All Forum Posts by: Eric Sullivan

@Deisy P.

I think most people here guys or girls can say that they have had subs take advantage of them. It’s part of learning the business in some fashion. We now always get 3 quotes, talk to each about their approach, ask for photos and then talk with trusted friends if it’s something we aren’t familiar with. This would be one of those learning experiences. Don’t doubt yourself though, just make adjustments to how you operate. Put new processes in place that will help avoid these situations in the future.

@Nic S.

Inheriting tenants is fine if you do the proper due diligence. Review their books, statements, tax returns, compare to what their rent received should be to make sure they are getting every dollar they should. If the numbers don’t line up then it’s a red flag.

On the property issue side you can renovation loans with holds. We usually budget 20k per unit and then some extra for other common items like upgrading electrical service for example. Depends on the list. That after a term that amount rolls into your loan and adjusts your piti.

But if the writing is on the wall with problem tenants your offers should be contingent to it being delivered vacant or at least the problem tenants are out.

@Daine Johnson

I think the right symbiotic relationship with agents are obviously that yes they bring you deals. But as they bring you deals they should be telling you why it’s a good deal. But not just a good deal but why a good one for you. Everyone’s goals are different so making sure they are considering that.

Secondly, most agents who focus on working with investors know how to conduct underwriting of some level. If they don’t provide this they should at least giving you the breakdown of the property expedited, insurance, taxes (don’t forget to calculate the new mil rate), and rent roll (along with market rents if their is a potential for increase.

A real value add which isn’t required but is something I personally put weight on is the volume of off market deals and then the quality of those deals. I.e do they meet the criteria I’m looking for.

No matter what at the end of the day you should never trust anyone blindly. It’s your money and your name on the debt. So always take the time to underwrite the deal yourself.

@Lance Pederson thank you for the insight I will check out the book. Similar to purchasing RE it's smart to keep everything separate like you said.

@Greg Scott I have actually met with our law firm a few times and talked about blue sky laws and so forth. If we were to go a formal route of some sort we would get our legal straightened out before hand. 

Have either of you operated in any manner like this or are deals primarily self funded?

My question: For seasoned investors, have you had success bringing someone in to help raise capital for projects? If so what did that structure look like? Where they salaried? % of capital raised? Partner? I am sure there are different ways to go about this but interested to hear different experiences that worked.

Background on us if the context helps
The quick summary of our business is in 2020 we have purchased about 10.5 m in RE in one New England town. We currently are developing 28 luxury condo units across 5 projects and have some holds/airbnbs. Average deal size is 3-10 units. These developments are either full gut rehabs in the realm of 300-400k per project to new construction around the 1.1m. We self perform the construction management due to terrible experience hiring GC's in our area. 

Being extremely focused geographically has worked well for us. The last few years we have learned who the players are and know the town intimately. Which in turn our off market deal flow is through the roof right now, over 100m. But where our business needs support is on the capital side which is purely due to time available. From operations of the business daily and then the managing of projects, it really does consume both myself and my business partners full effort 6-7 days a week. Which we are happy to do because we love RE and have done pretty well so far on the return front. Basically our deal flow and ability to execute has outpaced the capital we have to acquire deals to hit the runway that I have forecasted through our 2021 strategic planning effort in Q4.

My question to the more seasoned investors out there is, have you had success trying to bring someone in to help raise capital, or find investors to set meetings? I know this is not a challenge that I am alone in tackling, and with our decision to self perform the construction management side (which I am not willing to give up because of the level of quality we hold ourselves to) the obvious first answer, "hire a GC" I don't think is the right solution at least for our business.

Sorry for the long post and I appreciate any and all insight.

@Toni Mo the moratorium ended on October 17th but a very good point none the less about the tenant laws. MA is not landlord friendly. Typically if you focus on creating nicer rentals, you will attract a more financially established tenant and can alleviate some of these concerns. But proper due diligence will save you a lot of headaches.

@Clayton Murray congratulations on getting ready for your first purchase. Exciting and stressful times. You referenced NH as a location. I would encourage you to dig deeper and analyze sub markets within that market. If investing in RE is something you see as an on-going effort. Find a market you like (maybe its 2-3 towns) and look to purchase there. Move there and learn, get to know who the players are, and understand that area inside and out. People that I have seen focus in RE geographically (this assumes they have done their research and picked performing or up and coming area), typically surpass others who will buy in a larger geographical spread. 

I personally have never done a deal with a wholesaler. We work in a very exclusive area and I do get calls from time to time. The few that I have spoken with seem to have done fairly good research pulling comps etc. I have heard nightmare stories from others though so like any deal, even with a RE agent. Do your own due diligence. At the end of the day no one is going to care about your money as much as you.

Well the 3 things we look at are cash flow, depreciation, and equity. Equity really is a by product of making payments or once improvements are completed what is my equity position going to be in the property. This benefit really relates to a refinance opportunity. Depreciation is the tax benefit as we all know. At my company Sullivan Capital we make decisions on how many flips to how many holds based on a balanced strategy. So we want to make sure we have enough depreciation to off set the capital gains for both us and our investors. We use cost segregation studies and make decisions on what we do to a property in regards to renovations around this idea (as well as maximizing cash flow). This is part of our pitch to investors. We look at real estate as less of a transactional 1:1 investment or deal by deal, and try to look at it as a holistic long term strategy which executes flips for multiplying cash, and holds for cash flow, depreciation (offset gains from flips), and equity. Which real estate for most people is very transactional. As a disclaimer we work with a tax firm who specializes in cost segs and tax planning for serious real estate investment groups. We don't do it ourselves.

We also account for depreciation benefit as apart of our underwriting when looking at a deal from all angles. I have been sent a lot of multi family deals that do not take this into account which I personally think is a misstep. 

I hope this provided some more clarity.

@Brandon Fuhrman Welcome. Personally I look at cash flow, depreciation, and equity as the main drivers. Appreciation is icing on the cake. If you are buying in decent areas you should see some level of appreciation growth. Investing purely on appreciation especially at this point in the cycle I would consider pretty risky. As someone else said, cash is king. It will help you possibly leave your job or buy more property! Best of luck in your endeavors.