All Forum Posts by: James Kojo

@Branton B. That's a great idea. I mostly rely on my own research and experience to get local cap-rates for my target markets, but getting official data-points from actors in the market who actually underwrite deals is probably going to be the most accurate.

I'm going to put that on my checklist for market evaluations. One thought: in additional to local banks and appraisers, you can also reach out to multiple commercials real-estate brokers in the area to get their numbers as well.

James

@Brad Gibson This is a fascinating and enlightening thread. Thanks so much for sharing your experience. Something very similar happened to me about 2 months ago.

The way I see, the range of possible responses  fall into 3 general categories:

1) You were wronged and the bad actors must be punished for their actions. - I see this as mostly an emotional reaction. Sure, you may teach a few individuals a "lesson", but you're unlikely to ever run across them again in the future, so your business doesn't get any direct benefit from it. If there are low-cost (both time and money) ways of achieving this, such as filing a complaints, it may be worth it to put on your resume so you can tell awesome stories like @Jay Hinrichs', but other than that, it's just spite. My suggestion for this type of thing:  very clearly define your personal code of conduct, but don't expect others to match your integrity. Setting your expectations low for other actors in RE will probably save you a lot of frustration. Like you said, it can be a slimy business.

2) The law is the law, and must be enforced. - again, this is mostly an emotional reaction, but with slightly more merit. Your business may get some benefit depending on the cost/benefit of whatever legal actions you take, but it may not. However, being a smaller player, you're not going to fix the entire industry with your actions, nor should you be trying to.

3) Fix the deal or walk. - As REI investors, this is what we do. We fix problems in order to make money. Do the numbers, do a cost/benefit analysis of whatever actions you can take to make the numbers work better (within your own ethical bounds), and optimize for potential outcomes. If the cost/benefit doesn't come out in your favor, move on. There are plenty of fish in the sea.

In case my bias wasn't completely clear, #3 is the way to go. :) It sound like that's the route you took, so I applaud you for that.

James

Yup. Just ask your insurance agent if you have any gaps in coverage. They will let you know. If memory serves, my umbrella policy kicks in after 300k of damages, so I’m guessing your 1M in property insurance liability will more than cover any potential gaps. 

@Daniel Spaizman

To add-on to @Michael Seeker response:

conventional residential loans tend to have less variety in loan parameters. You'll typically see 5/1, 7/1, 10/1 and fixed, all with 30-year amortizations (am) and terms (no balloon payments.)

In commercial, you get a larger variety in loan parameters (terms and am), and a majority of loans will have a balloon payment, so the term is often shorter than the am.  As such, they usually don't lend themselves to apples-to-apples comparisons. They are also a bit harder to find, especially if you're investing out-of-state. You'll need to tap your network (or BP!) to find the local lenders who will lender to OOS investors.

Hope that helps!

James

 Fair enough. I agree that you can get commercial loans against residential class properties (1-4 units), in which case you can utilize an entity on the loan. 

However if you are looking for residential class properties and decide to use conventional residential financing, you probably won’t be able to have the loan against the entity: it will have to be in your personal name potentially with co-signers. 

@Daniel Spaizman : all of the above advice is very good. I would note however, that all of it pertains to commercial multi-family, which is 5+ units. If you are thinking about 2/3/4-plexes (which is considered residential multi-family), then a different set of advice will apply.

James

A couple of thoughts:

1. The more net-worth you have, the more insurance you should have. The corollary is, if you don't have a lot of net-worth, then you don't necessarily need a lot of liability insurance. They can't take what you don't have. As such, insure yourself up to at least your current net-worth.
2. Understand the incentive structure of the insurance company: if you have 500K in liability insurance, and you get sued for $2M, they may just decide to pay out the 500K and let you swing. If you are insured for 10M, and you get sued for 20M, they may decide that 10M is well worth fighting tooth-and-nail for, so they bring their legal-guns to bare in your defense. In other words, the more liability insurance you buy, the more likely they will go to bat for you because their neck is on the line.
3. Make sure you don't have "gaps" in your liability coverage. It's common for liability to kick-in after a certain threshold and stop at a higher threshold. For instance, a $1M umbrella policy may only kick-in after you've incurred $300K of loss. So to cover that gap, you'll need to have 300K of liability insurance on your property insurance. Then you should be covered all the way up to 1.3M.

I hope that helps.

@Scott Hensley

Your most accurate estimates will probably be from actual operators in your area, so tap your local network and your local PM first.

If you want to get a more broad view, and are willing to spend some money, you can get a copy of the Income & Expenses Survey put out by the National Apartment Association. (I'm not affiliated nor do I actually own a copy, but I was considering picking it up.) The feedback i've heard is that it's accurate-ish, but doesn't replace doing your homework during due-diligence.

I hope that helps!

James

@Jameel Jason Hello, fellow bay-area investor!

I've heard good things about all of those sub-markets. As a new investor, your challenge will be to narrow down a sub-market from all of the great opportunities that seem to present themselves. I would first start by coming up with your investor goals, and from their select a strategy, then a come up with a criteria for selecting your market. That will help you avoid the "Shiny new Object Syndrome" that most new investors fall into.

Each of those markets offer varying degrees of yield, appreciation, opportunities for progress, job growth, building stock, tenant classes, etc. Those are  just some of the variables that will influence your decision. 

Some resources that may help you narrow down your choices:

• CBRE Cap rate survey
• Marcus and Millichap Multifamily Investment Forcast
• IRR 2017 commerical real estate trends report

Also, I've seen this and similar questions already posted in this forum, and there was a lot more concrete suggestions, so give it a search!

Hope that helps!

James

@Yousif Abudra @Brian Burke @Todd Dexheimer : Will I have to setup the the syndication (PPM, Form-D, etc) before I close, or can I wait until I'm ready to take investors? Are there any special provisions i need to have in the LLC operating agreement before-hand, or can I just amend it when I get there?

Thanks

James