All Forum Posts by: James Kojo

I've just started my search for 10+ unit MFRs. I've set my criteria at an 8 cap in B areas. Is that realistic or do you think I'll have to reset my expectations? I'm looking in multiple out of state markets, but I'm concentrating on secondary markets in MSAs with growing population and shrinking unemployment. Thanks! James

Also check to see if any of your competition does sub-metering or RUBS. There may be an opportunity there to recapture the utilities that you pay for, and also reduce consumption by up to 30%.

When I'm evaluating a sub-market, what are some good metrics to evaluate supply and demand for rental units? Where can I find that info?

For example, I know that building permits are a proxy for future supply, but what do I compare it to to see if there will be an "over supply?"

Thanks

James

I think you obviously gave a lot of thought to the details you posted so we need to know the details of what you didn't post. :)

Some questions that will hopefully stir some additional consideration:

1) where did you get your numbers? Trailing 12, pro-forma or schedule E?

2) what is your due diligence plan?

3) who is the biggest employer in the employment base and what % of the overall job base to they represent?

4) what is your plan for fiancing? agency debt may not lend in such a small market. 

5) what is your exit strategy?

6)  can you give the exact breakdown of expenses? Any thoughts on if they are accurate and if you can improve on them? Do they line up with the market rates?

@Jeff D. : you're probably thinking about FHA commercial multi-family loans. The actual terms are pretty awesome, but they are fee heavy and they do take 4-6 months to close (from what my broker tells me. I've never actually done one.)

@Tom Keating : i've heard that many banks/lenders will give different pricing on the same agency loans (like SBL). How do you go about finding the best pricing?

James

@James Chambers : obvious question: did you base your numbers on a pro-forma given to you by the seller/broker? If so, throw away your numbers and start over with a trailing-12 and current rent roll. :)

- A fellow James

@Account Closed I would definitely have a chat with @Mike D'Arrigo before you head out.  You can find him here on BP. He's a TK provider. I'm in the middle of a purchase with him and his KC affiliate, and so far so good. He's given me pretty good advice on the different neighborhoods.

One one of the things you should be careful to screen is the rehabber's rehab standards. They should be clearly spelled out, and should more than just cosmetics. They should be taking care of all of the big-ticket functional items - roof, hvac, water-heaters, plumbing, electrical, flooring, sinks, tubs. etc.

If they are just throwing down paint and carpet, then you'll probably have a high capex in the next 5 years.

James

@Chris Mason makes a good point that I think bears emphasis. Simultaneous loans can be much trickier than sequential, individual loans. It depends on the how the underwriters value the income generated for each of the 3 properties: they may give you full credit for the income, but more likely they will give you some fraction of the projected income, or they may not count any of the income until you've proven that you can collect it (seasoning.)

Either way, you'll probably have to produce signed leases for all units.

The reason why that's important is that residential loans are based on you credit score, assets, and your debt-to-income (DTI) ratio. You'll be taking on a lot of debt, so you'll need income to offset the new debt. If you're W-2 income is high enough to offset that debt by itself, then no-problem. Otherwise, you'll be at the mercy of the underwriter.

I've actually had a simultaneous closing fall through. The broker said it wouldn't be a problem, but when it actually got to underwriting, they wouldn't do it. Luckily, I had enough cash to close the 2nd property, and was able to do a cash-out refi a few months later.

Hope that helps.

James

@Antoine Martel I would actually be interesting in hearing your thoughts about what  the benefits of a commercial loan would be in the case.

The alternative, of course, would be do 3 separate residential loans. If you are under the 10 loan limit, you can get fairly cheap fannie financing for each, assuming good credit and the comps come in in-range. Those would have to be backed by your personal credit scores. The only down-side I see is the extra headache of 3 mortgages instead of 1. fannie loans are typically non-recourse.

On the commercial side, personal credit matters less than the financials of the deal and the experience of the investor. However, I believe that if you get a portfolio loan, your properties will be "cross-collateralized" such that a default on one could potentially result in a foreclosure of any property in the portfolio. Also, many local lenders may require recourse loans, so they can come after your personal assets.

please correct me if i'm wrong on any of the above!

@Matt Roach Thanks for the perspective from a commercial broker's point of view.

I guess the consensus from this thread is one should provide POF if requested.

Do you have any other suggestions for building credibility with a broker if I don't have a MFR track-record? all of my transactions have been SFR.

Thanks!

James