All Forum Posts by: David Peters

How much preferred equity?  I assume that you are also going to have common equity.  If you have no common equity, then the preferred equity is not really preferred.  You need to balance the desires of the preferred equity with those of the common equity.  If you end up paying a preferred rate that is too high, your preferred equity investors will be very happy but your common equity investors could not only lose out on returns but even lose principal because most preferred equity deals have the preferred equity investors receiving all their return on capital and all their return of capital before the common equity investors get anything.

I have done deals where all the investors were structured as preferred equity with a specific stated return and no upside beyond that return.  If you can finance an entire deal that way, it does give you the potential to buy out the preferred equity and own the entire deal yourself within maybe 3 years.

I think preferred equity is easier to raise in today's climate.  However, it may make it harder to fill the common equity piece as the more preferred equity there is, the less desirable the common equity becomes because of risk of loss.

Investment Info:

Other commercial investment investment.

Purchase price: $3,800,000
Cash invested: $300,000

Red Roof Inn Motel - Purchased completely renovated but not operational. We will open and operate. We will use a hybrid model with short-term occupants and monthly residents. We have done several of these now.

What made you interested in investing in this type of deal?

We have been finding excellent values in the hotel space. We utilize our own model to operate the property at maximum occupancy.

How did you find this deal and how did you negotiate it?

My partner found it off-market through a hotel broker

How did you finance this deal?

We used a hard money bridge loan.

How did you add value to the deal?

We are opening the property and utilizing a hybrid occupancy model to maximize revenue by maximizing occupancy.

What was the outcome?

Just acquired last week.

Lessons learned? Challenges?

Raising capital is the key to most commercial investments. You must find a great investment but you also must have the investor network to close the deal.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Pine Financial

It was a great conference.  Lots of great new connections and awesome speakers.  I'd would strongly recommend to anyone if they have another one next year.

@Henry Perez  Things like websites, bios and marketing materials help on credibility as well as your LinkedIn and Facebook profiles.  However, have you considered partnering with someone a little larger in scale for a deal or two? Having a partner who has done larger deals will get you through the door many times. Beefing up your portfolio holdings  (even if your individual ownership in the deal is modest) is one of the best ways to gain credibility.

I only know what I have heard from webinars I have attended through 40kflips or Freeland Funding. I have attended webinars for both investors looking to borrow and investors looking to invest in his funds. Because he needs to pay his investors over 10% to raise the money, he has to charge a minimum of 2pts and 13% to borrow from his fund. His rates are about the same as any other typical hard money lender that will fund 100% of a deal (up to 70% ARV). When the investor has little to no money in the deal, that presents a much higher risk for the lender. This drives the higher rates.

Where I operate it is becoming much harder to find deals with enough meat on the bone to use the 40kflips system and Freeland Funding. If you are hiring a contractor to do all the work and using their funding, between those two costs along with the cost of selling the property (6% realtor, 3% seller paid fees, 1% closing costs = 10% to sell), it gets really tight. What ends up happening most of the time is that your MAO (maximum allowable offer) is too low and someone else outbids you for the deal because their "operating costs" are lower. I am a licensed contractor, have a budget realtor I work with and I get my funding at 1pt and 5% and even with those advantages I am fixing, renting and refinancing because there just isn't enough profit in the fix and flip to make it worthwhile to sell. Rental rates are high now so cash flow on rentals is very good. I fix mine up very nice. Screen my tenants very strictly and rent in premium locations so that works best for me.

No I did not use his funding.  I have found many different avenues for less expensive funding.  I had a previous computer consulting business that I sold so I had some cash in hand to start with.  I never needed 100% funding.  I have used a combination of private investors, local hard money lenders (at rates more like 2 pts. and 10% with no profit split) and community banks.  I do a fair amount of high-end rehab to rent properties so I end up with long-term loans and long-term tenants as the end game.  His funding is not outrageous for newbies with no money because they have no other options.  As you get rolling in the business you will find many other funding options if start looking around.

I am a member of the $40K Flips program.  I can say that I was satisfied with the training for the $995 price paid.  I joined in October 2014 and still use the training I received.  I revisit the classes which are available on the website for replay and post and read posts in the blog forum.  I have successfully flipped about 2 dozen properties over the past 7 years so I was in the business before signing up for the $40K Flips program.  I found that I did pick up quite a few tips to help me better optimize my processes.  His training is thorough and thoughtful.  He is well organized and a good presenter.  Personally, he is very likable as well.  My returns on my flips have been all over the board from as little as $20K to as large as $75K.  I have since found that the best long-term return is created through passive income with rental houses.  I now have 10 rental houses, am looking to move to small apartment buildings and am a basic member at Lifestyles Unlimited, which I also find to be worth the minimal membership fee.  I hope this late post is helpful.

I have a similar house in a good neighborhood in Minneapolis.  One bedrooms are tough.  Resale market is limited but may improve with the trendy, tiny house craze.  It can be tough to sell to investors also as less banks are interested in financing one bedroom rentals because they are hard to sell if they have to foreclose.  Does it have a full unfinished basement?  Is it a property with potential to add a bedroom and bathroom in the basement?  Are ceiling heights adequate?  If so, there is value to market it that way.  We do some one bed/one bath to two bed/two bath upgrades and those tend to be very profitable for flips or sale to investors here in the Twin Cities market.

Thanks so much for all the advise!  This gives me a great starting point.  Right now I am in the education mode on this as it would be my first syndication.  I have been doing single family for quite a while and have developed a base of friends and family willing to fund transactions with/for me who could fully subscribe a modest syndication.  However, commercial is a whole different beast from a financial modeling standpoint than a portfolio full of single family rentals.  I have found a very good 1031 person here in Minneapolis but as yet have not decided on a real estate attorney.  I would prefer to work with a local one in Minneapolis so that I could "sit across the table" from this person to work through the transaction structure although I suppose now with all the technology available the attorney would not have to be local.  I'm open to suggestions from those of you with lots more experience.

I am trying to understand how to put together a deal on a 100+ unit apartment complex.  I am looking at being a lead investor and bringing in passive investors as well as using bank financing.

I own a property management company and this company would manage the property.

The lender is willing to provide 85% financing and I need to bring in 15% down.

I am looking at doing this by selling a few single family rentals and using a 1031 exchange to bring my portion of the down payment.  I will also need to raise the balance of the down payment from passive investors.

Can anyone tell me how I would go about structuring such a deal?  I am in Minneapolis, MN.  

Any advice would be greatly appreciated.  I have not found much information on specifics of how to go about doing this in the forums.