All Forum Posts by: James Kojo

The above was lifted from the 2017 H1 CBRE cap-rate survey.

If you're a data geek, then here's your answer:

* Please remember the old adage: "There are lies, DAMN lies... and statistics."

 I was not informed! It would have been great to actually meet him. 

@David Calme : with regards to your question about retrading: just be clear to both the broker and the seller, that your offer price is based on some assumptions that you will need to verify during the due-diligence period, and that ability to stand behind that offer is only as strong as the information that you were able to factor into it. You feel pretty good about your assumptions, but without an PNL, you can't be completely confident in them.

Make it clear to both parties that you don't intend to retrade over minor issues, but if it turns out that your assumptions are way off, it's possible that you'll have to revisit the offer. Fair enough?

James

Glad to be of help. One thing to keep in mind is that FHA/HUD loans are run by the government, and thus you're dealing with government employees. I hear it can take up to 6-months to get it done! They are probably best suited for refinancing, but not necessarily purchases unless you find a very patient seller. :)

James

FHA backed multi-family mortgages have outrageously good terms (85% LTV, 35 year fixed term, rock-bottom rates, non-recourse.) However, you'll probably have a some sticker shock when you see the fees and the timelines. For that reason, they only pencil for loans of 3M and more (which fits your big complex, but not your small.)

Fannie also has a small balance loan for your smaller deal, and I believe they can do longer terms.

I have a company that i've talked to about both. PM me and I'll share the name, as I don't know what the rules are about putting people's personal info up here.

Otherwise, you can just google around for FHA 223(f) and Fannie Mae multifamily loans.

Hope that helps!

James

Hi @Carrie Hallensleben

Strategy wise, I would recommend against "borrowing short" to "invest long." In other words, HELOCs are usually variable rate loans which are better suited for short-term investments. So unless you have a strategy for paying off the HELOC balance quickly, I think that cash-out-refi is a better option.

That said, even if you do a cash-out, the lending bank may still balk, unless the the funds have been "seasoned" in your bank account for 2-3 months, as @Dave Van Horn suggested. For whatever reason, if you hold it in your bank account for 3-months, it's no longer considered borrowed. As a matter of fact, you may recall from your other mortgages, they usually don't even ask for more than 3 months of bank statements (2 may be the norm.)

4 units is considered residential, anything more is considered commercial. Finding and getting a residential loan is very straight forward. You can get them anywhere, including online. For commercial, you'll actually have to call local banks and establish a relationship and explain who you are and what you're doing, etc.

The final point i'll make about your strategy is about recourse: typically, residential loans are "non-recourse" which means that they are collateralized against the one property, but not  your other personal assets. So if things go really south with your business plan, they can only take the house of which you took the loan against. If you happen to be living in that house, then you'll need to find a new place to live. :) As such, consider whether or not it would be worth it to take money out of your other investments instead of your primary. You'll pay a .25 point hit on the rate because they are collatorilized against investment properties, but then you'll potentially reduce the impact on your family if things go bad.

Hope that helps!

James

@Joshua Simon : I sometimes "cross-capitalize" some of my properties in the way that you describe (pull money from one to pay for another.)

In your specific case, I would say that you're actually bringing 75K into the deal, not 0, so you can compute your CoC return based on the 75K going in.

Also, I would still account the borrowing cost against the property your borrowed from. So if you are borrowing 75K from property A to buy property B, reduce your "invested capital" in property A by 75K, but likewise increase the debt service of property A by whatever you're paying for the 75K.

Just think of it as a cash-out-refi of property A. You could choose to go buy a car with it, or do the smart thing and re-invest it, but it's still a cash-out refi. Since you choose to re-invest it, that 75K is now your new working capital and will be the basis for any investment you make with it.

Makes sense?

Asking about expected returns about a MFR is a little like asking what's the expected return on a stock. It kinda depends. :) If you're looking at B class properties, here are some stats.

AVERAGE cap-rates across all of the US for B class stabilized properties:

Tier 1 metros: 4.72
Tier 2 metros: 5.39
Tier 3 metros: 6.04
Avg for all metros: 5.15

Those are not good cap-rates, those are average. My gut-feel is that you should be looking to take down deals at-least 200 basis points above the average. More importantly, you should be thinking about your exit strategy. If you're going to buy and hold forever, then you care about cap-rate. If you want to sell after a fixed time-period, then you care less about caps and more about forced-appreciation, which you can do at any cap-rate.

Hope that helps!

James

Cincinnati was a lot of fun. I didn't come home with a deal, but that's another story. 

I did check out Sotto's. That was pretty awesome. There are also a lot of fun breweries around town. My favorite was Braxton brewery, on the KY side (Covington.) I also walked through over-the-rhine, which was a kick.

On the business side, I met up with John at the Equity Team (property manager) who was all kinds of awesome. Highly recommend if you're looking to land SFR or smaller MFR deals in the area. He actually helped with the initial neighborhood analysis, underwriting and also did a property walk with me before I even closed on the place, which I thought was pretty exceptional.

I toured several MFR properties with the help of a great CRE broker working for KW who was gracious enough to show me around, but alas, no hits.

Thanks all for the recommendations!

James

Thanks everybody who responded to the thread!

It seems pretty clear that I should probably get an in-state CPA who is familiar with multi-state REI investing.

Thanks for the advice ideas!