All Forum Posts by: Daniel Reyes

My pleasure, Justin! Yes - an LLC may own a single-family home; lenders will generally require a personal guarantee on homes of 4-units or fewer. A personal guarantee might look something like this:

Purchase Price: $100,000

Down Payment: $20,000

Loan Amount: $80,000

Personal Guarantee: $80,000

This is basically a "full recourse" loan. In other words, the lender is not securitizing the asset, you are the security blanket for them :), even though the home will of course remain as collateral should there be a default. Your personal name must be on the note, so you have to take out a mortgage in this scenario (you're on the hook). There are other ways to finance a property; you might consider approaching a local/community bank with your goals. As a smaller bank, they might be willing to go a bit further for you to win your business.

For your business structure, this sounds like a joint venture. I would recommend visiting with an attorney and CPA to ensure this is structured correctly. We want to protect also your relationship with family.

All the best, you will do well!

Daniel

Hi Justin,

Thank you for posting! Maybe a seemingly basic question, but a good one nonetheless! :)

Lenders will require a personal guarantee when signing for a residential (full recourse) property loan (4 units and under). This requirement changes when you are seeking to purchase 5 units or greater, valued somewhere between $1M and $1.5M, and borrowing from an agency, Fannie Mae and Freddie Mac. These loans are generally non-recourse loans. In other words, there is no personal guarantee.

The LLC structure is used often when purchasing real estate investments. Of course, you might consider consulting with an attorney and/or CPA specializing in real estate prior to moving forward.

The last thing a lender wants to do is call a loan, unless necessary to protect themselves from losses. As an investor, your job is to win their trust and make it easy for them to finance the deal.

Each scenario is different; general rules are helpful, but the best solution is specified to the overall investment profile (asset, your record, capital structure, etc.)

I'm interested in the follow up to this scenario, keep us posted. And please feel free to reach out to me if you have any questions. I wish you the best, Justin!

Daniel Reyes

Hi Dave,

Congratulations on finding a potential investor!

There are a few ways to structure this deal, and in an effort to preserve the friendship, I would advise doing this legally to begin. Your legal framework will (for lack of better terms) frame the direction of your investments and relationship. In general, I would consult with a securities attorney before moving further along in this process. Apart from your due diligence, underwriting, and business planning, this is the safest way to proceed.

I wish you the best!

Daniel Reyes

Hi Matthew,

Welcome to BiggerPockets!

Generally, you might consider working for a sponsor/syndicator/fund manager before considering doing a syndication or joint venture yourself. Reputation and relationships are two of the most important assets to build over the tenure of your real estate career. A considerable part of your reputation is your track record which will affect conversations with lenders and investors. And of course, relationships are the hallmark (standard of purity) of our industry. An investment strategy is also critical to help focus your energies (Core, Core+, Value-Add, Opportunistic, market, asset type, investing for yield vs IRR, etc.).

There are some very good (and realistic) suggestions here. Enjoy the resources afforded to you via the BP community. Please feel at liberty to reach out to me if you are interested in learning more. Take care!

All the best,

Daniel Reyes

@Chase McArthur

Thank you, Chase! What a well written response, and a lot of fun to read too thank you! I mostly appreciate your position on outsourcing underwriting as a way to hedge bias, I have never heard this before. Next time, I will make sure I have time to read your response by the pool over the weekend! :D

On another note, perhaps there is a way to productize this as a service; as you know, clients generally question hourly fees (how many hours, why so long, etc.). I'm interested in developing a pricing model for this.

Thank you again for your thoughts! I enjoyed reading this. I wish you well.

Daniel

@Anthony Quartucy

Hi Anthony,

Congratulations on the beginning of your real estate investing career! Allow me to offer some solution you might consider:

Free

1. Government census data can provide much information you can leverage to begin your market analysis and research.

Free/Paid

2. Brokers, especially commercial brokers, are able to provide market research surveys. This may be free or paid depending on your relationship/arrangement with them..

Paid

3. Reonomy offers tiered pricing for CRE market data. You might like this one.

4. ArcGIS provides geographic data. You might layer this with another tool.

Lastly, of course CoStar is an industry leader. But 3 or 4 weeks ago, Moody's Analytics announced the release of their own data platform called Real Estate Information Services Network. This one not many people know about. Perhaps Moody's may afford good lawyers to dance with CoStar when CoStar responds ;).

There are a host of different services you might enjoy, provided you are willing to make an investment. If you are starting locally, I would consider the public data and broker relationships. I wish you well!

Daniel Reyes

Good evening BiggerPockets!

Underwriting multifamily acquisitions and developments can be oft seen as tedious, lackluster tasks. Due to this, syndicators and fund managers alike have elected to outsource this work. In a competitive market, it is a challenge to find a “top gun” acquisitions director, and build out a sustainable acquisitions team in house. As such, many companies (sometimes just individuals) provide these kinds of underwriting services for a flat rate.

For those of us that are familiar with this, here are a few questions I’m interested in seeing your thoughts on:

1. How much have you paid for this service?

2. Have you worked with an outsourced underwriter? If so, did he/she help with finding the deal or investment strategy?

3. What are the pros and cons of working with an outsourced acquisitions professional?

4. As a sponsor, do you believe your primary role is to bring people together via around your investment criteria/mandate? If more than this, why?

I always enjoy all the different perspectives I read on BiggerPockets. I’m grateful to connect and learn from you all. Hopefully, I will have the opportunity to return the favor :). We are blessed with a single life, let’s serve each other well.

@Simon W.

Interestingly enough, Charley pointed out the CPA is going to perform in a way that makes most sense for them (audit/tax purposes). I agree with both of you; the internal financial expert can post a debit and credit, and also (perhaps more importantly) partner with you in formulating more strategic portfolio management/performance analytics. Thank you for your perspective.

I agree with everyone, there is certainly a need in this space.

 Thank you, Ahad! I would add - the highest and best use I have noticed of a CPA as a partner is for audit and tax purposes.