is seperate from your waterfall.

Also, the overall investment strategy needs to be considered when developing the dynamics of your deal. You need to establish the entire life cycle of the deal from acquisition to disposition. Very often the bulk of the time and energy is spent on the acquisition with very little being spent on the divestment strategy. Develop the entire horizon as well as contigencies.

@Leslie Ray

There are several misconceptions here about market dynamics that are common among first time investors and those new to the CRE space.

1) Even though we are at the peak of the current cycle and prices have begun to level off, the correction that will take place will be nothing near a recession. Lending practices were drastically tightened after 08 which has subsequently lead to better underwriting and better debt securities. The market expansion that we have experienced over the last decade has been built off of solid economic growth rather than lose lending by the banks.

2) The current prices within the MF asset classes are being set by the market. The market is set by the price someone is willing to pay for a given asset based off of their investment goals. Overall, comps set the market by establishing a benchmark for other similar assets. Everyones investment goals are different which inherently creates discrepancies in what is percieved as a deal. An 8% IRR may not be acceptable to some but might be for others if their overall goals are different.

3) The CRE game is drastically different than residential. There are no borders to CRE, capital isn't restricted to local markets. A 5% cap rate looks amazing to money coming from a 2% cap market. This dynamic feeds into #2 hence driving the market.

This is a grossly oversimplified and very limited overview of just some of the more influential dynamics. There are a lot more variables involved but the general idea is there. The market is only ripe for certain investors at certain times depending on the scale of investment being made. Smaller investors ($0-$1M) are governed by different dynamics than the $1M-$20M players just like they are governed differently than the $20M+ players.

In this game you won't find deals on the internet. If a listing has made it onto the internet it has already passed through the hands of the pool of investors who have networked with the broker that listed it, and they have passed on it. The best brokers in this game rarely ever have to list a property. Find a good broker and give him a reason to call you first.

@Chase Louderback

You should see the comps for this property!

@Othmane Khayatey

@Chase Louderback

So this area is INSANE! Well relative to what I'm used to seeing on the EC. Market caps are posted at 4 but the comps show a crazy cap of around 2!! So relative to market its actually a deal (as I slowly shake my head in total disbelief that I just said that). A comp just sold 2 blocks over at a 2.79% cap at a whopping $770,000/unit or a cool $5.4 mil.

I'm not sure if this affects this property but the regulations on rent growth in parts of LA, I know are capped at 3% a year, this seriously affects your upside because no matter how much you improve the property, cash flow growth will be capped. Your only hope is improving terminal value.

Surprisingly, the current rents are actually below market, if you can believe it. That submarket is currently reading at around $3800 for 3/2, $2900 for 2/2, and $2100 for 1/1. BUT...remember the rent growth ordinance.

If you have the cash to play, I say play away.