All Forum Posts by: Giovanni Isaksen

@Account Closed  this BP forum thread has more good apartment reads-

http://www.biggerpockets.com/forums/52/topics/116743-multifamily-resources

An important consideration is to make sure the two options are compared apples to apples. Often when people are talking about sfr rentals they're really talking about being landlords which is really just owning a job. When successful owners are talking about apartments they're really talking about owning a business which operates day to day with minimal input from the owner. Especially since you're thinking of this as your retirement it's important to evaluate the single family option from the point of view of the CEO who works on the business and not in the business. 

That means running the numbers with you in the CEO role and hiring out the management, maintenance and other functions whether you're looking at sfrs or apartments. Since as you say most investors gravitate to apartments eventually (Particularly after trying to operate ten or twelve sfr rentals scattered around) if you have the capital give yourself a head start by beginning with the end in mind. As @Jean Bolger said though, the important thing is to start and there's nothing wrong with an sfr or two if you can afford them now. Just make sure you don't turn your 'retirement' into another job.

Good hunting-

All the things @Mike B. mentioned (and more, see below), plus that it can take a year to close a 223(f) loan means that if you're not absolutely, positively sure the deal is going to be a long term hold, like decades with an s long, it probably isn't worth it. The time to close means that this loan is much more doable as a refinance of a property already in your portfolio too.

A client had gone the refi route with some REO product he was picking up four years ago. In the first couple deals his investors were family offices who are happy and staying the course. The next couple deals had more general investors and they're happy-ish but thinking they'd like their money back sooner than the original ten to twelve year anticipated hold. The return numbers would be pretty good so it remains to be seen whether it was worth going the 223(f) route on these deals.

Partial list of 223(f) requirements:

Escrows

• Tax and Insurance Impounds: Required.
• Replacement Reserves: Required - Monthly deposit required and amount depends on property condition.
• Initial Deposit to Reserve Fund: Required - One time deposit may be required depending on property condition.
• Critical and Non-Critical Repair Escrow: May be required for properties with life, safety, health or code related repair and/or maintenance concerns.

Fees and Expenses

• Third Party Reports: appraisal, engineering report, environmental analysis and flood certification.
• FHA Inspection Fee: 1% of repair costs or $30 per unit if repairs are less than $3,000 unit.
• FHA Exam Fee: $3 per $1,000 of the loan balance.
• Financing Fee: 1%-3% depending on loan size and loan complexity.
• Permanent Placement Fee: 1%-2%.
• First Year Mortgage Insurance Premium: 1% of loan amount
• Monthly Mortgage Insurance Premium: .60% (Properties with an affordability component .45 bps).
• Borrower's Legal: Estimated at $10,000-$20,000.

• Title & Recording Fees: TBD.

But if you really are a long term holder with a property you want to hand down generation to generation... with a non-recourse 35 year term, am and fixed rate; the chance to lock in a historically low rate on an assumable loan may make the 223(f) brain damage worth it.

@Chanelle Dupre From a macro level most people start with sfr (single family residences) rentals because they're familiar and affordable but as their portfolio grows servicing and managing houses scattered across a metro or worse, across several markets involves a larger and larger amount of travel and that takes a toll on returns, peace of mind and family. Eventually most successful sfr investors transition into multifamily (5+ units) or other types of commercial real estate (CRE). Institutional investors have gotten into sfrs lately but they're dealing with the same issues only on a much larger scale (see my BP blog post here for more on that).

There are economies of scale such as volume pricing but more importantly as you move into CRE you're dealing increasingly with professionals and the pricing is driven by the numbers, a much more rational valuation basis than sfr pricing based on "comps". Even though there's a lot of digital ink spilled here on BP over supposed cap rates on sfrs, duplexes, triplexes and fourplexes (plexes) it's a waste of bits because houses don't trade on NOI, they trade on comps.

I'm an apartment guy, it's my passion and what I do for a living so I could go on all day about their advantages but it would be more helpful to answer specific questions that you may have about them.

As for partners or investing in a partnership it's like getting married because you will 'be in bed' with your partners for the length of the deal. Whether it is crowdfunded or a syndication doing due diligence on your partners is as (or more) important as doing due diligence on the property for the investor/non-managing partner. And that's from someone who does due diligence for a living. There have been a number of great threads here in the forums on how to due diligence on sponsors and you can find them by searching on 'crowdfunding due diligence', 'due diligence for syndications', etc.

Good hunting-

@Chanelle Dupre  welcome aboard neighbor! 

Cash FLOW is king as @Bill pointed out and many investors claim to understand that but yet don't know how much actually it costs to operate a property. Not just investors, but people who should know better too (cough Zillow cough) when they present cost of ownership ratios that seriously understate the cost of operating a property. See http://ashworthpartners.com/the-buy-vs-rent-meme-t... for more on that.

Many small investors (like many owners of small businesses) do not know their numbers well enough to even know if they're really making the returns they targeted because they run a lot of expenses out of pocket and ignore the value of their time. This is great if you're goal is bragging at the country club but if you're trying to build up or preserve wealth it pays to know your real numbers.

To do that imagine that you are the CEO of a large real estate company (or a singer/songwriter out on tour ;) and that someone has to paid a market competitive amount to perform every task associated with operating a property successfully on a long term basis. That includes managing the property, maintaining it and setting funds aside for replacing the big components when they inevitably wear out. Then add in the secondary costs, managing the managers, legal, accounting, etc. This is your true cost of operating the property and when you deduct these and the debt service from the actual Gross Operating Income you will know what the cash flow before tax is. Deduct for taxes and this is the true cash flow in your pocket.

Once you know the true cash flow, and presuming it is positive, you can decide how much it's worth to you as an investment. Cash on Cash Return is the first measure, cash flow in your pocket divided by your total investment in the property. It ignores the loan balance being paid down by the tenants and any appreciation that comes along but if the property isn't cash flowing enough you won't (or won't be able to) hang on to it long enough to enjoy those benefits.

The other measures such as IRR, DCF and NPV require that you correctly identify the selling price somewhere out in the future. The future is hard to predict as it has been said and so running these measure amounts to a guess at best. On the other hand if you can predict the future, I'd like to partner with you!

Good hunting-

@Vee K.  If you offered your best number based on what the property's really worth in that condition and market, be patient. They may come back around once reality has set in. On the other hand if you don't get it figure the Universe is looking out for you and whoever overpaid for it is saving you a lot of problems down the road.

Thanks @Jean Bolger and @Curtis Bidwell for the mentions. Thanks @Dean Letfus for reaching out, looking forward to our conversation.

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Good hunting-

Hi @Christine Chris welcome aboard. I'm just across the border from you. We're in the apartment biz, mostly Western US. Would be happy to answer any specific questions.

Good hunting-

Thanks @Account Closed, sounds like you got a great deal on the whole thing- less than $320 each. Don't know if we could touch that in our markets.