All Forum Posts by: Chris Blackburn

So this property is priced at $35K a door, substantially under the $150,000+/- a door it would cost to build. You can still get a great 3/2 home for $150,000 ($700 mortgage). (wow- cheap compared to Salem's $350-400,000 for same thing) Figure rents will be below this for a 2/2. $575? (note: armchair numbers only- I have not researched the area. Figure the standard 95% vacancy with a 40% expense ratio- gives you a $190,000 a year gross rents, Without looking- a 6.5cap for this area? Move to a 7 cap to be conservative. Gives you a value of $2,750,000. If you go with a 35 year HUD loan a 85% LTV would allow you to access more than the value. I think you would have a better chance of giving the investor a % of the deal and provide the capital. So he gets to own 10-20% and get his money back. This is a 2-3 year process.

Tim,  we are looking at the same issue in one of the rural towns for a 114 unit project.  The land is $1.5M but the SDC's are over $2M.  We have discussed deferral or a 10-year payment but both did not city well with the city manager.  On material costs, we are planning to build with steel and XPS eliminating 90% of the wood.  Of course, all the other material costs are up as well but still plan to go forward and push for higher rents.  Not sure if there is any other way.

I think the second issue that comes with accelerated inflation 10%-25% per year (what we currently are in) or hyperinflation 25%-1000% per year, is product hoarding to mitigate rapid price changes. We are already seeing this and it will get worse. If you think it expensive to be buying PT 2x4's at double the price, think of if you can't even get the 2x4's for a project! The whole project is stalled and all your subs are stuck. (We are seeing this now with pecs fittings) 10% inflation is the floor right now. Be careful with 10 year leases and get your rate pushed out as far as you can. If you are doing multifamily- pay now for HUD financing and get 35 year fixed rates.

Investment Info:

Large multi-family (5+ units) other investment in Salem.

Purchase price: $361,800
Cash invested: $600,000

42 units (Garden Style) (woody walkups)
Sq ft 31250
Average size 744 sq ft
Price per ft $181.66
Cost (Build Cost) $7,040,516.11
20% Down of cost $1,408,103.22
80% of cost $5,632,412.89
85% Appraisel Value at 5.25% Cap $7,165,260.72
Total Cost Per Door
$150,735.79
Build Cost Per Door
$125,640.55 (Construction)

What made you interested in investing in this type of deal?

This is our model for the next 10 years. We are working toward several hundred fully entitled doors spread over several projects. Typically we own the land, get the units fully entitled, and build out with our local banks. Units range from 12 units to 120 units. We look for expansion on existing and full land development. Our model is always simple 3 story walk-ups with an 18 unit configuration. (or 12 or 6 if we need space to fit). We build in jurisdictionally friendly areas on flat land.

How did you find this deal and how did you negotiate it?

With this project- we paid the asking price if the owners would walk with us to divide the lot into multifamily. So this was a 3-year walk with only our costs being the money spent with our land planning, zone changes, and community meetings. Our real estate agent was instrumental in helping and buffering the frustration.

How did you finance this deal?

Cash for entitlements, refi on existing property and we broke out 10 resi lots at $110,000 each almost at the same time as closing giving a profit that we could use toward the property or add to one of our QOZF projects to defer taxes. We are using a bridge construction financing to HUD accelerated program for 35-year financing at 85% LTV hoping for rates between 3%-4%.

How did you add value to the deal?

Selling the lots around the units was really not a bad way to make this work even better. I was surprised at the demand for these and these sold very quickly in a bulk sale to a builder. We are doing a bridge to HUD financing and should be able to pull out ALL of our initial investment at the 85% LTV to then, do a larger project. The 35 years FIXED financing at (currently 3%-4%) is AMAZING. We are excited to offer the same potential to investors in the future.

What was the outcome?

$400,000 cash that more than paid for the land.

Lessons learned? Challenges?

Everything takes 3 years with zone issues. If our plan works- This project should be worth at least $8.5 M. at 85% LTV Should give us $1M-1.2M back in our pocket as a loan (no tax due) that we can go and purchase additional land to do the same thing. $1.2 M will allow us to buy a 3-4 acre, 60-100 buildable unit project. ($200,000-$300,000 per acre with 20+/- doors per acre) The cash flow will be about $6000 a month.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

AJ Nash Tradition RE, Salem Oregon

Investment Info:

Large multi-family (5+ units) other investment in Salem.

Purchase price: $361,800
Cash invested: $600,000

42 units (Garden Style) (woody walkups)
Sq ft 31250
Average size 744 sq ft
Price per ft $181.66
Cost (Build Cost) $7,040,516.11
20% Down of cost $1,408,103.22
80% of cost $5,632,412.89
85% Appraisel Value at 5.25% Cap $7,165,260.72
Total Cost Per Door
$150,735.79
Build Cost Per Door
$125,640.55 (Construction)
We are doing a bridge to HUD financing and should be able to pull out ALL of our initial investment at the 85% LTV to then, do a larger project. The 35 years FIXED financing at (currently 3%-4%) is AMAZING. We are excited to offer the same potential to investors in the future (NOTE- interest rates have to stay low for this to work and values need to stay high (and rents). We plan on building 1000 doors of new construction in the next 3-5 years. We are internally well funded and ONLY building simple 3 story walk-up projects on flat ground. No luxury- VERY easy to build with a very solid team of subs. We are the developer, property owner, and construction team. We are only building in the Willamette Valley where the demand is HUGE. Unless Amazon starts "Housing Prime" our value model is very conservative, low risk, and profitable. We work very well with the local jurisdictions and understand the market.

We put in an offer to purchase an unused portion of a church property. It took 3 years of wrangling with the county to get them to change the split zone to multifamily. (so much for the support for more multi-family) We worked (fought) with the neighborhood and built a buffer of 10 home sites around the project to buffer single-family and multi-family. We are currently finishing up framing (do not ask about lumber costs, only doubled, thank goodness. We are building a similar project like our mixed-use at www.keizermetro.com. (but no mixed-used below). We are in the process of using this plan and moving to a panelized steel system for building. If you have read this far.. you really are looking for solutions.. Contact me and I will share all my successes and failures and introduce you to our contractor/installer. The first one will not be easy or cheap BUT as we iron out the wrinkles and incrementally improve 1%-5% each build- it will get better!

What made you interested in investing in this type of deal?

This is our model for the next 10 years. We are working toward several hundred fully entitled doors spread over several projects. Typically we own the land, get the units fully entitled, and build out with our local banks. Units range from 12 units to 120 units. We look for expansion on existing and full land development. Our model is always simple 3 story walk-ups with an 18 unit configuration. (or 12 or 6 if we need space to fit). We build in jurisdictionally friendly areas on flat land.

How did you find this deal and how did you negotiate it?

With this project- we paid the asking price if the owners would walk with us to divide the lot into multifamily. So this was a 3-year walk with only our costs being the money spent with our land planning, zone changes, and community meetings. Our real estate agent was instrumental in helping and buffering the frustration.

How did you finance this deal?

Cash for entitlements, refi on existing property and we broke out 10 resi lots at $110,000 each almost at the same time as closing giving a profit that we could use toward the property or add to one of our QOZF projects to defer taxes. We are using a bridge construction financing to HUD accelerated program for 35-year financing at 85% LTV hoping for rates between 3%-4%.

How did you add value to the deal?

Selling the lots around the units was really not a bad way to make this work even better. I was surprised at the demand for these and these sold very quickly in a bulk sale to a builder.

What was the outcome?

$400,000 cash that more than paid for the land.

Lessons learned? Challenges?

Everything takes 3 years with zone issues. If our plan works- This project should be worth at least $8.5 M. at 85% LTV Should give us $1M-1.2M back in our pocket as a loan (no tax due) that we can go and purchase additional land to do the same thing. $1.2 M will allow us to buy a 3-4 acre, 60-100 buildable unit project. ($200,000-$300,000 per acre with 20+/- doors per acre) The cash flow will be about $6000 a month.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

AJ Nash Tradition RE, Salem Oregon

@Steven Kleppin   Steven,  would love to know the BP podcast that is suggesting that model.   We currently are developing that same model using:

Example/Model

1: New construction with apartments 70% LTV Bridge financing for construction. (Assume a $10M project w/ $3M needed in Cash)

2: We buy the property, get entitlements (season) and contribute the developer fee. (investor friendly banks)

3: $1.5M to 2M is backed into the entitled property and developer fee so we need $1M in investor money.

4: Upon completion- the property is valued at $13,250,000 M and at 80% occupancy we go in for a HUD 35 year loan (MAPP)

5: HUD is 85% LTV - This allows a $11M loan- returning the original investment of $3M back to us and the investor.

6: This is a 35 year fixed term!  The impact on the cash flow is minor and we have no risk of refinancing issues.

7: This only works this well in our super low interest rate environment and the appraisal meeting these specs (5-5.5 Cap)

8: The funds are returned as a LOAN not income- and if we do it right- the investor rolls into the next one.

9: Note- our model is a 30/70  We get 30% of the project putting it all together- the other 70% is what is invested.  So if 3 million was needed and investor put in $1M  they would be 33% owner of 70% offered or a 21.3% owner/share of profit.  Yes, we convert our development, ownership and the extra equity in the property.  The model is to have all of the entitlements in place, all the loan docs/funds ready before we would look at any outside investment.  (our projects have all been internal)

10: These models can be goosed or modified or enhanced by qualified opportunity zone funds (deferring capital tax until 2026/7. 

11: We are only doing 3 story- easy to build, woody walkups- Nice apartments- (Quartz, stainless, nice kitchen bathroom)- These are so easy to build vs the luxury, podium, 5/2 style.  We are transitioning away from wood and are trying to build the exact same layout and engineered plans on every site (18Plex)  We build on flat ground in high demand locations.  (all of Salem/Oregon Metro area (NOT PORTLAND) I am planning for 1000 units over the next 3-5 years with 150 in cue and 3 great properties on deck.  

Chris Blackburn Clutch Industries, NWR, www.Clutchbowling.com 

We did these and they were expensive.  I think we spent $65K for the 2 buildings.  Maybe we got the gold versions?

@Ronald Rohde   Thank you Ronald, I found that index to be a much better indicator of what we are seeing. http://www.chapwoodindex.org If no one can afford the new rates at accelerated building costs, it will put upward pressure on existing inventory to help increase price. Real Estate is not inflation-proof but it does eventually rise to meet the new numbers. Having a fixed debt for a significant term really solves this. Most commercial RE is 5/25 or 10/25 for loan rates. I am moving toward the new build, 36-100 units, 3 story walk up- (easy to build), Steel stud construction (panelized) on a flat piece of ground. A bridge to HUD finance can give me permanent 35-year financing currently at 3.5%. This is inflation-proof! Not sure how much of a window we have but will be trying to do about 1000-800 doors over the next 5 years. The amazing part is HUD allows for 85% LTV so potentially all my (or if we take investors) money could come back as a loan (Rates have to stay low and it has to appraise) in 36 months or less. The only deal I see better than this is the same project but in a qualified opportunity zone. Roll those cap gains/qualified into a new build project QOZF, bridge to HUD, 85% LTV cash out as a loan, and build another one. (Taxes WILL be due 4/2027 at an unknown rate) ALWAYS build simple to the middle housing need- NO fancy luxury- In Oregon we have 10 years of apartment building before we see an issue. Our residential housing prices have doubled in 5 years and an entry 1200 sq ft dinger is $300,000 plus with 20 offers coming in the first week. This could all go away if material prices continue to climb so we are cannot charge enough to cover mortgage costs. I guess we would jump into the affordable housing side and make our income from the developer fee and hand the project to a non-profit

@Jason Rowlett   surprised no one is chiming in here.  We just built a tap house surrounded by 3-4 food carts.  We get a revenue share from the lease of the food trucks that augments the rent from the building.  (Building new is punishing unless we end up getting north of $2.50/ft or 30 year for rent.  ($36 a year is HARD to get in little Salem OR).  We have looked at other options for food truck parks.  We have power/sewer/gas stubbed to each and I think the rent is $800 per month.  We have looked at some other options for food truck parks but realize that the taphouse may be the winner in the project.  

$135 a foot and an 18 month wait to build and the potential for materials to go up an additional 30%... No thank you.

We were just looking at a 120,000 concrete tilt-up and the cost was at $116 a foot.  Used buildings are looking better and better.