All Forum Posts by: David Grabiner

I forgot to add that you should change your financing to 5.75% interest and 20 yr amortization 20-25% down payment. because that is most likely the financing you will be able to get on that. 

I know that property well, I almost purchased it before the current investor did but decided to pass on it. I do think it has potential and it is in a decent area. Apartment sales in the area have slowed down because the cap rates are getting compressed by the raising interest rates but sellers aren’t interested in raising the cap rates yet. So most things are sitting now until higher cap rates make the financing work. 

It looks like you have done a good job assessing so you probably have a good understanding of at what purchase price the deal would work at. I would just caution you to not plan on such a large rent increase because it’s not an apartment complex that is going to attract higher end clientele. You could make it supper nice but that doesn’t mean the higher end apartment people are going to move there because you don’t have the look or the amenities that they are looking for. Probably at this moment $600 would be the highest you could push rents to and even then you have to think of how long it takes to fill something at $600 vs $575. If it takes an extra month you missed out on $575 which will take you almost 2 yrs to make up difference. 

Change your loan numbers to a 30 yr fixed with 25% down as that is what you are likely to get from a conventional loan. But yes cash flow deals are getting harder to find here in Chattanooga especially as interest rates go up. 

Welcome to Chattanooga,

To add to what Brian said about LLC's in TN. The interesting thing about the state income taxes for LLC's in Tennessee is that you have to pay tax on the profit and also tax on the value of your asset, so even if you aren't making any money off of your property you still end up paying taxes on the value. Now if you have it in your own name you can protect your property with 3 different insurance policies. First the liability policy on the property, second a personal umbrella policy (this protects your assets from anything stupid that you do personally like a car accident or something), third a commercial umbrella policy (this adds an addition coverage from any problems that arrive from your rental properties). These umbrella policies are incredibly affordable like $300 a year for $1,000,000 coverage.

As always seek professional legal advice, but know that the standard answer of always put your properties in an LLC might not be the most financially beneficial to you in the state of TN.

I have some small complexes 12, 16, and 28 units that I could sell for a 7 cap if there is no realtor involved. If you are a serious buyer feel free to reach out to me. 

Everyone learns differently and needs a different levels of motivation and guidance to be successful. Education and help from a mentor can go a long to help you be successful but it wont be a magic solution that will give you 6-8 great deals in a year. If that is the case sure I will pay $12K if they could guarantee me 6-8 great deals. But they can't because they wont be doing any of the finding for you. You will still have to do all the work and you will have to find the deals. But hey if you really want a mentor I would be happy to mentor you for $10K :). And you can call me all you want.  

@Jeffrey Holst Thanks for making this post it really encouraged me to make big goals and strive to achieve them. So here is my update.

My goal was to purchase 42 units this year. I purchased 20 units in January and I just got another 24 units under contract, so obviously a lot can happen between now and closing but it sure feels good to be on track to beat my annual goal in 6 months.

So everyone who hasn't written down their goals here, go ahead and do it now! It's FREE! and it will greatly increase your chance of meeting or even exceeding your goal. 

@Michael Swan

Congrats. It seems like you are doing great and have a wonderful position in your market. I don't disagree with what you said but I think you missed my point. I am not saying that you will be in trouble if there is a price correction and I didn't say rents will go down. What I said is that Cap rates will go up so the values of commercial properties will fall if there is a market correction. Now obviously I'm not trying to teach you anything, you seem to know exactly what you are doing and will be well positioned to weather any storm that is coming. I am more saying this as a warning to newbies who might misconstrue what you are saying to mean that commercial property will never drop in value because it is based on the NOI.

Just out of curiosity what are cap rates in your area right now and what where they in 2008?

I agree there is a difference between commercial properties that require commercial loans and small multifamily that can still get a conventional mortgage. I would just like to clarify that when prices start to plummet the cap rates on apartment complexes will likely go up, so apartment complexes are also at the mercy of comps, just a different type of comp, a comp of the cap rates. 

There is more control over value with a commercial property, but still the market place has a roll in deciding what the cap rates are and therefore what the value of the property is. 

Thanks @Jenna Crye Lacy for putting this event together. It was a really great meet up with great discussion and sharing all around. There was a good mix of experienced and new investors and plenty of good information to be had.