All Forum Posts by: Chris Grenzig

@Kimberly Lu Welcome to BP!

I got started by investing some money into a 8 Unit complex and asking a ton of questions and learning as much as I could through the property I was invested in. Couldn't have been better because I do it full time now and I still am invested in that deal. I would highly recommend finding a mentor and a great way is offering to invest in their deal if they will help educate you in the process surrounding it. Or I would suggest contacting experienced people and asking how you can help them in exchange for education/help. It's tough to get people to help you out when you don't bring any value you to them in exchange. Capital is an easy way to bring value, but it also could entail answering phones, putting up bandit signs, mailing postcards/direct mail, or whatever they need. Only way to know is if you ask. 

@Anna Scherrei Rental properties are all about supply and demand. When looking at markets, look for how many new units are being planned and/or scheduled to be delivered in the next few years. Less supply is generally good for markets because then tenants can only go to existing buildings. Look at job growth, unemployment, population growth, home-ownership rate, top employers, new companies moving to the area, look at areas just outside these areas for possible cheaper options, etc. If people are moving to the area then there will be more need for housing and vice versa. If there is more demand for housing then supply, rents will naturally increase and value will go up. 

@Diane G. Unfortunately there isn't too much you can do to ensure anything, except the track record of the individual/company, meeting/interviewing them until you feel comfortable with the situation and doing all your own research into the proposed property/properties.

One of the things we tell new investors, if you're thinking about investing $100,000 and aren't 100% sure, invest $50,000 and try it out. If it's $1 million invest $250,000. Basically invest less, see how comfortable you are with the process and go from there. You may find out you don't like the company, the process, their investment objectives, etc. and that way you have significantly less skin in the game. Or you may be very pleased and have much more peace of mind going forward. Obviously there may be minimum investment requirements which would hinder that somewhat, but it may help. Hope that helps somewhat.

@Garmeon Y. You can always bid lower, its just whether they accept it or not. Is it a broker or the seller directly? I would find out why they want to sell and the more motivated they are to sell, the more likely you will be able to reduce the price. If they're just selling because a broker promised them $1,400,000 it will probably be more difficult.

@Todd Summers 100% find a good lawyer who can help you structure it. If you're worried about coming across a legitimate to family/friends/etc., having a lawyer provide proper documentation is huge. Also, it will prevent any future headaches you may have with the legal side of it all. Obviously the cost has to make sense though.

Creating a business plan and a structured layout of the property goes a long way too. Put together a packet with a description of the market, what unemployment is like in the market, local vacancy, top employers,  population, rent growth in the area, percent of people that rent v own, etc. Also, put together exactly what the funds will be going towards (purchase, renovations, legal costs, accounting costs, property management, taxes, etc), put in a contingency in case you go over budget on anything, expected time frame (purchase to fully rented), put together a projection of income and expenses (proforma), their Cash on Cash Return, if you plan on using a mortgage or all cash, what is the exit plan, etc.

The more information you can put together in a logical thought out way, the more legit you will look. Pretend these are investors you have never met and you have to convince them this is a no-brainer. The biggest things to include, for me, are the following:

- What will you be using my money for exactly?

- What is the property, area, market like and where are you getting your information from?

- What do you expect my returns to be on a conservative, expected, and ambitious level?

- What is the exit strategy, how do I get my money back? How long until I get it back?

Hopefully that helps, if you have any more specific questions let me know.

@Rafael Dalmasi I know it says your from New Jersey, but we host a free monthly meetup in Westbury, NY mostly around Multifamily, but we bring in guest speakers fairly frequently and there are great people to network with as well in other aspects of real estate as well. We also have helped out other people getting started in real estate like yourself. If you might be interested shoot me a PM and I can tell you more about it. If not let me know if I can be of any help. Again most of my experience is in multifamily not wholesaling, so not sure if I can, but you never know.

@Garmeon Y. I can't attest to financing really, but with an FHA loan you do pay a PMI which is an additional cost monthly v putting 20% down.

As far as the actual property is concerned it looks like it is really overpriced. The image is a little small to read on my end, and a bit blurry when zoomed in, but I think I have the right numbers. Current rents I can make out are $1900, $1512, $1300, and $1300 which would be $6012 a month. I know you mention owner occupied, but seller won't base price on the 3 units instead of 4, so I'm including the 4th unit as well. That gives you a Gross Potential Rent of $72,144 a year. With a 5% vacancy loss that's $68,536.8 (and I usually underwrite to 90% to be safe), 50% expenses (general rule of thumb) would give you $34,268.40. It looks like the purchase price is $1,400,000 which would mean they are selling the property at 2.45% cap rate. That is insanely low!!

Even if you calculated with the market rents you 3.8% cap rate roughly! ($3,100 + ($2,100x3)= $9,400x12 months= $112,800x.95 (5%vacant)= $107,160x.50(expense estimate)= $53,580/$1,400,000(purchase price)= .03827).

As far as appreciation, in my experience 4 units pricing will be based on your NOI and not market value of surrounding houses like SFR. Even duplex's are based on NOI mainly because you would rent it out. If you owner occupy, your NOI will go down significantly and wouldn't increase the value of the property. Maybe I am missing something drastic but it just doesn't seem to make sense to me from the picture you provided. If you want to chat more about it let me know.

@Erica Seydoux Commercial properties are primarily valued according to NOI and the Cap Rate in the area. Anyone selling a commercial property will provided you with Income and Expenses for the past year at least. It is up to you to figure out what the market cap rate is, a good resource is calling commercial brokers in the area and getting their opinion.

For example if a property had a $300,000 NOI and the market is a 6% cap rate, the market value would be $5,000,000. (Divide $300,000 by .06 to get $5 mil).

@Jessica A. Smith Commercial properties are priced based on NOI and the cap rates for the area. Normally with commercial properties sellers will provide at least a T12 for Income and Expenses and a rent roll to show how much each unit rents for . Very quickly if you take $300 x 52 weeks you get $15,600 for the year per unit. Multiply by 9 units = $140,400 is your Gross Potential Rent. Every area has a Vacancy average, and in his financials that the seller should have it will have the history of their vacancy. For arguments sake lets use 90% occupancy for the year projected out. $140,400 x 0.90 = $126,360. Many people use a 50% rule to figure out roughly what expenses are so $126,360 x 0.50 = $63,180.

Now the seller is asking $300k, so to find the cap rate you take 63,180 and divide it by 300,000 which gives you 21.06%. This is a ridiculously high number and it leads me to believe that either the property is in need of desperate repair, he's lying about what he gets for rent (most properties don't say per week from my experience), or something else.

I would ask to see a rent roll and a T12 for the property before going any further. Hope that helps a bit.

@Blake Jarrett you're right about newer construction, tends to have a lower expense ratio. Should have mentioned that as the exception.