All Forum Posts by: James Kojo

@Frankie Suarez  : unfortunately, you may have already muddied your own waters. If you want to open up your deal to non-accredited investors (investors with less than $1M net-worth excluding primary residence), there are very strict non-solicitation rules that would apply, to which your original post would probably disqualify you for.

So, now you're left with an SEC 506(c) offering, which allows you to solicit accredited investors (net-worth of $1M and above), or taking general only partners, who have actual active roles with decision making power.

If you're still want to take passive investors, you definitely want to talk with a good SEC attorney! You'll need one anyways to create your PPM.

Disclaimer: I am definitely not anything remotely close to an attorney, and thus not qualified to give actual legal advice.

My 2 cents on REI education (sorry, not specific to MB!)

General real-estate education can actually be obtained quite cheap. If you listened to at least 1 hour of podcasts everyday for 3-6 months and read the best 5-10 books that discuss what you want to do, then you can learn 80% of what you need to know for a couple of hundred bucks or less.

Depending on how astute you are, after doing those two things, you would have about 80% of theory that the pros have.

The problem is in the 20% that you can't get through podcasts and books, or even seminars and online-training. In that 20% are the real rubber-meets-the-road problems that a successful real-estate investor REALLY needs to know. 

What does it mean if the inspection shows all aluminum wiring in the units? What do I do if  I actually have a budget surplus at the end of the rehab, and the lender tries to claim that I defaulted because I didn't perform the required repairs to their standards? How much do I budget for 50 squares of roofing for pre-1975 construction in Dayton, OH? Should I buy this property with flat roofs, basements, boilers and single-metered water? What is the reversion cap-rate for Lexington, KY?

The answer to those questions, and many, many more will be the difference between a great deal and a catastrophe. Real-estate transactions are highly specific, and you need highly specific advice for each one.

I have spent what most of you would consider and exorbitant amount of money on real-estate education, but not until after I had already consumed AND put into practice what I could learn for free.  Even then, I would not pay for any program that didn't come with a mentoring/coaching component, because again, you need specific advice for your specific situation.

On the other side of the coin:

If you're already contacting brokers, analyzing deals, and writing LOIs, then you should probably be investing in advanced RE education, coaching, and/or you should have a very qualified mentor (paid or not.) Almost all experienced RE investor can probably tell you that they've had at least 1 pivotal conversation or interaction or relationship that changed *everything.* Either it made/saved them 100's of thousands of dollars, or drastically changed their trajectory. Experienced mentors or partners can be game changers. Make sure you're cultivating those potential relationships in whatever form they come.

Hope that helps and sorry if that was too far off-topic!

James Kojo

@Joe Edwards-Hoff I stand corrected! (about not writing a letter.)

Thanks for the gentle reminder that real-estate is ultimately about relationships! That's a point that is all too easy to forget. :)

Good luck!

James

Very smart, @Myka Artis! (Why are there so many smart investors in Texas? :))

Can you share how you manage units? Do you self-manage? Is it a model that you could scale up by adding outside management? If you did, would you have different management for the travel-nurses vs vacationers? If I wanted to convert 20 units out of 200 units into STR, how might that work?

Any insights appreciated!

James

@Dan Bosak : there are companies that specialize in sub-metering apartment buildings.  Just google for "apartment water submeter Philadelphia" and start calling. :)

They usually have a couple of general business models: either smaller up-front-fee for the meter installation with a recurring fee for reading and billing, or a one-time charge for installation, and reading/billing is up to you.

as already mentioned, it's actually illegal to sub-meter at a profit in some jurisdictions. Another consideration is that often-times the landlord is still on the hook for the water-bill even if a bill is sent to the tenant. Depending on the type of tenants, they may be less likely to pay a water bill from a random 3rd party company, especially after they discover there is really no recourse. 

A more effective strategy would be to include the water line-item on the monthly rent bill, so it's very apparent it's going to the land-lord, and there is as much expectation that they pay that line-item as there is to pay the rent. However, depending on the local laws, you may not be able to evict based on a refusal to pay the water. So, keep in mind that even if you are able to measure, you may still not be able to collect. You know your tenant best, so you can make that prediction.

I hope that helps and please report back on what you find!

James Kojo

The most important criteria to most sellers is the price. That said, the 2nd most important criteria your ability to close.

For a 10 unit, skip the letter. That will expose you as a SFR investor. If you're trying to buy the SF that mom-and-pop raised their kids and grand-kids in, then maybe it helps. The owner of the 10-unit is a fellow investor, so you need to speak his language. Talk money, time, contingencies, and ability to close.

Money: you can only offer what you're going to offer. If it's on-market with multiple offers, you'll likely have to be either the highest bidder, or something very close. Run your offers by the listing broker before you submit them. S/he may give you a hint of where you're at. You can also submit an offer with seller financing: provide a spreadsheet of monthly P&I for X years at Y interest rate, and the total payoff at the end. That works for people who are exiting land-lording that still want a steady income, or want to avoid the huge one-time tax. You can also offer higher EMD.

Time: Be aggressive about DD and financing timelines, but not beyond your ability to perform.

Contingencies: likewise, you can be aggressive, but if you really do need to land financing, then you'll have to put a financing contingency. The likelihood of someone taking your EMD is much higher in commercial REI. In very competitive situations, it's not uncommon for buyers to offer a portion of the EMD that is non-refundable from day 1 (sometimes referred to as "going hard" or "due consideration.") This is an advanced strategy for those that really know what they're doing (or really don't care about money.) If you're seriously considering doing something like that, I can talk you through the basics.

Ability to close: What's your experience and track record? What's your threshold for re-trading? Who do you have advising you and/or who's on your team? Can you provide a proof-of-funds (POF?) Who are your PM, loan-broker, legal, mentor, etc? I have a short "investor resume" that I send to all of my potential deal sources. If you think you can perform well in an interview, offer the seller a buyer's interview so s/he can vet you.

I hope that helps and good hunting!

James Kojo

Excellent discussion all around!

I've never done a significant STR, but I was just listening to Bill Manaserro's Podcast: Old Dawgs Podcast on the very same subject.

He converted some of his high-turnover efficiency units in Indie into STR, and was trying to figure out how to make that work while living in CA (a problem I have a lot of sympathy for!)

He had, what I thought, was a potentially great solution. He found an organization that specifically looked to find temporary housing spaces for traveling nurses. The thesis was that there is a huge shortage or nurses, and hospitals are hiring short-terms nurses on 90+ day contracts and paying for housing costs as a way to entice them into the area. 

So you have a lot fewer turns, and you can still charge a healthy premium over long-term rentals.

I don't currently have any units that fit that profile, but some food for thought, certainly!

Hope that helps.

James Kojo

For those of you who use agency debt, I'd like to get your opinion. Are are FMAC Small Balance Loan lenders roughly the same?

So, there are only 11 qualified loan originators for SBL. Do you like to work directly with one of them, or do you prefer to go through a broker?

I've met some quality folks here on BP that work for one of the 11. I've also met some quality loan-brokers who seem to know how to navigate all of the subtitles of MFR. I'd be interested in hearing about actual experience.

Thanks!

James Kojo

Here are some sample cap-rates for commercial class (4+ units) multi-family properties in the 2nd half of 2017, according to CBRE, including Phoenix.

Yes, they are "low", but there are definitely strategies for making money in low cap-rate environments.

Hope this helps!

@Gabriel P.

I would highly recommend reaching out to a local commercial real-estate appraiser, preferably one that your local-lender uses (if you indeed have one), and inquire what they are using for cap-rates.

They have seen a lot of local transactions (even off-market ones) AND they their opinions count a lot when it comes to underwriting a loan against your property.

Local CRE brokers might be able to get you a ball-park, but much of their information will be slightly biased because they will be basing their observed cap-rates on seller-provided pro-formas, which as usually highly optimistic.

Hope that helps!

James