All Forum Posts by: Joel Florek

Hello BP Community.

2019 is a year of expansion for me now that I have been able to unlock some capital from my portfolio of 31 units. Currently looking at some opportunities that fall into the realm of HUD and USDA. I am hoping to meet some other operators to get a chance to hop on a call and pick their brain on the do's and don'ts of these types of properties.

Looking forward to hearing back from folks. 

Joel

US population now: 327 million. 

US population estimates for 2050: Range from 380 million to 420 million depending on the number of migrants allowed to move to the US within calculations. 

Taking this one simple idea into consideration all these additional people need places to live and multifamily properties are the most affordable solution to the problem of growth. Cycles with happen with cap rates, interest rates being one of the big drivers in that discussion. But the fundamental problem of people needing a place to live doesnt change. 

My back of the hand math I would do on a property like this would be as follows. Never make an offer this way until you do a proper assesment. 

Gross potential rent: $147,000

NOI: Between $58,800 and $88,200 (60% to 40% expense ratio is typical factoring in all things but there are properties which are outliers, this one would likely be worse if its expense ratio is an outlier)

Assuming a hard C class property lets go with a 9cap which would peg the value at $653k $980k 

Problem with a property like this is a few things

- Studios will likely have high turnover which increases management costs and repairs via unit turns. Expect this to result in a higher management fee on a percentage basis. 

- $350 a month per unit is low. Even though they are studios they have a heating system(maybe cooling as well), plumbing, bathroom, kitchen, appliances, flooring, and windows. Yes there is less square footage, but a new toilet is still a new toilet. The lower the rent the higher percentage of gross rents get eaten up by normal repairs that happen on units regardless of rental rates. My rule of thumb is to not play in units that rent below $500. Even in the $500's it can be tough to make things pencil 

Happy to chat more with you regarding this. 

 War zones are not my thing. If I don't feel safe leaving a locked tool trailer overnight then I don't want to invest there. That said most big cities just don't cut it for me because its either lower cash on cash returns or move to more dangerous neighborhoods. 

 I am not the points guru by any chance. I certainly dont take full advantage of that which is bad... but banking with Wells Fargo I always get promotional options in the mail which I have regularly taken advantage of. Once one cards promotion is done they have another which I take advantage of. 

@Chad Davis While I haven't done flips, as I have built my 31 units I have always used credit cards as a great lending tool. Don't get caught with high balances and high rates after the promotion ends but they have been an invaluable part of my financial toolkit. Generally, I have maintained $10k to $30k on cards even though my cash balance is always at that same amount or higher. My banks have never had an issue with it. I like to have cash available if needed for deals or emergencies and at the same time, I try to keep buying as to grow my portfolio. If a Dave Ramsey fan reads my response though I know I will get a lashing or two....

 There have been some good forums on this subject. Search South Bend IN and hopefully, you can quickly find them. 

I've got 8 units on the south end of town near the fairgrounds. Downtown is seeing a great resurgence and overall I have been really happy with the market. Would love to buy more but not much inventory for multifamily in the 8 to 20 range that comes on the market. 

@John Warren is another Chicago guy that invests in the South Bend. I am sure he can let you know his experience in the differences of investing in Chicago vs. South Bend and how his preferences have shifted. 

 Great to hear from someone who has scaled up to the big leagues and understand where your focus is moving forward. 

 Right now I have 8 in South Bend IN which is a larger market obviously. The other 23 are in Iron Mountain MI. looking at some smaller towns in Indiana though that have some interesting opportunities right now. 

 Great work and best of luck with the project! Hopefully you share a success story on the project in the coming year!