All Forum Posts by: Giovanni Isaksen

@Azeez K. A few questions popped up from your post:

1. If the 6.45% 15yr loan worked in the investment plan for the property when it was acquired, what has changed that makes the plan worth changing?

2. Only by running the numbers completely will the cost/benefits of refinancing vs. staying with the current financing over the next five years become clear. That includes the differences in amortization as well.

3. One other thing to include in the analysis is that you may end up paying for three or more sets of loan fees and costs by going to the shorter term, good for the bank but make sure to include those in the calculation.

4. The last one is where will the property be in the market cycle in five years? How likely is it to be a period where refinancing is expensive or non-existent? Given that if financing were hard to get, selling at a decent price might also be hard to do, what would your strategy be?

Good hunting-

@Jimmy it sounds like it could be a very nice asset, provided the submarket fundamentals are in place this would be a great way to acquire a class A property at a discount.

'Wireless' submetering technology is getting less expensive to install and operate these days, here's a link to one provider of equipment: http://www.ekmmetering.com/ekm-metering-system-how-it-works?gclid=CM7UirqgjbsCFVWTfgodGAUAFQ

( I have no connection with them)

I would discuss with your property management company or prospective property management companies their capabilities and preferences around submetering equipment and service providers. The ability to remove the variable (but rising) cost of utilities from your income statement would make this an important criteria in manager selection.

Tony, check out the thread here called: "Success in the World of Self Storage" started by @Michael Wagner. A lot of good info and discussion with people who are already in SS-

On all the apartment loans we've done lately the lender required us to set up a separate entity to hold the property in. This wasn't a problem as that's our standard operating plan but something to keep in mind.

As Bill said the business plan for a real estate investment is a simple document. We supply a narrative detailing what the property is, the condition of the property, why we're buying it and what we plan to do with it, both initially and what our long term investment objective for the property is. If we are going to reposition the property or it requires significant repairs we supply a capex budget broken out into line items. We also supply a 24 month operating budget and a five year proforma.

I would include in the narrative any relevant experience you or your partners have and if you have one, a track record of previous investments that you operate currently or that have gone full cycle. After that the lender will have a long list of requests, many of which will involve restating information you've already given them. Respond to all their requests as quickly and completely as possible, this is key to having the best chance at getting the loan approved. Save your negotiating skills for the terms of the loan, not for the information they request.

Good hunting!

Just to add to @Jeff Greenberg's comment on capex, don't rely on a lender's replacement reserve requirement to figure how much to budget. Banks often require $250/unit but in the Seattle area for instance, properties are actually spending $450 on average according to market research.

When we build a proforma for a property we're interested in we add capex based on our estimate of everything we can see (I love Google Earth and Bing) like roof, windows, landscaping, parking lot and ballpark for everything we can't like central heat. Everything wears out and we've found if you don't include a line item in your capex for something, down the road it will be an expensive surprise.

@Omar Okwandu, you're welcome. I like @Account Closed 's idea of getting the seller to carry what would be your cash contribution (or a bit more) for a couple years too.

@Marc Ramsay how did you select those markets? Certainly not for their wonderful winters ;)

@Sam, does being unique mean they're easier to rent and keep full? If so that may offset higher maintenance costs because turnover is fairly expensive all by itself. Plus you may be able to get better terms with a Fannie resi loan than with a (really) small apartment loan.

@Marc my guy in Vancouver keeps sending me 3 and 4 cap deals. My question is always if you're buying at a three and change, what exit cap rate are you targeting? Although I think the low was early last summer when he sent a 2.7 deal... on proforma numbers.

Without knowing the deal size and numbers I can't get too specific but what about reducing your partner's contribution to the equity portion only (say 35%) and getting a GSE/bank/insurance co/CMBS loan for the balance that would include covering the cash portion you'd otherwise have to contribute?

In return for putting up a smaller amount of cash and being on the loan your partner could earn a better return than if they put up 90% and you would earn your split for finding the deal and supplying the sweat equity.