All Forum Posts by: James Kojo

@Brian Burke Maybe someday I'll get to a point where I can say: "Hey, remember that time I had to put my own money into the deal to get it closed? That was crazy, right!?" :) Sounds like you are already there. 

With regards to your TIC story, yeah, I definitely don't want to do anything that would misalign my own interests with my investors. Legal risks aside, that would be against my personal code of conduct, and I really don't need the money that bad. I think I'll steer click of that particular pitfall by forgoing the time-value of the money that I put in, and just give shares to my investors at-cost, like you did.

Thanks for the story and the advise!

James

great insight @Joel Owens! I’ll put it to practice right away. 

Thanks!

Is it possible to structure a personal purchase of a commercial MFR property with the intention of selling of pieces of the deal after the deal has closed?

Why I ask: I buy properties for my personal portfolio (I'm not a syndicator, yet.) Sometimes I get shown deals that are just a little outside of my strike-zone. If I check the seat-cushions and the change jar, I'd have just enough to close the deal, do the capex, and have 3-6 months of operating reserves. But then I'd have a big chunk of my net-worth tied up in a single deal, which I don't want for the long-term.

So, my thinking is, I would spend my initial time and resources finding, funding and closing good deals with my own money and financing, then I'd eventually sell half of the ownership to friends, family and colleagues after I closed the deal. Maybe I could even structure the sale to account for risk tolerance. So my early-adopter, start-upy friends could get in early right after I close, and maybe my retired mother comes in after stabilization.

Does it work, and if i have that exit strategy in mind, should I do anything before-hand? Obviously, I'd have to have an LLC take on the initial financing. Anything else?

Thanks for your thoughts!

James

@Scott Skinger

I think @Chris Tracy gives some great advice here. I'll add my 2 cents.

On the first call, you're really looking to accomplish 3 things:

1) Establish a human connection. Be genuine, courteous and likable. if you aren't any of those, then you'll have to work on them first. :) Show that you respect their time and their consideration, and let them know that you'd like to do business with them.

2) Establish credibility. Not quite as easy as it sounds, but not hard either. Some ways to do this:

    a. Know and articulate your strategy.    
    b. Know and articulate your purchasing criteria.
    c. Share who is on your local team, and why they are so awesome
    d. Demonstrate deep knowledge about the target market by talking about specific districts/townships and how they fit in (or don't) with your strategy.
    e. Demonstrate knowledge of who you're talking to by finding their past and current listings ahead of time.
    f. If you have closed a deal in the target market in the past, make sure to bring them up. (i.e. you're a closer, not a tire-kicker.)

3) If you're calling about a specific deal, get the financials. Sometimes they'll test you: "What financials do you want?" A reasonable answer: "T12, current Rent Roll, and 2016 PNL. Proforma if you have one."

For me, I like to do my homework before I pick up the phone, because I'm an 'offline thinker' and i'm not a natural sales person. 

Follow-up with the periodically. I'm not sure if there's a magic number on how often you should follow-up. I'd be interested in hearing thoughts. For me, I follow-up roughly every 3-4 weeks by email.

Hope that helps!

James

@Account Closed : I recommend the Due Diligence Handbook for Commercial Real Estate.

I've recently read through it, and it's pretty thorough. Some of it may be overkill, but it's better to overkill than underkill on due-diligence. :)

If you want something quick-and-dirty, you can PM me and I'll send you my personal checklist, which is a subset of the things they recommend in the book.

Hope that helps!

James

A couple of points:

You didn't state your goals. long term Buy and hold for yield, appreciation, or flip?

When I analyze a portfolio deal, I usually lump all of the numbers together unless there are 3 or less properties in the portfolio. After the acquisition, there are fewer economies of scale to be gained from a portfolio compared to a single-parcel multi-unit. As such, I tend to evaluate them as sum-of-the-parts. Of-course there may be some synergies (maybe get a package deal from PM, stocking similar paint, repair items, maintenance items, etc.) If you do go for a portfolio, i would recommend you try to standardize on materials and systems to gain those benefits.

Do you have experience in D-class properties or have a PM that does? Apparently, their are business models that work, but it's a specialty skill set. Does D neighborhoods align with your personal investment philosophy, or are you just looking at this as a one-off opportunity? To begin with, you'll need to be seeing very large gross yields to make up for the high tenancy and potential damage.

Am I reading your analysis right that you're expecting 70% of rents to go to expenses? What went into those expenses?

To evaluate the deal, ask for a T12 P&L (trailing-12 month profit and loss) as well as the 2016 and 2015 schedule E's, and current rent roll. Those will give you his "actuals" so you can base your projections on real numbers instead of projections. Don't be surprised if he doesn't the full set of books if he self-manages.

That's a starting point to make sure it at least makes financial sense. Evaluating the resale value of the homes individually is another proposition altogether.

Hope that gave some food for thought!

James

I actually just got off the phone with one of the major multi-family brokers in the area. He was saying that he likes Clintonville  along high street quite a bit. 

I kid you not, he actually said  "it may be the next Short North", completely unprompted from me. What a great tie-in to this thread!

@David Roberts : He actually had the opposite view of Clintonville: he was saying that he's seeing more young professionals moving up into Clintonville from the university district, rather than the other way around. I guess both are technically possible.

As far as turn-around plays go, I personally think the area around the Children's hospital is a good bet, but it still has a long way to go. @Amanda Roderick : Is that are what you are referring to as "Parsons's Ave area"?

Thanks for the thoughts and ideas, everyone!

James

Hot Pads will give you a rent-ratio heat-map, which is going to similar to what you're talking about.

Zillow has API's you can code against to extract data that you're interested and processes it yourself, if you're inclined to do-it-yourself.

@Ray Harrell : getting to 75 units is easy: start with 150 units in a F-class neighborhood, then wait a year.

At the end of the year, you should have only 75 habitable units left! :)

Jokes aside, I probably should have been more clear: I'm not suggesting anyone jump straight into a 75 unit. The point I was trying to illustrate is that the difference in economies of scale between a 4-unit and a 6-unit is not that great. The real inflection point comes at around 75 at which point it makes financial sense to hire on-site property management. The economy of scale for 4 vs 6 unit is realized primarily in the exterior paint and roof costs per door, which admittedly may be significant, but probably not a deciding factor.

Hope that helps!

James

@David K. You have surpassed my knowledge in this area, so I wouldn't presume to advise you further. :)

That said, I have talked with @Tom Keating about commercial loans, and I found him to highly knowledgeable and helpful on the subject. He does a poor job of advertising it here on BP, but he works for one of the few big firms who originate Freddie Mac debt, so he's eminently qualified to advise you on the subject. If he's offering a call with you, I'd take him up on it. :)

Good luck!

James