All Forum Posts by: Henry Hsieh

Quote from @Michael Smythe:

@Henry Hsieh if you choose #3, have tenant sign lease MTM at full rent amount. 

For payment, pay them separately NOT via rent credit. If you part ways with them, they get to stay at the lower rent amount:(

With MTM lease, you can then give them 30-Day Notice if you part ways.

Through this method, how long does the tenant/manager usually stick around the property for?  If you increase rent, would you apply it with them as well?

On the top of my head there are different ways of managing your multifamily properties, (7-12 units) I am curious as to your experience of how to best manage it in a B to C class neighborhood.  

1.  Managing it yourself - You or your team collect the rent, deal with local contractors for repairs, in essence hands on 

2.  Property management company - You outsource it to a property management company and your approach is more hands off

3.  Getting a tenant within the unit to manage it for you - You somehow convinces someone in that property to manage it for you.  I assume you would either give them a discount on their rent or free rent for their service as a result.  They become a part of your team in some ways and deal with all local contractors for you related to the property

Which one of the three above have you found to help you in your journey and how did you scale it from there?

Lately I have been studying the multifamily property market and I continue to see cap rates between the ranges of 5-8% within 6-8 units around where I'm looking to target my investment.  

Now the numbers that's displayed publicly are mostly "pro forma" and not real numbers and everyone's talking about potentials.  The cap rates themselves from their ads don't include the cost of a commercial mortgage in their calculation.

Now commercial loan rates that I'm seeing are at minimum 6% and higher.  Maybe I'm not seeing the complete picture, but why would anyone buy these multifamily properties just to break even or just make a 3% return and not invest in another vehicle?  Am I missing something here or is the BS meter is at an all time high?  Thoughts please, thanks.

Quote from @Chris Mason:

Quote from @Henry Hsieh:

I am contemplating going to the commercial real estate side for investment but the rates & terms are completely different vs residential.  I found an opportunity where the seller would consider carrying the loan at 5% for 5 years.  Is this a good term versus what the bank offers?  5 years seems short in a payback period in compared to how much commercial real estate generates.  How do you guys usually deal with this?  Manage it well, increase lease, sell the property within that time frame and keep moving upwards and repeat?  Thanks.

5% with a 5 year maturity is in line with CRE norms. If you were to call me, I'd likely be able to offer a choice of 3, 5, or 7 year maturity, maybe 10, but couldn't touch the 5% as of Feb 2024.

Find out if there's a PPP, also common in commercial. 

We don't know enough to comment on the 'sticker price' of the property, but the financing offered is great. Offering great seller financing is fair and good and useful if it's to get a buyer (you) off the fence or sell the property faster, but ensure you don't overpay. 

If I were to invest in properties in the same state, sure I definitely give you a call.  But ones I'm considering is out of state and I haven't talked to anyone in my state that's willing to give that a try yet.  Most are all local lenders from that state that's giving me loan terms.

But on your terms itself, let's say the loan is for 800k-1million, the potential return from the property is close to 2x to potential mortgage, what rates are you current seeing in the market?

Quote from @Ronald Rohde:

that can be good debt terms, but what about the purchase price? don't overpay just for good debt terms.

 So the multifamily property that I'm considering is between $1.3 - $1.6 million and the rates that I have gotten are between 7.15% from brokers and 7.5-7.7% from bankers.  Not sure about the years to maturity.  I would assume that the one offered by the seller seems to look better?

I own two fully paid out single family homes through a 1031 exchange, my original thought process is to keep them long term since that's been what I've done in the past, however I am contemplating changing my strategy since I'm seeing a lot of movement in the local real estate market that people are flipping them within a month of their purchase on the home.  I'm trying to work out the pros and cons, some help from those experienced is greatly appreciated.

1.  Keeping it long term - Let the home appreciate over time and 1031 exchange it upward in due time while leasing it

2.  Flipping them - I haven't meet my obligation from the 1031 exchange to keep them for 2 years.  From what I'm seeing folks doing in my neighborhood is marking it up by another $100k and selling them within a month or two after requiring them.  From paper this looks good, but even with that, wouldn't the tax kill all of this effort if I also gone this direction?  However, this would then allow me to have more cash to work on and to buy more properties without fully paying them off to maybe 3 or 4 from 2?

3.  Keep the two properties and do a cash out refinance - Extract cash from the two properties and while keeping the two for long term leases, use the cash to buy another property and hope the interest rates drop this year which is likely from what Powell is saying.  In this strategy, maximize the units but all of the properties are now financed.

For the veterans in this space out there, how would you look at these three options or option 4 if I may have missed one to maximize your returns over time?  Thanks.

Quote from @Javed Hussain:

For commercial loans 5-10 years is pretty standard usually I structure my loans with banks at 5 years fixed followed by 5 year variable hybrid. I would say getting 5 years at 5% is a deal since now im seeing 6.5% with brokers. You could try to negotiate a higher rate per year after that 5 years to built into the loan incase the economy is somehow much lower then opposed to now.

Thanks.   So instead of sticking to your typical balloon payment after 5, push back and try to see if they are open for a hybrid term to drag it out longer.  What are your typical hybrid terms that you would negotiate for?  a few points above 5 or is there a rule that you follow?

Side question, assuming that you have a pretty strong income from work, would you hold your commercial real estate as long as you can and to by another on top of the existing one or would you 1031 to a bigger commercial real estate instead?

When do people typically "ditch" their jobs?  When the portfolio generates above your take home salary from your job after expenses or?  Some experience sharing would be greatly appreciated.

I am contemplating going to the commercial real estate side for investment but the rates & terms are completely different vs residential.  I found an opportunity where the seller would consider carrying the loan at 5% for 5 years.  Is this a good term versus what the bank offers?  5 years seems short in a payback period in compared to how much commercial real estate generates.  How do you guys usually deal with this?  Manage it well, increase lease, sell the property within that time frame and keep moving upwards and repeat?  Thanks.

Quote from @Wade Wisner:

The difficulty is in finding the "quality" property manager - the one who represent you the owner not the tenants. Are these SF rentals in Phoenix? Some other possibilities to a property manager could be a money partner of say a realtor, or other who are in the area and could manage the properties for you both. I have this situation with a small commercial property in northern CA and my realtor partner manages it for us. Of course, we have a NNN lease that places most of the repair/maintenance responsibilities on the tenant. You can do this with residential tenants as well with a lease clause that has them responsible for these same items up to a limit of $150 - $300 per item. At least then they don't drive you crazy with nonsense issues, probably of their making. If you have a good plumber, electrician and appliance guy in the area you can handle most reparirs through them.

If you must hire a property manager, I would get lots of referrals and check them out very thoroughly.   Just some ideas. 

 Exactly.  There are a ton of property manager with terrible reviews.  All of them whom I've contacted told me that they're the best in the industry.  Most if not all have lengthy agreements with clauses after clauses that are designed not to favor you if you want more autonomy in your property.  I have gone over an agreement which suggest they've gotten their tenants to pay massive amounts of fees to which I wonder what the integrity is in all of this?  Seems like the tenants are completely getting screwed over.  

As my OP mentioned, once the door count increases in a handful, my question is wouldn't this make more sense to have your own team involved instead of outsourcing to a property management firm?

My concern in addition is that you ended up learning nothing through handing it off to someone else which is fine.  However, without your own team involved, what if the property management firm change terms with you under new management, gets sold off, or goes bankrupt, what are you left with then?

Quote from @Justine Phillipson:

Hi Henry,

How long have you been managing properties without a property manager?

As an out of state investor, I couldn't imagine managing my properties without a property manager. They've been a life saver, and have provided many updates and repairs to my home to maintain the value and quality of the home. Plus their expense is a tax write-off. 

Kudos to you if you're successfully managing your properties remotely, but I think a quality property manager is worth the investment. 

This will be my first time diving in using a property management firm for my investments in Arizona.  Personally, I have managed my own properties for the most part remotely for several years mostly within the state of California.

I did not know that their expense is a tax write-off.  Good to know, thanks!