All Forum Posts by: Giovanni Isaksen

@Elaine Lau sounds like you have the good problem!

Was just running through the numbers on a similar situation for one of my advisory clients. They bought an apartment building about 18 months ago and it's just now stabilized and performing nicely but received an unsolicited offer from another investor who was running out of time to select their 1031 'upleg' (replacement property).

What I did for them was conservatively model the next ten* years profit & losses, then took the Net Present Value (NPV) of the cash flows from those 10 years and compared it to the net after tax proceeds from selling or exchanging as well as what it would cost to get into another property that performed as well as the present one.

Even though the other party was getting desperate and was willing to pay a crazy price for a property in that area it wasn't crazy enough to sell it turns out. The biggest problem is that whether we did a 1031 exchange or sold it outright the likelihood of finding something priced to perform as well has really diminished in that market. You're market may be different so the only way to know is by running the numbers. If you want help with that I'd be happy to do the analysis and show you how to do it in the future.

Good hunting-

@Ayodeji Kuponiyi Turn-key can work great if the incentives are properly aligned but typically more units are better just based on the math. One unit vacant in a triplex is 33%; 1 unit in a 7 plex is only 14% so you can withstand two vacancies in the seven unit with less of a hit than one in the triplex. Provided that you aren't stretching and overleveraging to get the larger property of course.

When you're looking at the numbers make sure your investment works with 10% property management even if you will be managing to start. We find that even if property management is quoted at 5% by the time all the other charges and fees are loaded in it winds up closer to 9 or 10%. Which makes sense because property managers can't make any money at 5%.

Good hunting-

@Ayodeji Kuponiyi There's a big dividing line between 4 and 5 units. 4 and under you can typically get much better loan terms ( because it's considered residential) but once you get over 5 units the underwriting of the loan can get better because it's considered a commercial property.

There are other hurdles to consider too. Property management and maintenance are the two biggest ones. From zero to about 65-85 units (depending on the market) typically you're better off managing the property yourself.... if you have the inclination and skills to do it. That's because there isn't enough in rent coming in to cover the cost of a full time/onsite property manager/maintenance guy.

But there's this: Build a track record with a small multifamily property so you can raise money for a larger one. If you're talking to an investor and all you can say it that you hvae a couple houses that you rent out that doesn't sound nearly as relevant as if you can say I've got experience in multifamily and want to grow the portfolio...

Good hunting-

@Brent Rogers Don't know what market your 'college town investor specialist agent' is in but college towns can be great sources of steady rental income, especially if the local colleges have educational tracks catering to the growing demand for STEM jobs and are in a market where those jobs are available. Not that colleges focusing on industries like healthcare aren't seeing good enrollment and job prospects but the STEM jobs tend to create higher incomes and therefore higher potential rents.

The return hurdles all depend on your holding period and source of funds. If you're raising money from domestic investors or North American private equity it's really tough to find deals that pencil. If you have money from Asia or your own personal wealth, AND are a long term holder, current caps and rates of return are of less concern because over a 20 or 30 year hold you are sure to do well. Bottom line is you can preach 10-12 year holds all you want and your NA investors will nod their heads and swear they're in it for the long term but in five years in they're all going to be wanting their money back.

I'm talking to investors from Asia whose investment horizon is fifty years or more and that changes what you're willing to pay significantly. To me the key is to make sure that the property is at least cash flow neutral from day 1 including all the reserves for future CapEx, otherwise you will be dieing the death of a thousand cuts.

If you have a specific deal you're looking at I'd be happy to help you evaluate it in terms of your investment goals.

Good hunting-

Giovanni

You can do well with the right out of state property and a really good manager but you still need to physically walk the property at least twice a year (if not quarterly) to stay on top of the details and the prop mgr... or hire an assent management consultant to do it. Best if the property is in a market you travel to regularly, or would like to.

Hi @Peter Shin I don't know anyone specific to Tacoma but Patrick Suarez at EHI in Seattle should be able to help or refer you to someone who can.

Good hunting-

RE: coin op machines; I don't know anyone who's had a good experience with coin op leasing companies and trying to get out a contract with one that you're not satisfied with is harder than regrowing a limb. I would purchase card-op machines, not coin-op instead.

@Eileigh Bevers I second @Aaron Ramm's suggestions to connect with REAPS and REIWA. Was just at REAPS north meeting in Everett this week (Hi Aaron), great info, great networking plus we played Shark Tank and that was a blast.

Giovanni-

@Andrew Schena Your investors actually need you to charge enough fees so that you can stay in business during the holding period and do a good job generating returns on their investments. You can flip this on its head and ask what happens if the GP goes out of business during the project? Your investors need you to stay in business just as much as you need you to stay in business.

Great topic and post @Michael Worley. Great comments too. Properly designing your capital stack can make a huge difference in the returns on a property.@Joel Owens great points about loan size. Most lenders in our corner of the country won't touch anything under $1M and the local banks that claim they do treat them more like a personal loan than one secured by existing income producing real estate.