All Forum Posts by: Chris Grenzig

I think @Jonathan Twombly hit most of the nail on the head. The biggest one I think will be taxes and insurance. Call the county and ask how they assess their new taxes. For example some reassess on sale, some reassess every x amount of years, some states are non-disclosure on sale price so they have a tough time reassessing anything. DO NOT tell them the address of the property you are looking to buy because they will flag it and look for the sale of the property and ding you really quick.

I also agree that the management may put full-time or part-time employees on-site and those will be expenses paid through the property. If you have a manager in mind I would ask them what that cost is.

Also, if you have a management company ask them to do an underwriting for you of what they expect income and expenses would and compare it to your own and ask their reasoning for the numbers they choose.

Vacancy is not considered an expense, it is considered a line item under income and IF you wanted to go by a percent for expenses you go off Net Revenue which is:

Gross Potential Rent

+- Gain/Loss to Lease

-Vacancy

-Bad Debt

-Concessions

-Non-revenue units

+RUBS

+other Income

=Net Revenue

Hope some of that helps.

Chris Wilson 32209 is one of the worst zip codes if not the worst in Jax. Jax is also notoriously spotty even in the same zip let alone a couple of blocks away. I don’t know any manager that will do that small but I would avoid that area all together.

Hoa Nguyen a couple of routes but I’ll keep it brief. First invest with a syndicator in multifamily and ask a ton of questions if they’ll allow it. However you’re investing as much in the sponsor as you are in the deal so be sure to vet both properly. Second, buy a small multifamily and manage yourself close buy. You’ll make a better return than using a property manager and get a hands on learning experience that’ll beat any book. Third, invest in a small multifamily by yourself or with a few people and learn hands on, use a property manager so you don’t have to deal with tenants and other day to day problems.

Troy Iversen we do several a year, if you would like to be notified next time we have a deal come out shoot me a pm and we can talk more about it. Otherwise search through the commercial/multifamily forums and the same names will pop up.

@Ray Hernandez I'm going to be a bit conservative and say maybe 50+ units that's fair. It also depends on the type of deal more so than the size. For example our latest Jacksonville deal (82 units) had about a 10% COC return on average. However, the first year was about 7%, year 2 -11%, year 3-5 10%, that was because we are doing interior upgrades, and our loan has 2 years of IO.

I think most syndicated deals you can reasonably expect to make close to 15% annualized. That's the minimum return we usually try to hit for investor returns. Using the same Jacksonville property, we projected an 18% annualized return in year 3 net to investors. Most syndicators will probably talk to you with an IRR which takes into account the Net Present Value of money. Basically 15% annualized in 3 years is more valuable than a 15% annualized in 5 years; or a dollar today is worth more than a dollar tomorrow. We usually shoot for a 15% IRR net to investors which, depending upon the length of the deal, is usually at least a 17% annualized return net to investors.

However, not every syndicator or deal is the same, you have to look at their assumptions and see what they are underwriting to. The biggest one I see all the time is the exit cap rate upon sale. A lot of people will assume a LOWER cap rate than upon purchase. This assumes that the market will continue to go upward and not remain the same or decrease. Personally, and the way I was taught, we underwrite to a HIGHER cap rate and usually add 10 basis points (.10%) to the cap rate for every year we plan on holding the property (5 years 6.5% cap purchase to a 7.0% cap sale).

There's a bunch of other things like vacancy, delinquency, reserves, fees, income increase each year vs expense increase each year, etc. that can be changed very slightly that can turn a bad deal into a good deal on paper. At the end of the day you have to look at the track record of the sponsor, and then you have to have a level of trust with that person in order to invest with them. 

Edit: I should clarify re-reading your question. 8% for under 50 units is doable and a good return for sure, it's just significantly tougher to find quality property managers that will do less than 50 units, because if they are that good why would they continue to do sub 50 unit properties? Obviously there are many that do and they have viable reasons, it's just not as likely as there being an alternative reason. Also, an A class asset in a top 15 MSA by population is never going to make you 8% COC, however 20 units in a small tertiary market thats a C class asset probably will; but that property is not going to appreciate like the A class asset probably will. That's why we tend to look for B+ to solid C properties which have good cash flow and have some upside on sale as well.

@Ray Hernandez so I'm biased, but I think multifamily value-add/opportunistic is the way to go. I think you should diversify between different types of buildings and locations though. I'm also assuming you have other liquid assets to offset the illiquidity of equity investments in real estate.

Doing some rough math of you goal of $100k income a month, I'm assuming you mean Cash on Cash return every year and not annualized return. If you did consecutive 5 year deals that netted you an annualized return of 15%, it would take you 35 years to get over $15 million which would net you $100k a month at 8% cash on cash. If you did the same thing, but deals every 3 years, then it would take you roughly 33 years to get over $15 million in value and net $100k a month at 8%.

8% cash on cash isn't a crazy return but you might get a little lower or higher depending upon what type of asset you go with. 15% annualized once the building is sold isn't unheard of either and is a good estimate in my opinion, but obviously could be higher or lower. Also, this doesn't take into account taxes needing to be paid for capital gains, any time lapse between deals, and other factors. 

If you want to know how I did that quickly let me know or if you just want to pick my brain feel free.

@Jesse S. throwing in another possibility, instead of buying turnkey where you have a mortgage yourself, invest with someone else and it won't affect you because you won't have a mortgage against your name. Doesn't necessarily have to be syndication in multifamily, could be hard money loans, partnering up with someone else, REIT's, etc. I have no idea if another mortgage on rental will effect your ability, but this way you don't even have to worry about it.

@Alex Hogle it really depends whats going to fit in with your lifestyle and your plan for the future. If you want to quit your job and go full-time, flipping is probably a pretty solid option. If you have a good job that you enjoy, then you may wan to buy and hold. If you've got that plus not a lot of time, you may want to look into investing passively; whether that's a Hard money loan, partnering with a family member/friend, syndication, REIT's, etc.

@Justin Traina welcome to not being passive. I have some experience with distressed assets so if I can be of any help let me know. If you're ever in NYC or LI let me know and we can always get together. Best of luck!

@Erin Gray When looking at markets the best places to start are local. Obviously you said you're looking for more cash oriented markets. Therefore, the next best way to start sorting through markets is to look at markets where family lives, friends live, other places in the country you already know for whatever reason (lived there, vacation there, etc.), places you would live to visit frequently, etc. 

Unfortunately, there's not a place where you can look and say "Oh I want a 12% COC return, here's all the markets that will do that. You've got to start with markets and go through and find ones you like and find ones you don't like.

Choose a city, see what it's like, look at different areas in the city, and then look at the surrounding suburbs as well. Then if you're willing to look even farther out where it gets to the true suburbs and starts to look like its going towards rural. 

Typically you want a higher cap rate to get better cash flow (multifamily) or find houses where rents are at least 1% of purchase price. Those places are typically not near major metros, but could be within driving distance of those metros.