All Forum Posts by: John Johnson

Thank you for all the feed back. It seems that most of the other developers that build 20-30 multifamily units 300 sf - 400 sf in the Los Angeles area were saying to look at around 30% with a 5% vacancy. I like to be more conservative so can I assume that the reserve of 5% with 30% expenses and a 10% vacancy will even out to about 45% of costs from gross rents? 

Lastly due to having a 100% affordable building at ~$1,000 a month using Hud AMI I was hoping to have the entire building masterleased ... Is it common to assume less risk and lower costs if I would master lease an entire 20 unit complex on a modified or NNN lease.

This project would obviously not be a cookie cutter traditional market rate apartment hence finding comps have been quite difficult.

I am starting to budget out and model some potential projects for MF developments. Is there a rule of thumb for operating expenses for MF in the los angeles area? My old AM firm always looked at 30% of EGI - after vacancy of 5-10% (Stabilized). I am curious if there are other developers that have other methods or historical price points for % of gross sales new construction MF units will run.

Also we are building tiny units so this would account for more units vs traditional building size and square footage. I was looking at 20 units MF building collecting about 1000 a month per unit. Ultimately white paper wise:

$1,000 x 20 Units x 12 Mo's = $240,000 per annum

5% vacancy = ($12,000)

EGI = $228,000

OPEX @ 25% = ($57,000)

Operating Income = $171,000

Reserves @ 5% of OI = ($8,550)

NOI = $162,450

Would this be feasible or am I dreaming? I like to believe 50% Opex would be the most conservative way but then most projects wont pencil ...

Any input is appreciated, thanks.

That is how we formed the partnership. Our goal is to become an asset management company one day. Starting off we have investors who will be LP's at 100% with sweat equity for us at anywhere from 5-10% as well as development fees incorporated to soft costs for any new construction.

I have two partners who I trust to start our own real estate company. The question that comes up is the structuring of the company. From a normal standpoint as single investor/operator I would create LLC's for each asset of real estate I plan to develop and hold/sell. When usually investors are needed they we will jv and I will be the GP contributing 0-10% and the LP contributing at 90-100% of the investments. Profits will be split up with hurdles or a straight split after a pref. The structure of this is simple as cashflows will K1 to each of individuals or entities. My questions now comes to creating a partnership where 3 of us are all GP's utilizing investor's (LP) money to acquire, develop, and cash flow multifamily type developments.

Is it better for us to form a C-Corp, Real Estate LP, or a normal LLC for the operating company. The company will basically be running soup to nuts for development utilizing 90-100% of investors capital. We are hoping the operating company to be our parent company where the 3 of us have a set % of ownership. Ultimately we would like that our company to have some % of ownership in each project that we will develop. Each project will open a LLC for JV or investment of course and possibly another single member LLC under the JV LLC per each asset (if more than one asset will be developed in the JV). I should also mention that none of us will be contributing capital to the parent company as our investors will be providing us upfront development fees which would be the source of revenue (other than the cash flow splits after completion of projects).

Just looking for some input on the formation. This is California btw.