All Forum Posts by: Don-Carlos Moniz

@Shantanu R., I will echo what @Henry Clark said. Since this is your first deal in CRE, work with an agent.

In many cases the seller has already agreed to pay a buyer’s agent commission. Even if they haven’t it can be part of your negotiations.

The DD cost and process can be a bit of a shock on you first deal. A good agent can walk you through that process and let you know what to expect.

On the lending side, you can use a commercial mortgage broker or go it alone. If it is under $1MM loan amount there are a lot of shops that may not work the deal. For example, our fee structure doesn’t make sense unless it’s a loan over the $1MM mark. Again, a good agent will know who to talk to about lending.

@Joshua Patrick, it sounds like a good opportunity.

I am not a STR guy, but Wilmington is a good market.

I would recommend talking to some insurance agents. The rates have increased significantly along the coast in the last year or two. Insurance rates have killed what would otherwise be good deals.

I would also recommend seeing how the numbers work as long-term rentals. That's a piece of advice I hear from the folks I know doing STR.

Are the duplexes located next to each other and how are the parcels divided? This can really affect the kind of loans you can secure. I doubt that you will be able to use a VA loan on a portfolio of three duplexes.

If you can get 5% down on the portfolio I would love to know who the lender is. I am working a couple portfolio loans in NC right now, and they are all between 20% and 35% down.

Good luck. Three duplexes in the Wilmington area is not the easiest thing to find.

@Joshua Patrick without more information, there is no way to tell if your numbers are good. If you plan to use a VA loan, then it means some kind of house hack.

If the house is 100 years old, then the maintenance costs will be significantly different than a house that is 10 years old.

If the house is coastal, the insurance costs are probably low.

Without details about the property, the numbers don't mean much.

@Nathan Hill, how many lenders have you talked to? When I am shopping a commercial loan, I call lenders until I have at least 3 or 4 term sheets to review. There are a lot of lenders that will do DSCR loans now, so I would recommend talking to some other lenders.

Credit markets are getting tighter, so expect to hear no. If you talk to three or four lenders who give you very similar terms, you know where the market is.

@Adam Berlinberg, a lot of good advice here. The only thing I would add is to be prepared to make a lot of calls. Don't get discouraged if the first couple of lenders are not interested in looking at the deal.

I am shopping some deals now, and several of the smaller banks are not lending or are only lending to existing clients. There is still the ability to get loans; it just takes more effort.

Also, don't take the first term sheet and sign the loan. Try and get three or four (or more) term sheets and compare the loans. One may have a higher rate but no prepayment penalty or any other combination of terms to consider. If you don't like a particular term, ask the lender to change it - worse case, they say no.

@David Pointer, most developers engaged in BTR projects have their exit strategy planned before they start. We are working on one now where the builder is wrapping up Phase 2 of 4 and looking to sell.

Before he broke ground, the plan was to start looking for a buyer when transitioning between Phase 2 and 3 since there is a smaller buyer pool. The target investors for this particular development are institutional buyers looking to hold long-term.

BTR is not what I would call a new strategy, but it has gained a lot of attention (investor and otherwise) in the last few years.

As the others have said, the exit strategies would be to sell the whole development to a single investor; break the development into multiple packages, and sell to different investors (think SFR portfolio); or sell to individual investors or retail buyers.

@Collin Ordonez, welcome to the forums. I'll start with the price and NOI. I recommend getting a copy of the financials (RR, T12, including lease terms for the retail space) and calculating the NOI yourself. You will be surprised how often you have missing expenses, future rental income instead of current, and simple poor math.

On the financing side, this would be a commercial loan. I am going to guess that you will need to bring on a partner with mixed-use experience. With professional management, you may get around that hurdle.

You must also have a net worth equal to or greater than the loan amount and meet the lender's liquidity requirements. So again, probably will need a partner.

When it comes to a downpayment, maybe 25% will be enough. The deals I am underwriting now are at 60% LTV. If the property is worth $1.45M, the loan amount would be $870K. On top of the down payment, there will be all the closing costs, attorney fees, inspections, environmental, and probably a few things I am forgetting.

Reach out to the listing broker and see what information they have. Ask them questions about the deal. Try and run the numbers yourself and when you get stuck, come back and ask more questions.

Depending on your market, someone on the forums would probably partner on the deal if the numbers are good.

Good luck, and feel free to shoot me a DM.

@William Hagedorn, finding contact info for owners can be one of the biggest challenges in the off-market process. Multiple services are available that will skip trace owners for you for a fee. I would start with the tax records and see if there is an individual's name and address.

You can use a site like FastPeopleSearch to try and find a good phone number if you have a name.

I typically start with CoStar; they do a decent job getting owner contact info. It is not always accurate, but it's a good start. I wouldn't signup for CoStar just for this, but maybe you know a broker with an account.

Propwire is a free tool that is pretty good with owner names, and they will skip trace for a small fee.

Mail is great if you have the patience. Inbound calls are always better than making cold calls.

Property managers can be a good way to contact an owner - it just depends on the property manager.

@Bret Halsey, you can try some nationwide lenders like Arbor or Lima One. The loan amount will need to be in the $1.5M range at a minimum, but a higher amount will give you a better chance of getting a non-recourse loan. There will be a lot of other considerations when putting together a loan like this one.

Assume there will be some kind of stepdown, probably a DSCR in the 1.25 range, and lower leverage (maybe 70%, but likely closer to 60%). Don't be surprised if many lenders have rates and LTVs like @Chris Seveney mentioned. The lending environment is getting much tighter.

The lender will also qualify the borrower, so your friend's net worth and liquidity will factor into the loan approval, even if it is a non-recourse loan.

Along with banks, I would recommend calling a couple of commercial mortgage brokers (there are several good ones in the BP forums). There are a lot of moving pieces when putting together a portfolio loan. Some borrowers want to handle the entire process themselves, and others will pay for someone else to take care of the process.

If you have any questions, shoot me a DM.

Happy 4th of July.

@Bret Halsey, getting a portfolio loan shouldn't be an issue. Your friend may need to shop around a bit to find a non-recourse loan, but there are several lenders that offer non-recourse on SFR portfolios.

I have been shopping a couple of SFR loans lately, and the biggest hurdle has been lenders not willing to take on new clients. The other issue has been borrowers not interested in the terms being offered.

The most recent quote I got for an SFR portfolio was a 5-year term with a rate in the low 7% range on a 20-year amortization.

Make sure that your friend talks to several lenders. When I shop a loan for a client, I am reaching out to five to 10 lenders.