All Forum Posts by: David S.

@Brendan Conners. Out of your original choices (Chilliwack, Nanaimo and Prince George), I personally would prefer Chilliwack given ease of access from Vancouver and the lifestyle opportunities it presents. When you say some cash flow opportunities can still be found, can you give an indication of what you are seeing from a year one cash on cash investment perspective?

@Joe Gettler. Congrats on your success in acquiring the duplex that now will yield 6.5% cap at current lower rental rates. 94115 is a great zip code to be in. Its my understanding that SF has pretty tight Air BNB restrictions like you have to register and can only rent them a certain number of days a year?

Am I correct in thinking that with the two units vacating soon, the property will be entirely vacant in 2 months if you also move out? If you are not attached to the duplex, could be a good time to sell to developers who want to convert to individual condo units. Property should go for a premium just on that potential.  You can also consider converting yourself. I have no experience in this but it seems to me it would be quite a value add.

@Jaime Rossini,  there is a lot of info missing in your post to allow a full assessment but here is how I would look at the situation if I was to buy with a view to house hacking (live in the vacant unit for a couple of years).

Regarding the purchase, this is how I would determine how much gap financing I would need.

Purchase Price + Closing Costs for purchase and new mortgage + Cost to Upgrade vacant unit
- How much can I afford to invest as my own initial equity?
- How much first mortgage debt can I get and at what rate? Talk to some lenders or mortgage brokers.
= how much i need to borrow from my private party and at what rate?


Then I would check to see if the property’s cash flow can service the private party debt and if so, what is left over for me.

Annual rent ( Rent paid by current tenant and rent paid by myself while living in vacant unit)
- Estimated Operating expenses (prop taxes, insurance, utilities not paid by tenants, R&M, etc)
- Annual debt service on 1st mortgage loan
- interest for the private party loan
= what’s left over for investor

That’s the easy part.

The exit value will be much tougher to estimate and will be dependent on where you think property prices will be at the time you plan on moving out.

Its hard to predict where mortgage rates will be in a couple of years. Personally, I think interest rates will be higher than today so it may be difficult to refinance your way out of the private money loan, unless that one tenant is currently paying significantly below market rents and you are certain you will be able to get much higher rents when that tenant eventually moves out and you upgrade to market standard.

Doing a JV on a TIC basis would make the financing easier since your TIC partners would share in the ownership and mortgage expenses. And I am guessing it may allow you to remove the tenant under an owner move-in eviction if both you and your partner move in. Then you can convert to condo later although I do not know how much time and what costs would be involved.

Before Covid, I would have said converting the free standing garage into an additional unit would have been an easy decision but the returns now do not seem as great since rents in San Francisco are down about 20% vs last year and construction prices have increased...Still, I think the free standing unit could have a lot of appeal for many renters and should add value over the long run.

Hope this helps.

@Amber Boskers, not enough cash and too much debt would be my biggest concerns too.

If I understand correctly, you are contemplating getting involved in a JV with people you have not partnered before and you are providing 60% of the cash (300K?).

Although you have not partnered with them before, I assume you know them well and am satisfied that the managing party has sufficient experience to manage and operate a value-add, multifamily deal like this.

Since this looks like a 3 party JV, what is the voting structure going to be like?

You say the managing partner wants 50% of all rental distribution….Is he getting 50% of all cash flows or do the investors get some sort of preferred return before he takes the 50%.

It sounds like the managing partner will also be doing the property management. Will they also be charging a property management fee?


The going in $1.3Mn debt is 81% of purchase price. What do you think the mortgage rate will be? Since renovations will be done on turnover, can the property's current NOI provide a good cushion over the debt service required by the new debt?

Since this is a JV with 3 parties, are all of you going to be personally guaranteeing the loan?

The deal is projecting a refinance in year 3. Have you considered that rates might be higher then?

A 3-4 week vacancy during rehab sounds optimistic to me especially if you are going to be asking market rents when the rehab is completed.

Does the $200K reno budget have contingencies for cost overruns (just like new construction, rehab costs have risen rapidly where we are) and will the property be able to carry on extended vacancy?

What are the projected net returns to you after the property’s projected exit and after the managing party takes his cut.

Finally, Arizona is a pretty good market for investment real estate. I am sure you have done a lot of homework on this but Why do you feel this deal in Florida is such a great deal over anything you could find in Arizona?

Are they really just providing all your funds back and no return for the use of your funds so that you end up having given them an interest free loan and they get all the rewards from the value added, which would not have been possible without the use of your funds? I cannot help thinking there must be something more since you call it a "buy out option". And is this an option in the sense you have the option to decline and keep your interest in the deal or are they exercising some kind of buyout option in the documents? If so, can you share the relevant provisions in the PPM or operating agreement?

@Kelly A., Can you elaborate as to why the Condo Board thinks the watering of plants may be affecting the balcony structurally? vs anymore than regular rainfall?

In any case, does your lease provide that the unit is a condo and that the tenant must comply with any restrictions, rules and restrictions set by the Condo which may include restrictions regarding the balcony?

Does your lease have a house rules provision like the one below that would allow you to insert a rule governing how the tenant can water plants responsibly to ensure neighbors enjoyment are not harmed by the tenant's actions? For example, potted plants need to have sturdy drip containers.

HOUSE RULES: To protect your comfort, safety, and enjoyment, and that of your neighbors, Owner has adopted the following rules concerning your conduct while a Tenant of the Premises. Owner reserves the right to make changes or adopt additional rules. Failure to comply with the rules will constitute a material breach of the Agreement and may constitute a just cause for eviction.

Not sure how much this will help since your tenant has already refused your offers of free plant pot saucers but you need to start building a case in writing.

Lumber prices have more than doubled recently so you should ensure the sponsor has factored that into the cost budget and whether the price increases can be passed onto the end buyer.

Can you share where in the Bay Area you are finding 9% caps? and was your purchase SFR or multi-family (5+ units)?

@Erik W. Thanks for your input...Just to clarify, it's not that i do not have other investable funds. I am taking out built up equity and adding to a healthy cash position to be used for other  investment purposes, which includes passive offerings. That said, using borrowed funds to invest in a syndication that is already borrowing funds might not be the wisest move. So I might wait for a good direct RE opportunity or an unleveraged conservative debt fund. 

I would love to find a lender that does not charge prepayment penalties for fixed rate loans having terms longer than 3 years.

Any financial wizards out there?

I am in the midst of refinancing a small apartment building and taking out equity to be deployed in passive syndicated offerings...My lender has offered a fixed 5 year rate and a 7 year rate that is 20bps higher.  The 5 year term will have pre-payment penalties based on 4,3,2,1% (4% in year 1 and 1% in year 4) and the 7 year term will have a 5,4,3,2,and 1% prepayment penalty structure.

I am leaning going to fix rates for 7 years since I am thinking there is a higher probability of rates being higher in 5 years and because I intend to hold the property for a long time and potentially refinance again at maturity. However, at the same time, I have heard lots about the possibility of rates being lower for longer and so I am wondering how I should be looking at it if I were to try and calculate the point of indifference between these two rate terms?

For example, if I were to choose the 5 year fixed rate, should I be calculating what the 2 year rate in 5 years time should be to break even with the 7 year fixed term now being offered?

Or should I be estimating how high another 5 or 7 year term rate can be in five years since I would want to refinance again on a long term basis?

Does anyone have any thoughts on this?