All Forum Posts by: Joe Hughis

@Jeff L. - There are a lot of good answers to your inquiry so far.  But to summarize, an investor should care about the amount of equity in a property because of "Risk Mangagement".   

For Performing Notes, let's assume you are the borrower for a property with 50% of equity.  More than likely you didn't max out your debt, so the payments are relatively affordable, and more than likely you won't be willing to walk away from your property and leave a large amount of money on the table.  This creates a stable environment for the note holder.

For Non-Performing Notes, having an NPN with a healthy Equity position is in your benefit should you need to foreclose on the property. You can't collect more than you owe on the property (+legal and accrued fees), but at least you know a sale has a good chance of making you whole, even if the property were fire sold.

@Steven King - The best way to go about doing that is by finding existing retail shop owners and possibly going after those who are going through a 1031 exchange.  Both lists which are available through your existing relationships, some in-depth online searches or possibly paid services.  From there take the time to nurture those relationships and they will eventually become fruitful.

But more importantly, be an invaluable asset to those buyers.  Yes, buyers want to work with agents who charge a competitive fee.  But above that they want to work with a broker who they trust, who is dependable, and who provides them with a benefit that they can't accomplish themselves.  

Happy hunting and best of luck! 

@Michael Newman - Quick question, if the property was just finished, can I assume that the "Current" numbers you are posting are for actual units currently leased and the "ProForma" numbers is what they might be when fully occupied (looks like $1250/mo/unit)?  If so, how many units are currently rented?  I would guess 5 units using my assumption and your numbers.  

Hello @Kenneth Ryan!  The first question would be to ask what type of property are you looking to finance?  Also, is this for a purchase or refinance?  Last, where is this property located?

@Allison Haley - She wants you to pay her bank obligations without changing anything at the bank?  Only "selling" 2 out of 3?  Forgive me, but that doesn't seem like she is really retiring.  Also, is it a Franchise or is it not?  The rules that apply to a franchise can have specific clauses that dictate how transference of ownership can occur.  To be safe, regardless of how fast she wants to "sell" her businesses, I would consult a corporate attorney to oversee the transaction.  Good Luck!

@Robert Lorenz - Given your numbers, this deal makes sense all day long. Your numbers would create a DCR of 1.45, which would make it possible to get 80% LTV. Furthermore, even with borrowing at a higher leverage your COCR after debt-coverage is still a healthy +9-11% (from your numbers). Throw in rent growth and the potential of property value growth, this seems to be a no-brainer, as far as building a real estate portfolio of stable / long-term commercial property ownership goes.

@Matthew Rogers - I'm curious why traditional multi-family financing is not an option?  Based on some general numbers and some assumptions on my part - this property could easily qualify for traditional financing.  Unless of course there are extenuating circumstances not mentioned. 

But let me think out load for a moment while I use some assumptions to fill in the missing info gap.  Let me assume that the 14 units are all 1 bed/ 1 bath.  Let me further assume that the units are each getting the Tempe market average of $992/mo/unit.  This comes out to roughly $166,000 annually for gross rents.  Let us further conservatively assume a 10% vacancy rate (for underwriting purposes) and let's ballpark 37% in operating expenses to go along with your 25% down payment.  That would be approx. -$16.6K and -$55.8K respectively.  Those numbers would be likely on the conservative side of a traditional underwriters evaluation. On top of that, let me further assume a conventional lender stresses their loan analysis at 6.5% on a 30 year amortization.   

Even with these conservative assumptions, your DCR would still be mighty healthy at over 4 with an eye popping 23.5 CAP.

This was just a napkin analysis.  But it makes all the sense in the world to jump on this multi-family deal.

Again, unless of course there are extenuating circumstances that wasn't mentioned.  

@Account Closed -  First and foremost, you are a good friend to be concerned.  Based on what you have mentioned, I can understand your concern.  I literally took a pause when you said he wanted to be his own GC without having a license and experience in that capacity.  That being said, I know it can be a slippery slope but I believe as a friend you need to voice your concerns.  Your friend may not want to hear anything which he perceives to be negative.  However, if he can't accept honest concern and criticism, then the actual realities of flipping real estate may be overwhelming.  

Use your experience and take an analytical approach in discussing the high personal risk over what you believe to be the potential of only small margins.  After that, if he still chooses to move forward, step out of the way, wish him well, and offer support when you can.  

@Dave Dalrymple - A simple and fast solution would be to utilize private money to pull your equity out of your investment properties.  Are your properties 1-4 units or Commercial? 

Happy Mother's Day!

Hello BiggerPockets Community!

I want to take a moment and wish Mothers and all those who play a motherly role in someone's life (Grandmothers, Aunts, Girlfriends, Sisters, Step-Mothers, Guardians, Foster-Mothers, Friends) a Happy Mother's Day weekend. We are thankful for the love, guidance, selflessness, strength, and support.  Enjoy your well earned day!