All Forum Posts by: Cody J Leivas

With the increase in interest rates, liquidity is more important than ever. Cash and other liquid assets are moving out of the banks and brokerage accounts and into treasuries. Investors instead take low-paying deposits and place them into short-term treasuries. This takes the deposits, which the banks lend, out of the banks, increasing the bank's cost of funds. The higher cost of funds for banks leads to higher interest rates for those properties you buy. The interest rates will ultimately change the return as your borrowing cost change. 

Properties recently bought with rents at or above market and high increases in rent forecasted will bear the most brunt from the changing market. Buy right and operate the business plan. It's a good time to sit back in the batter's box and wait for your pitch. Make sure you have the cash to take advantage. 

Cody's Current Buyers Box:

- Under market rents (>15%)

- Basis below replacement cost, Low basis

- Cap Rate > Borrowing Rate

- Major MSA markets with + Jobs 

- 3-5 year WALT (weighted avg lease term)

(Still swinging)

I buy industrial. I'm on a team that owns and operates with investor funds. 

Earlier this year, I helped a syndication group buy a 6 building portfolio in Atlanta, Columbia, Macon, and Augusta. 

@Joshua Austin - Happy to get on zoom

More risk = Higher potential return

Below are the typical risk-for-return classifications for a standard commercial investment:

Opportunistic - Lease up vacant space / heavy renovation / change property use - +20% Internal Rate of Return (IRR)
Value Add - Some lease-up risk, short-term leasing risk, some renovation, Increase rents - +15% IRR.
Core Plus - 5-year + lease term with under-market rents, increase rents to market, minimal to no reno - 12 - 15% IRR.
Core - New building with strong tenant on a long-term lease - 8 - 12% IRR.

Timelines for these will vary as well. I've underwritten close to 200 deals this year. I personally look to invest in core plus or value add deals with low lease rates relative to the market, low basis compared to replacement costs and comps, and limited supply in major MSAs. 

I think it's fair to have larger increases if the lease rents are under the market. You could have the annual increases be the greater of 3% or CPI. 

If you get over-market rates, you are less likely to renew and will have difficulty finding tenants. Keep in mind that tenants will not like the increased variability of their rent. 

Both are important. When doing your DD, you need to assume that this building could go vacant, and if it did, could you get rents similar to or above your current lease. Even if it is NNN or Abs NNN, you will want to do a property condition report to determine all the deficiencies in the property (it's a couple hundred dollars). If it's the tenant's responsibility, you can and should notify them of the problem and have them fix it. It should say in the lease that they are required to maintain x in working order. Some tenants will be better about keeping the building up to date than others. At the end of the day, they could leave and not maintain the building (and you may not have a security deposit), so it's best to know what is wrong with the building and get it fixed, especially if it's the tenant's responsibility. 

Planning to get a Heloc on the property in 6 months so really focused on getting the best bang for my buck. 

So far I went through the back yard because it was very overgrown. Bought weed barrier,  lime tree and lemon tree, and decomposed granite = $120. Looks good but I need to get some plants. 

@Rose White I'll have to reach out to some agents in the area. I can still do things to the kitchen but I'll need to make a budget first. 

@Bob Okenwa Sod is a good add and easy. I'll do that this weekend

@Brian Cole Painting under kitchen and bathroom sinks is a great tip. I'll be sure to do that.

I'm in my first house hack in Dana Point, CA. With many of us are in quarantine we have the time but may not have the money. What are some good ways to increase the value of your home without spending the big bucks? I'm looking to do some landscaping and small DIY projects. Any ideas?

Please come up with ideas under $5,000. 

Thanks, 

Cody Leivas

@Nick Hedberg

Closing a duplex in Dana Point CA. It is in an R2 zone and has an attached garage. Doing a garage conversion to a 340SF ADU (very small). Cost should be relatively low (Max $25,000 - prob $15,000). Adding the livable sqft will increase equity ($100-150k).

I work at a community bank in California and have done deals where we have taken on second positions as long as the firsts aren't too large. These deals typically stay under a 65% Combined LTV. Its always better for a bank to take over all the debt but if you reach out to enough lenders you could probably get one that will take a second position.

Try to find a small community bank because they are more likely to take the risk. Rates will be higher but between 5.5% - 8% is better than bigger banks & hard money. (Watch out for origination fees)

If you can't find one, it is worth refinancing as long as the terms are favorable. Revolving LOC often have annual fees.