All Forum Posts by: Scott Skinger

Congrats!

I don't know that area so I will leave that part of the question for others to answer. Regarding your other questions:

-$200K down at 25%-30% will get you into a property that is $650K to $800K, considering repairs, reserves and closing costs, the number is probably closer to $600K to $700K

-the number of units really depends on the area and class building. I'm currently considering a 10 unit 1.25 hours from Chicago, class c+ for around $515K. Another building in the same general area is a 10 unit with studios for around $300K...just as examples

-keep in mind, up to 4 units is still residential. Over 5 units is commercial, valued using NOI and cap rate, NOI/Cap Rate = Value...big difference

-loans under $1MM don't qualify for terms that are as good as loans that are over $1MM, start talking to lots of banks in your area and listen to @Gino Barbaro podcast(s) (8/10/2017 podcast in particular) that talks about financing, very helpful

-keep in mind that it can be difficult and/or not cost effective to hire a property manager for a smaller building, so going 3 hours away might be really tough to do a property showing, fix things, etc.

Good Luck! 

Great info @James Kojo, thanks for sharing.

Of course the answer is "it depends". Goals, risk tolerance, amount of time you want to spend investing, time frame for your investments, your own expertise, your passion your network...so many factors impact this decision.

For me, right now in my life, I'm moving towards 50% of my investments in a brokerage account managed by a very trusted fee-only (no commissions) financial planner and 50% in real estate. From there it is something like:

50% in Brokerage 

- 60% stocks, 40% fixed assets (bonds, cash and even a very small percentage in gold funds and lumber funds)

-everything is in low fee index funds

-all assets are held in the most tax efficient account types (i.e. IRA, old 401k) for the asset that is purchased

-diversification across asset classes, US/International

*This is boring as all get up. I have nothing to do and own so little of any one company that it not even worth cheering for them.

50% in Real Estate (where I'm heading)

-split (not necessarily evenly) between my own apartment buildings, other syndicated investments, possibly notes are hard money lending

You can come up with a lot of different ways to structure the deal but as I said before, at the end of the day it really comes back to how much money it takes to make this deal worth it for you and how much risk you're willing to take. If you just charge a flat management fee of 10% per month, this is a less risky. As soon as you start getting into equity, there are a lot more moving parts that will impact how much money you make and unfortunately you won't have direct control over many of them (timing of sale, sale price, market cycle, etc.). Just reading "partner problems", "not currently any income coming out of the building", "finish off apartments" from your posts makes this deal sound risky. 

Instead of equity play, consider the following ideas, which are a lot less risky to you and can potentially yield the same or more money to you:

1. Just be the property manager for a straight fee for 6 months to 1 year. Charge your fee and re-evaluate at that time. You will know a lot more about the owner, the building and what makes sense for you at that time. You also might have some more leverage in your negotiations if you have done a good job and he relies on you.

2. Many property managers charge a lease up fee as well. Come up with a deal that is something like 5% for property management + 1 month's rent for any new leases that you sign on, 1/2 month's rent for renewals. Show the owner how you are saving him $ by reducing his vacancies and the fee he pays you is less than the vacancies are costing him.

These are just some quick ideas but be creative and come up with something that puts $ into your pocket today. If you end up still wanting to go the equity route, you need to better understand his plan and see his projection model (spreadsheet). You need to understand it and believe in it, otherwise you are just investing your time for a lottery ticket...and your numbers probably won't hit.

@Lee Ripma great post, totally agree with your thoughts and picked up some "hustle tips" with your approach to researching the Cleveland market. I'm also interested in Cleveland so at some point I would love to trade thoughts and ideas.

I agree with @Account Closed, first ask a lot of questions about the current situation, the "bad" partner, his goals with the project and what he thinks a "good" partner would be like. Figure out his expectations. You never know, the partner you are speaking to may be the bad one.

More specific to your question, regarding you becoming a property manager/owner I would suggest first figuring out what you want out of this deal. Think about it this way. At some point your ownership will translate into $. A typical structure might pay you quarterly dividends and then a larger payout when the property sells. WHEN it sells might not be satisfactory to you. What if you want your $ in 3 years and the majority owner doesn't want to sell for 10 years or ever? Or IF it sells. What if the building is on the market for a couple of years and either doesn't sell or sells for a small profit? This might be satisfactory to the majority owner but you may have slaved away for 5+ years for a small quarterly dividend and a small payout at the end.

This is the same thing as stock options, or phantom stock in a company. Many people are allured by "ownership" or the big lottery winning payout at the end. This rarely happens. At the end of the day, this is just a math problem. "If I make $2000 quarterly on dividends and then we execute on our plan to sell at x in 5 years, my share will be $40K in dividends over 5 years and $50K in profits from the sale, $90K total. I will have invested 10 hours/week for 40 weeks/year for 5 years, 2000 hours. I'm making $45/hour for my time." From there it is up to you to figure out whether the $, time, opportunity cost and learning experience makes this the right opportunity for you.

If you get involved in a partnership like this where you have equity, especially where the majority of your compensation is tied up in equity, you HAVE to know what the majority owner's plans are, you have to be in sync and you have to believe that it will work. If the current owner doesn't want to share this with you or is fuzzy on his plan...RUN!

Don't take this the wrong way, but you need to read...at least the basics first, before you shotgun a bunch of questions. I'm willing to help, @Jordan Moorhead is willing to help and so is the majority of the BP community but you need to take some time first to educate yourself. Read this https://www.propertymetrics.com/blog/2013/06/03/ca... and this https://www.biggerpockets.com/forums/12/topics/134... and really any commercial real estate book, podcast, site out there.

At a minimum, memorize the formula:

Cap Rate = NOI/Value

or expressed another way 

NOI/Cap Rate = Value

Practice this, analyze properties and confuse yourself first...you will learn the most this way. And then ask questions to understand the fine points.

Again, not trying to be a jerk but you will get a lot further this way. Good Luck!

Congrats @Ron S., your patience and discipline waiting to find the right investment is pretty amazing! Now that you have that experience I bet your next investment will happen in 1/10 the time. I'm in the Chicago area as well, let me know if you're going to a meetup/REIA anywhere, would love to meet up at some point.

Congrats again!

@Todd Dexheimer are you going to any upcoming conferences/networking events? Are you going to be at Joe Fairless' conference by any chance? I would like to meet up and talk about your syndication deals and general experiences in multi family. If not, it would be great to jump on the phone at least.

I haven't had a chance to listen to your podcast on Michael Blank's show yet but probably will in the next couple of days. Thanks!

I feel like in most cases the broker's on Loopnet provide you enough information to calculate NOI. More often than not you see a cap rate and of course the purchase price, so now you can calculate your NOI.

Really, the problem is that it is all fiction anyway. You're usually looking at incomplete information, "self managed" properties and/or proforma numbers.