All Forum Posts by: Scott Skinger

Classic. That is pretty damn funny!

+1 on the content and podcasts you will find on the websites of @Gino Barbaro and @Michael Blank. Books are great but I find the content to be shallow and repetitive. The first two I read were foundational, after that I found  just a nugget or two of information in each book. You will find a lot more specific and practical information on these two websites.

@Bryan Tasumi

I agree with bits and pieces of what is being said here, mostly with @Steve Vaughan but will give you a little different angle.

One important piece is your definition of "wealth" and how much cash flow you're talking about. I think there are lots of opportunities in REI to generate 10-15% rather passively with all of the tax benefits of RE. I won't do the math for you, you're a smart guy, but start with the end in mind and figure out your goals.

Next point. There are lots of different strategies in REI that will earn you great returns. I was at Joe Fairless' Best Ever conference this past weekend and there are people absolutely killing it in apartment syndication, apartment buying (their own $), mobile homes, corporate housing, parking lots and buying notes, just to name a few. Take your time, dip your toe in and see what is INTERESTING to you. Really, that is just as important as which one has the "highest returns". The investment strategy that YOU love the most will give you the highest returns, financially and emotionally.

Last point. Keep bringing in the income at your day job while you get started. Learn. Learn some more. If you want to get started right away passively, consider investing with somebody else who has a track record. There are many syndicators out there that specialize in all different commercial properties that should earn you 15%+ IRR, with moderately low risk. Just make sure that they are experienced and have a track record.

Good Luck.

I think your last message came in prior to me finishing my last post.

To be clear the ARV or Resale value doesn't matter in the calculation of your monthly cashflow or monthly CoC returns. It comes into play to calculate your overall returns after you sell the property.

If you plan on staying there for awhile you need to be a little less concerned about the sale price because your tenant will be helping you pay down your mortgage...BUT it still makes sense to buy right. I'm sure that you would like to make more (not less) $ when you sell, and in every calculation that you run, buying for a lower price now will result in a higher return.

If you're running your numbers through a financial calculator then some/most will consider your ARV or resale value/price. If you are doing a flip, this is an incredibly important number to know because it will determine if you're going to make $ or not.

If you are buying a cash flow property and plan to sell after 3-5 years, this is still an important number to know because it will estimate what your sale price will be and is used to calculate your overall returns.

In your situation, I would consider doing the following:

1. Consider how long you will hold the property. The longer you plan on staying, the less important this is.

2. Run comps to try and get a reasonably good idea of what other similar properties are worth

3. Run your numbers with very conservative resale figures. For example, if you are planning on selling in 3-5 years, you might consider modeling the sales price as the same number as the purchase price, less broker fees, resulting in an actual loss. Better to run conservative numbers and be surprised with the appreciation.

4. Just make sure that you are buying right...at or below market. Negotiate. Has the property been on the market for awhile? Is it a little rough in places? Is there some deferred maintenance that needs to be addressed? I believe you said you already made an offer, but if things come up during inspection, bring these issues up and ask for $ off. The seller is already emotionally invested and more likely to accept your new offer. 

Some more love for J. Scott, but I just saw him speak this past weekend and he has great info on negotiation (and has a PDF book) that would probably be very helpful to you. 

Good luck!

I bought it a couple of months ago and I use it for every apartment deal that I analyze. Definitely overkill and not necessary for residential multi family under 5 units but a good tool for any commercial mf.

Regarding the question "is it helpful if I'm not syndicating", the answer is yes. I do not syndicate at this time either. You have to change a few default values to zero, adjust the closing costs a bit and ignore a few pieces of data, but all of this is very simple. It is also helpful to have this data here to perform "what if" scenarios. For example, I was considering adding a sweat equity partner to help manage a few properties I was considering, cutting him in on 5-10% of the deal...it was nice to easily model these scenarios.

Overall, I highly recommend Michael Blank's spreadsheet. Let me know if you have any other questions.

@Dennis Johnson Late to the game here but a couple of other thoughts:

1. One method I like (at least in theory) that Michael Blank pitches is to create a sample deal package that is representative of a deal you would be doing. OM details, projected returns, deal analysis, your background, etc. You would then start having investor meetings and let people know that you are active looking for types of deal that look like your deal package (making it clear that this is just a sample deal), gauging interest, answering questions, etc. The idea being that you have met with a lot of people by the time you actually have a deal under contract and they are "warm". When you have an actual deal, the package will look very familiar to your potential investors and you are speeding up the process.

2. Establish a relationship with an experienced syndicator and directly raise money for them. If you pitch and bring OPM to the table you can get a piece of the GP. You are able to sell the syndicator's track record (and use their marketing materials) to your investors, making it much easier to sell the investment. You are learning how to pitch, you are building your network, you are getting equity in a deal and you can technically use this deal as part of your future track record. IMO, the downsides are that you are not actively learning/closing a deal yourself and you have to be VERY CAREFUL that you partner with a syndicator that you trust and believe in...your reputation is everything.

I don't think that you've provided enough information to give you a more detailed answer. Some things to consider, just to get the conversation started:

1. Be more clear about what you're proposing. You say that you will find and analyze the deal, are you also going to operate it? Property manage yourself or find a property manager? Recommend an experienced sponsor? How big is the deal? Just add a little more clarity.

2. Assuming that you are talking about finding and running the deal yourself, you need to think about and discuss more than just saying a "70-30 split". A typical syndication deal has a lot more moving parts. Acquisition fees, asset management fees, preferred returns, dividend payouts, etc. For simplicity, just consider a few things. How often are you going to pay out dividends? Monthly, quarterly, annually, not until you sell? This makes a huge difference on calculating returns (IRR). Will you pay out a preferred return? A lot of syndication deals will pay out an 8% preferred return to the investor, before the sponsor gets anything. A typical split might then be 70-30 and then waterfall to 50-50 on returns over a certain %. I'm not saying that you have to be that complex but you need to be fair.

3. You have no experience buying or running a mf property. You are not putting any money into the deal. I personally would not invest with my best friend who has no mf experience...even if they have bought a few SFH deals and have been successful. I would have a hard time giving my friend with no experience and no $ in the deal cash even if he was giving me 100% of the returns. I'm conservative.

Alright, all of that being said, I think your split is too high. Just be realistic. Your friend can invest with an experienced mf syndicator with many deals under their belt and get the same returns that you're offering. Don't confuse what you want with what is best for your friend. I don't intend for that last sentence to be mean, I'm just trying to be realistic.

This is a great thread and I really appreciate all of the detailed answers from you more experienced folk here at BP. @David Moore Another thought not mentioned so far is to, at least initially, not even worry about the cap rate. Run the numbers through your deal analyzer and focus on your CoC and IRR goals. When you plug in actual numbers the sale price (and actual cap rate) are usually laughable, especially on the smaller deals that I have looked at. I will then go through a series of iterations to my analysis, plugging in actual numbers (the seller's and my own research on taxes, insurance, PM, etc.) and ultimately (conservatively) coming up with an offer price. This is where I work cap rate back into the equation, using a market cap rate (or the cap rate in their listing/OM) with my adjusted NOI.

The biggest gotcha that I have learned in analyzing my deals as a rookie, is assuming annual rent increases and disposition cap rate. In any market, but especially today's market, Be VERY CAREFUL with these calculations as they can kill a deal and leave you with a loser that you can't sell or can't refinance.

Thanks for sharing Chris, good info!