All Forum Posts by: Christopher Freeman

I would not switch the power over to your own name until you have possession. No sense in paying for their electricity on top of having them squatting, but as other's have said it is likely illegal for you to take it over and shut it off.

That's an interesting perspective. The lender's primary interest was definitely whether the first lien note would be <1.2x covered, but the global DSCR has potential to be razor thin if you leverage an additional 25% of the purchase price on top of that.

For the particular deal that prompted the construction of this model, I obtain a global DSCR of around 1.2x using extremely pessimistic modeling assumptions (including 3rd party management). In actuality, we self manage and expect around a 2x global DSCR/11-12.5 cap in a good downtown location.

Howdy,

We frequently have tenants misuse command strips. Instead of pulling the release tab straight down, they try to pull the whole thing off and invariably wind up ripping off a whole bunch of paint.

I've attached a representative image. Is it reasonable to pass through the cost to repair this?

Howdy All,

I've recently been focusing on seller financing models and the determination of a maximum allowable offer. My commercial lender will provide up to 75% LTV and will allow the seller to carry back the difference, thus eliminating the need for a down payment.

With the help of these forums, I built a model that sensitivity tests MAO as function of capital structure, DSCR constraints, and cash flow per door thresholds. One drawback of the model is that inexpensive credit and/or long amortizations may result in a proposed MAO that is substantially higher than fair market value. That is, the calculator will determine that you can "overpay" and still hit key cash flow metrics. However, in doing, so it places the asset underwater from a liquidity perspective.

Fixing this is easy: just add a price not to exceed based on a cap rate valuation, CMA, or other manual input.

My question for the group is: Would you be willing to pay a purchase premium in order to induce seller financing? On the one hand, you may close with little/no/negative equity if you pay a premium, which adversely affects liquidity. On the other hand, you may generate substantially higher deal volume. As long as you have staying power through a healthy DSCR and conservative reserves and allowances, it would seem that the willingness to hold the asset for a potentially long period of time becomes a primary consideration.

Looking forward to hearing people's thoughts on this.

@Todd Rasmussen, took a little tinkering, but I got this working in excel. This is great. I can combine this calculation with a sensitivity test to determine the max offer I can make according to the term and interest rate on a seller carryback.

@Todd Rasmussen, thanks! I think this gets me to where I want to be! If I'm understanding correctly, you can factor out Lmax and divide such that: 

Lmax = Pmax / [(ac1(1+c1)^n1)) / ((1+c1)^n1)-1) + (bc2(1+c2)^n2) / ((1+c2)^n2)-1)] 

and

MAO = Pmax / {(a+b)*[(ac1(1+c1)^n1)) / ((1+c1)^n1)-1) + (bc2(1+c2)^n2) / ((1+c2)^n2)-1)] }

Will build this out in excel later and let you know if it works...

Okay, here's a doozey.

Given: Rate and term on a first lien mortgage, rate and term on a seller second, composition of capital structure (e.g. 75% commercial mortgage, 15% seller note, 10% buyer's purchase equity), net operating income, and a maximum debt service coverage ratio...

Calculate: The amount of debt that will cause the DSCR to equal the max DSCR. In other words, calculate the maximum allowable offer based upon a specified DSCR constraint.

The first part is easy. If you know NOI and you know your max DSCR, you just do NOI/mDSCR = Maximum Debt Service.

If you only had one amortizing loan, the calculation is easy. If:

L= Loan Principal

P= Payment

c= Interest Rate

n = Number of periods

and

P= L*[(c(1+c)^n)/((1+c)^n)-1)]

then

L= (P(1+c)^n-P)/(c(1+c)^n)

Where it gets tricky is when your payment is the result of more than one amortization. If you had two loans with the same rate and term, then you could calculate it as though it were one loan with the same rate and number of compounding periods. I **think** (but am not 100% certain) that if you had two loans with the same term but different rates, that you could get the correct answer by using the weighted average cost of debt and leaving the number of compounding periods unchanged.

I'm not sure how to structure the calculation if both rate and term are different. In theory L = L1 + L2, where L-1 is the loan principal amount for the first lien mortgage and L-2 is the principal amount for the seller second. You could then setup the formula such that L= (P1(1+c)^n-P1)/(c(1+c)^n) + L= (P2(1+c)^n-P2)/(c(1+c)^n). However, you would not know or be able to calculate the value of P1 (payment of the first lien) and P2 (payment of the seller second) without knowing or solving for L1 and L2, which puts you in a circular logic loop.

Is there a way to get here without cheating and using goal seek in excel?

 My understanding is that *if* they complete the estoppel certificate, that it may then supercede a conflicting senior lease should said lease be rediscovered at a later time. 

I don't anticipate issues getting the tenant to sign the estoppel certificate. We'll simply have the list agent explain to the tenant that the form is used to make sure there are no mistakes that could cause problems for them during or at the end of their tenancy.

 Be suuuuuper careful here. This is still technically steering and could get you in hot water. We had a sales agent here in NH who lost a discrimination case to a predatory client because he observed that one of the properties they viewed didn't have a backyard for the client's child to play in.

I don't take age into account. I live and invest in southern New Hampshire, most of the multi family properties here were built between 1860 and 1925. I wouldn't have anything to choose from if I insisted on new buildings.