All Forum Posts by: Francis Faucher

 Appreciate the input! Thanks!

Hey Ugo, 

Welcome to BP and welcome to the real estate market world!

Here's some steps I would sort of recommend if you start:

1- Investor Profile: We always do it with our banker, but less often in real estate. Ask yourself what you are looking for (cash flow, appreciation, tax benefit, etc). What's your risk tolerance, the time you can spend on real estate, the cash that you have access to, etc. You mentionned your goal is to do BRRRR and value-add. If you start, you might want to go with SFH before doing big multi res project! Based on your answer, you will then look for different markets.

2- Market analysis: Find a market that fits what you are looking (cash flow, appreciation, etc). Depending on your answer, you might go to places like TN, AL, OH, or you can decide to go for appreciation and go to FL. It all depends on what you're looking for. Now, in the market you are looking, do a macro view. What does the demographics look like, is there new construction, what's the average revenu in that market/zip code, Price-to-rent ratio, average price per asset you are looking (example SFH), average rent, etc. KNOWWWWWWWWW your market.

3- Property Analysis: Make sure to understand how to determine the value of your project. SFH is different than a 20 units, or industrial or commercial. Learn about financial modeling and how to analyze your deals. Learn about metrics like IRR, EM, CoC, etc. Forget about the famous ROI. ROI do not take into account time value of money (selling the asset at year 8 instead of year 2 at the same price, your ROI is relatively similar, but your IRR is far from being the same).

4- LEarn to analyze your portfolio: aggregate altogether all your assets and analyze if there's any project cash flow that would be required (balance of sale, loans, etc). Also learn to do stress test on your portfolio if something happens (higher interest rate, vacancy, etc).

5- Enjoy: You need to love doing that. If not, simply park your money into funds or stuff like that. Real estate is hard and needs commitment, but it's one of the most interesting alternative investment.

Legal: it depends on what you need. 

Don't hesitate to contact me!

Francis

Ahh I understand. I totally agree with you that the numbers they show is not what you are going to get from them. It's what they post as FMR, but it's not necessarily a reflection of what you are going to get, I completely agree with you.

For fun, I went on rentometer.com because it usually shows good example, and for houses specifically, here's the numbers:

If would actually like to chat one on one with you to understand why all the FMR are so high in rentometer.com, zillow.com, huduser.gov, CHMA's website and you are telling me they are far from these numbers. I'm actually curious because Cleveland is not my market. I'd be interested to know how come your numbers are so far from them!

Anyways, thanks Bob for that great conversation! Have a good one!

 Man, I feel like I'm being trolled.  I don't know what you don't understand lol! This will be my last message and please make sure you read my message carefully because you always misinterpret what I'm saying. I'll try to simplify it as much as possible. 

- CMHA shows a FMR of $1329 https://www.cmha.net/housing/landlords/rent.php (hopefully you can understand that). I'm not speculating anything, it's directly on their website!!!!!!!!!!!!!!!!

- Are CMHA going to pay $1329? Of course NOT. As I said I think about 3-4 times, they pay a % of that amount. Like I said, if it's 70%, it would be $930. That would be the amount CMHA would pay. Is it absolutely going to be 930? NO, it's an example. 

- The rent you provide needs to be affordable and reasonable. What does that mean ? It means it should NOT exceed non-section 8 comps gross rent. It also mean that the tenant's portion should not be over 40% of the family monthly income. 

- Now, to make sure you understand what I mean, if the reasonable rent and affordable rent is 1300 and you rent your unit at let's say 1100. The housing authority will pay a portion of that amount, let's say the 930 we talked before. It could be LESS than that. It's just an example Bob. The remaining would need to come from the tenant. Which means 170 would come from the tenant.

- Now, is the 170 an affordable and reasonable amount ? It depends. It can't be no more than 40% of the family's monthly income (according to CMHA).

Trust me, I'm not confused on anything. And by the way, Cleveland is a large sector. Just for fun, I went on Zillow to find houses for rent over 1400. There's 140 results. If you go on affordablehousing.com, you still have tonssssss of comps over 1400. 

I wish you the best Bob and congrats for all your experience in section 8!

Francis

Bob, of course they would not pay 100% of the FMR. That's what I said in my first comment "The city's housing authority will usually use that to determine the standard amounts for the Housing Choice Voucher program. They might only pay a % of that amount, but that's what they would consider the FMR."

So, let's say the FMR they consider is $1329, they might pay a % of that amount, let's say 70%. That would come down to a payment of 930$. But, as you can see, the FMR the county considers is what they have on the county's housing authority website.

Some county pays only 40% of the FMR. The remaining comes from the tenant.

 My pleasure, don't hesitate to contact me!

What I said IS correct. Huduser.gov is managed by the U.S. Department of Housing and Urban Development's . They consider the FMR on that website. Sometimes, even 110% or 120% of that. BUT, like I said, they might only pay 40%-50%-75% of that amount. It's all different with different county.

As an example, for one county I’m in contact with, they consider 110% of the FMR, but they only pay 40% of that amount. So, the remaining would come from the tenant. 

For fun, I went on Cleveland's county housing authority to look at the rent. It's even more than the numbers from Huduser.gov. https://www.cmha.net/housing/landlords/rent.php 

It's

Number of bedrooms CMHA's Payment Standard
0 $973
1 $1,095
2 $1,329
3 $1,720
4 $1,832
5 $2,107
6 $2,382
7 $2,656
8 $2,931 

We're pretty far from your 800 for 1 br and 950 for 2br. 

Thanks,

Francis

Hey Josh!

It's not impossible to raise capital with little to no experience, but it's harder. Think about it and put yourself in the shoes of the investor. The first 2 things you want to build is your REPUTATION and RELATIONSHIPS. If you don't have these, I would avoid raising capital, but here's some tips on top of my mind:

- Sometimes, it's better to start with debt instead of equity. Or offer a mix, like x% interest + 30% equity ownership. Or x% Interest + 50% ownership. At first, you will need to offer something really interesting to your investors. 

- You need to be the best in terms of knowledge in your specific asset class. Make sure you know the in's and out's of the asset type you're looking to invest in. Because investors love to ask questions. You want to be the reference (in terms of knowledge)

- Understand how to do the financial modeling of this type of asset or if you outsource, make sure that person is available when you pitch. There's specificities for SFH, multi res, industrial, commercial, self-storage, hotels, etc. Make sure your financial modeling is SUPER conservative with a lot of stress tests. If you raise money, try to present the pessimist scenario.

- Try to put all the steps of a deal in a project management software like Asana, Monday, etc. When I say all the steps, I mean all the steps. From the ad you create for your deal flow to the cash flow distribution after you exit the project. 

- Make sure you are surrounded with pros who's taking care of your financial compliance, SEC compliance, IRS compliance, legal compliance, etc.

- Understand syndication structure that you want to offer. Example: Pref of 8%, catch up 2%, then split 20/80 till 15%, then 30/70 after. Think about the management fee, acquisition fee, etc.

- Understand the rules of the syndication or the fund world (Reg D 506B vs Reg D 506C). Who do you plan to target (accredited investors or not), do you plan to advertise to the public, Do you need an RIA, etc

- Make sure you know what to look for in a PPM, LPA, subs docs, etc if you don't do them by your legal team. Some investors loves to add some clauses that could hurt you. Sometime saw investors add clauses that were like put options, but in the real estate market. The GP got screwed and were force to buy the LPs shares at X$/share. Crazy.

To be quite honest, if you don't have any experience at all, I would avoid AT ALL COST raising money. You might burn your reputation and relations. ESPECIALLY in this economic era.

I think your best bet would be to go through your rolodex and ask them what they are looking for (asset type, specific returns, timeline, etc) and become a bird dog/wholesaler where you would sell the deals you find. You can ask for a small share of the project if you want. Focus on finding good deals, build a 1 pager/OM that shows the key criteria's of the projects (that will of course fit the investors criteria's). Show that the deals you find are really good, your presentation/OM are good with good underwriting/financial modeling. 

After a couple deals you do like that with a key player, tell them that from now on, you would like to manage the project yourself. You offer them minimum return of 8% on their cash, and then split the rest 20/80. The more you do projects with them, the more you can ask for more in the partnership.

I started real estate more than a decade ago, trust me, I did all type of deals and saw all type of stuff. Even created and launched a real estate fund. Raising capital sounds easy, but it's not. You deal with other people savings, and if some problems occur, you might have huge problems with the SEC.

Please don't take my comment as negative, it's quite the opposite. I encourage you to become the best in the asset class you are aiming. 

Good luck!

Francis

 Hi Dennis,

You should go on www.huduser.gov  then click on the "Dataset" Tab. under that tab you will have the "Fair Market Rent" place. Click on that.

The city's housing authority will usually use that to determine the standard amounts for the Housing Choice Voucher program. They might only pay a % of that amount, but that's what they would consider the FMR.

Example, I know a lot of people here loves Ohio, let's take Cleveland. For Cleveland, they would use the following FMR to base their calculations :

One-Bedroom Two-Bedroom Three-Bedroom Four-Bedroom FMR Percentile
$913               $1,108            $1,434            $1,527             40

Now, they might only give a % of that amount. Let's say you have a 2 bedroom, they might go and cover only a certain % of that 1100. The other portion would come from the tenant.

To make sure, you should call the housing authority of the place you are looking to invest. They usually have a lot of information. 

Francis

 Welcome to BP Denys,

Here's my 2 cents.

1- Investor profile: Know yourself and what you want to do. Are you looking for cash flow, are you looking for appreciation, do you have the time to be involved in the projects or are you simply looking for an ROI. Do you have specific expertise that would create synergetic partnership, etc. With that investor profile, you can then have a strategic plan.

2- Market Analysis: Based on your investor profile, you will have specific market that would be interesting for your goals (cash flow, appreciation, etc). I've done projects in Florida, and I was successful there, but most of the time it was ground up project or redevelopment project. I didn't find much deals with necessarily good cash flow after you paid for the mortgage, taxes, insurance, management, etc. Maybe if you do short term rental, but that is a business itself (I know, I've also done it). When you analyze a market, you might want to analyze further. Simply saying "I want to invest in Florida", is not enough. Is it Pompano Beach, Fort Lauderdale, Miami Beach, West Palm Beach, Sarasota, Naples, Tampa, etc. Even in these sectors, you might find several places that are good, other not so. What is the average price, average rent, find comps, is it expending, etc. Some says that Florida is the next Wall Street. Awesome, but where in Florida?

3- Asset analysis: When you found what you're looking for (cash flow, appreciation, etc), you found a market that would fit these criterias. Then, you analyze the asset. Could be SFH, multi residential, commercial, industrial, Ground up, etc. Find the metrics that are most important to determine if it's a good opportunity.
4- Asset return analysis: CoC is one metric that is interesting if you are looking for cash flow, but there's so much more you can look at. IRR, NPV, EM, YOC, etc. Financial modeling is something that could be interesting to learn.
5- Portfolio management and analysis: You need to aggregate your RE portfolio and take decision if you keep the asset, sell it, refinance it, do something else. You need to aggregate them altogether and see if some cash flow is missing at some point. You might also want to do stress tests on your portfolio (interest increase, vacancy increase, maintenance fee increase, etc). 
6- Enjoy the process: You need to love the process. Active real estate investing takes time and commitment. It's not 2010 anymore where you could easily find deal and be profitable. If you don't really want to commit to it, you can simply partner up with several funds that would bring you what you are looking for (point 1: cash flow, appreciation, tax benefits, etc).

Hope that helps!

Francis