All Forum Posts by: E. C. "Stony" Stonebraker

@Justin Goodin, as an LP, I found out quickly that trust in the sponsor is the ultimate requirement. The right sponsor & team relieves an investor, after thorough DD, of nearly all tasks involved in CRE investments. An LP should still always study the offerings and ask the sponsor any questions the LP has about offerings. And the LP should expect regular communications about a property's performance during the ownership period, but the sponsor is paid to improve the investor returns as much as safely possible.

When I looked into CRE to invest, I read a lot of books, listened to podcasts and interviewed people I knew in the business for about 18 months. From that background, it was clear that the recession-resistant multifamily sector was where I wanted to invest my family's money to get good returns with low risk. Finding out about the Sharpe ratio and studying true rates of return, true costs of mutual funds, etc. all helped in my decision.

@Justin Goodin  Good summary of some of the considerations that have to be thought through by real estate investors. I started as an LP in several syndications and like that option to learn more about the investments and people in the business. 

@Gianni M., you won't need Rob's spreadsheet for that.  You need something a lot simpler for the properties you are looking for.  Sorry, I can't help you there.

@Gianni M.,you should use Rob Beardsley's spreadsheet. Click on the top banner on his website. He also has a good book on underwriting.  He offers it free at www.lonestarcapgroup.com.

@Hayden Bowles, looks like it might be a good deal there.  

Your metric of 1% looks like you are using a SFR metric which does not apply to multifamily properties. If your equity partners are equity only and not part of the GP team, be sure to get your legal documents written by an SEC attorney to stay out of hot water with the SEC, in case anything should go wrong. You'll need to speak with the attorney about whether this will be a 506(b) or 506(c) deal which makes a significant difference in your equity raise. If all of your partners are both investors and GPs, then a JV should be sufficient. Again, your attorney (experienced in REI, not just a RE transaction attorney) is your best advisor.

If all of your partners are both investors and GPs, then a JV should be sufficient.

Money spent on professional advisors, whether attorneys, CPAs, etc. is well spent and will improve your returns and reduce potential headaches in the future.

It also looks like you have a bridge loan on this property which, given this market, could be an issue at year 3.  If the market turns before year 3, it could limit your options and force a decision which is less than optimal.  We prefer longer term debt so you aren't forced into a decision by the market. I'd recommend you keep close tabs on the economy and local market forces so you can make the best decision before being forced to do so.

Good luck!  It's an exciting next step!

@Jorge Abreu, the pace of construction shows the continuing strength of the multifamily sector.  There is still a lot of equity flowing in and belief in the resilience of the sector after the initial shock of COVID-19.  If collections and occupancy had suffered as earlier feared, I think we'd have seen a significant drop in startups and deliveries this year and next.

Another question is how much longer can growth be sustained in this market without a significant slowdown?  And what factors will influence that growth in the next two years?

I'm interested to hear some BP wisdom on this topic!

@Justin Goodin  Excellent tips to evaluate a market! 

Rabbit holes exist throughout this business, so let me dive right in. 

Quality of schools is important, especially for properties with larger floorplans (2/1, 3/1 & 3/2) .

I also like to check the crime rate with one or more crime websites and/or the local police.

But I really like your list, Justin!

@Lucian Guadagnoli  I've never seen a rule of thumb, but @Bjorn Ahlblad has some good numbers.  For our properties, they are typically in the following ranges:  studio: 400 - 550sf; 1/1: 650-750sf; 2/1 or 2/2: 900-1100sf; 3/2: 1250-1400sf.  As @Michael Le said, within a market, the sizes can range for various factors.

@Fang Li.  Most likely that is correct.  Rent control is a deal killer.  Some experienced investors who know the markets and the restrictions may be able to invest well over time, but most investors don't bother with the hassle.  

@Sara Aviv Berger I agree with several comments here.  Cap rate is frequently over emphasized and sometimes misleading.  Even if available, a true 10 cap property is going to require lots of on site management, significant capital upgrades and tenant turnover.  You might want to find local partners to invest with in secondary or tertiary markets.  Even there, many new investors in multifamily real estate over the last decade are pushing values to historic highs.  Chattanooga, Huntsville, and Jacksonville, FL are three strong growth markets you might look into.