All Forum Posts by: David Almeida

Taxes are volatile in CT, especially in Hartford. Many municipalities are broke, so you're subject to hefty tax increases every 5 years. Make sure to look up when the revaluation is so you're not caught off guard. 

The problem with Hartford, besides the crime in certain areas, is the rents have barely increased in 15 years yet the taxes have skyrocketed. That's a one-way train to losing money if you're not very careful.

CoStar releases annual PowerBroker lists for different metro areas. It's worth checking those out. Many top mulitfamily brokers don't post deals on LoopNet, so you would never know they're out there.

Congrats on the fantastic acquisition and thanks for posting about it. I'm a big believer in dog/pet amenities, so it's good to see you adding the dog park. When I started in the business no landlords would take dogs, now everyone has a dog and they treat dogs better than other people. Keeping up with this trend makes your property a lot more attractive over the next 5 years.

@Greg Dickerson is right that smaller multis are usually safer because you have fewer units to lease. 

If you're concerned about supply, you can go to town/city hall and pull a list of all approved multifamily developments and compare them to your proposed development. 

If you can build cheaper, you should also be able to charge lower rents if a downturn occurs. The negative to building smaller buildings is that, depending on the market, you often have no amenities. So you'll have to charge lower rents than the larger, class A complexes that are being built. If you adjust accordingly, you should be fine.

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BRRRR is still the gold standard for folks in your situation. Otherwise, instead of formally syndicating, find a high-net-worth partner who will put up the majority of the money and give you an increased share of the profits for doing a good job in managing the property. Once you get some experience, you'll be able to grow your investor pool and move on to syndicating larger properties.

I agree with @Brian Burke's treatment of the first 4%: be careful there.

What kind of properties are you targeting? 

I'd work on your presentation of the waterfall. Since most IRR waterfalls have a payback then payout structure, you should explain to the investor that he will receive his return of capital and then a return on capital, in that order. Only after does the sponsor begin to receive outsize returns. This makes them feel comfortable.

Plenty of sponsors get away with a 50/50 hurdle. It all depends on how comfortable your investors are with you. Most private-equity funds, however, do not have such generous returns to the sponsor. For stabilized and light value-add funds, typical returns are 80/20 over a 6-10% preferred return. The private-equity sponsors receive higher promotes when the asset classes are riskier and require more skill. 

As Elijah said, if the deals aren't cash flowing in excess of the preferred return on day 1, don't distribute monthly. The industry standard is quarterly returns.

Freddie Mac's Small Balance Loan (SBL) program is probably the best fit. They do 80% LTV but require some reserves for taxes, insurance, and repairs. So you should trim the target purchase price to a deal size that allows you to have somewhere in excess of 20% down.

I've found Freddie's SBL program to have the best rates and terms. Local and regional banks can't compete with them.

I'm a former multifamily broker who only represented sellers, which is the same as Marcus & Millichap's strategy. Good brokers at M&M do a great job of driving a marketing process and getting buyers to compete, but not all brokers at M&M do a great job.

Honestly, your broker is not wrong in saying that if you put a desirable property on LoopNet and CoStar it's going to get tremendous interest. Understanding that you want a national search, do you think he'll be able to find you more deals in the future? 

Remember, he walked you through the process and helped find you a deal that's going to make you a lot of money. It often pays over the long run to be loyal and give that same broker the first crack at selling the deal. If he doesn't get you your price, then go hire a bigger firm. Good young brokers grow with their clients. 

Finally, the national firms don't care about buyers; they make their money representing sellers. So if you're looking for someone to provide "consulting" on the buy side, talk to your regional guy about a retainer fee for the acquisition so they aren't dipping into the selling brokers' fees.

Look at the downside scenarios and make sure you're protected. 

Tying into that, make sure you understand the sponsor's compensation. When it's all said and done, is the sponsor earning their fair share or are they taking 50% and leaving you with the majority of the downside risk? Structure the deal so that the sponsor is motivated to perform, but if the deal under-performs the passive investors should be first to get their money back and the small profits (if any).