All Forum Posts by: David Calme

Good Afternoon All.  I was wondering if anyone can shed light on the most efficient method of proving accredited investor status, from an investors perspective.  I know that some of the crowdfunding sites are using 3rd party verification.  Would it be better to use a CPA/Attorney?  It seems that putting together bank/broker statements, property records, private placement agreements as proof to each syndication operator or crowdfunding website that you wish to invest with may become a cumbersome process.

Any suggestions would be greatly appreciated.

Thank you, @James Kojo.  That is definitely a fair way to play it.  I have made it clear to all parties that the offer price doesn't mean much if the P&L doesn't check out with the assumptions made based on the pro-forma, or if the physical inspection turns up some costly deferred maintenance for that matter.

Number 1, I don't want to spend a lot of time and money to find out that the seller is trying to hide something that he hopes we will overlook.  Number 2, I don't want to go into a PSA with the intention of retrading.  I would be more than happy to honor the price in the PA if everything checks out.  However, C properties with decent cash flow and light value add opportunity are not so easy to find, so I guess I will have to bend a little to see.

Thanks again for the advice.  It helps to know that I am not way off base on how I'm handling this.

Thank you @Andrew Cameron.  I have been trying to come up with a happy medium for estimating those variable costs.   I try to be conservative, but not excessive.  Your suggestions are a good starting point.

I am still waiting to see the numbers from the utility bills.  This building has tenant paid electric, gas, and water, so it should be fairly low.  However, I should keep a close eye on that as @Account Closed pointed out that vacant units must be heated.

@Rod Joseph - I am planning to do bank financing with a safe LTV and DSCR. Trying to put some capital to good use. With the type of deal that I am looking at, there isn't much meat left on the bone to satisfy the ROI that other investors would need to see.

@Andrew Cameron - Thank you.  I agree.  It is difficult to compare apples to apples when it comes to these types of expenses.  These variable expenses are what I am having a hard time putting numbers to.  I try to be as conservative as I can with respect to those numbers.  Most of the "actual" numbers that I see have some sort of owner management/maintenance reflected in the P/L and thus appear to have very favorable expense ratios.  The properties that I am looking at are certainly small enough to self manage and do much of the work or have friends and relatives help.  I have that in the back of my mind as well for operating the property, but of course I can't factor that in to underwriting.    

@Joseph Gozlan - Thank you for pointing the taxes and insurance.  Sorry, I had them in the analysis and total, but neglected to put them in the post.  Taxes are indeed the largest single expense in my area.  I am relatively secure with those number as they are taken from county records and from my insurance agent that I work with on other properties.  If I lump loss to lease into vacancy and bump it up to 8-10% do you think that would cover it?  Thank you for the good advice.

@Michael Ohara - Thank you for your input.  Tenants pay utilities for the units.  Individual gas forced air furnaces with A/C condensers.  I have several local property managers that tell me that they will do 19 units for 8%.  However, I like to be conservative in regards to PM.  

@Account Closed - Good point about vacancy as it relates to utilities. I should beef up the utilities a little. If I allow more for vacancy, it will probably get closer to expenses 45%-50% of gross. Thank you for your insights. I will see how it plays out when I see the actual expenses. Is it common for a seller to refuse to show at least a T12 before having a PSA or could they be hiding something that they hope I would chose to ignore during due diligence?

After looking for a building local to my area with a decent potential cash flow, I have found a 19 unit building in a rather remote northern suburb of Detroit (Northern Macomb County for those of you that know the area).  Upon working with a buyer broker who is a friend of your family, we have a verbal agreement to draw up PSA based on a set price point.

There are some questions that I have regarding the process, thus far, and what to demand in the PSA regarding the due diligence period.

In this market, is it standard for a seller to refuse to release the true profit and loss documents until after a PSA is signed?  Of course, the due diligence would have plenty of provisions for obtaining and analyzing the P&L (Tax forms, utility bills, service contracts, etc), but I of course would have liked to have seen these numbers before spending the time, effort, and money needed to determine what the seller is holding back.  I have a rent roll but, the expenses are based a combination of pro forma numbers, adjusted to my version of what they should be, and research that I could do ahead of time (County property tax records, insurance quotes from my agent who insures my SFRs, asking service providers for an opinion, etc).  Should I demand seeing the P&L before entering into due diligence?  

I don't want to end up getting a reputation for retrading after the face, but I'm sure that I will find at least a few surprises, when I go through the documents and the physical inspections.

• Numbers
• • Purchase price $875,000
  • Units 19 2 Bedroom
  • C Building, C Neighborhood, Low crime, Rural within driving distance to metropolitan jobs
  • Gross Rents (Rent Roll) - $10,600/month
  • Less 5% Vacancy  - $120,480/year
  • Management @10% = $12,720
  • Legal, Marketing, Administrative (My Estimate) - $1500
  • Landscaping and Snow Plowing (Pro Forma) - $2,631
  • Other Maintenance and Repairs (Estimate based on 10% total M&R) -  $11,481
  • Utilities (Common areas only Pro forma) - $1,069
  • Total Operating Expenses - $52,013
  • Expense Ratio 41% of gross scheduled
  • NOI - $68,827
  • Operating Cap at Purchase Price - 7.87%
  • CapEx Reserves (Not included in NOI) - $300/unit per year

Does anything seem out of place, based on these numbers?  The expense ratio may seem low, but it is a newer building and currently 100% occupied (rents are being held low to keep occupancy up, relative to surrounding propeties).

Any input would be greatly appreciated.

That is an interesting twist using YNAB @Jeremiah Purdum.  I use a similar service called Mvelopes (Dave Ramsey inspired cloud based budgeting) to track personal finances, but never thought of using it to track my rentals.  Thank you for the tip.

Tenant Cloud appears to be the solution that I was looking for, @Ben Travis.  It seems to cover all of the bases that I would need for a smaller portfolio.  I will have to take a deeper look.  Thank you for bringing that up.

Thank you for the advice, everyone.  That is precisely what I was getting at.  Is there a perfect out of the box solution?  Or is it better to take something flexible, like excel, which can be customized and grow with changing needs?  I have some good ideas to start exploring.  BTW my current method is pretty much the notebook and file folder @Thomas S.  Lol

Thank you, @William F., @Brandon Cook, @Account Closed.

I have heard that Quickbooks is good, although not specifically geared to REI, out of the box. As long as it is flexible enough to tailor it to my own needs, I think that I will give it a chance.