All Forum Posts by: Account Closed

Cap rate is one of those things that is a little bit hard to define what is "good". It really depends on your risk tolerance. A lower cap rate can often indicate a more stable property, whereas a higher cap rate might indicate a greater level of risk involved. For example, typically you see your C class apartments with higher cap rates, but C class also usually means much more time spent managing the property and dealing with tenant issues. These are of course generalizations, but often prove to be true. Talk to a local commercial broker to find out what the average cap might be in the area you are looking in and use that as your benchmark. Remember, ROI is a return on the invested dollars you have put into the property (NOI/Invested Cash)...Your cap is the return you could expect if you had paid 100% cash for the deal (NOI/Purchase Price). If you plan on financing the property, your desired cap (probably driven by the local market) will be used to price the property and not really in the ROI calculation.

Build your team first! Interview agents and find one that often deals specifically with investors, then find a local mortgage broker who lends to investors in the area. Talk to a CPA and a real estate attorney....Then talk to everyone you can about what you want to do! The more people you let in on your plans, the more likely you are to find that person who says "you know, I have a neighbor who is looking to sell…." Local real estate professionals will also be knowledgable with regards to new up and coming areas that you may want to focus on. Set up your team first, then worry about the deal. The deal will come with the right team in place…"Real estate is about relationships"

Another tip…google around and find the master plan of the city in which you live. It will talk about revitalization projects that are happening as well as projects that might be occurring 3-5-10 years down the road. While the city is dealing with the red tape of setting some of these projects up, you can work on finding a deal nearby some of those projects and get a jump on the 99% of the other folks who will say "how did he know to buy there?"

Brandon,

When it comes to investing in single family homes, I'm sure you are aware that the rules change slightly when dealing with homes held in an LLC. Initially, a bank is going to qualify you on your first 4 homes based on 20% down and the reserves they require will be limited to that property. When you are dealing with home 5-10 you will most likely require 25% down and 6 months of reserves for all of your properties in liquid capital, although there might be some ways around the liquidity requirement using potential investment income although most lenders require 2 years of seasoning before they are willing to do this. Making a loan specifically to an LLC is not directly possible due to the rules that Fannie Mae and Freddy Mac have set forth. They will not allow for entity investing, requiring that the loan be in your personal name or the name of a irrevocable trust. Given that they may lend to a trust, there might be some creative ways to structure the deal but you would have to speak to an attorney who specializes in entity structure for that.

In response to your question about calling a loan, just about every lender out there will have a due on sale stipulation in the contract requiring that the note be paid in full when there is a title transfer. Whether they follow through with this is going to be up to them, and will depend on a variety of factors. I have never personally heard of a lender doing this, but if you were to attempt it you just have to realize that there is risk involved.

Hello everyone! I'm looking to see if anyone has any suggestions for local commercial real estate lenders in Florida they have had great experiences with! I'm also searching for a private lender who is familiar with the greater Tampa area and looking for a potential deal. Thanks!

Joel

The best and most detailed book on multifamily investing in my opinion is Ken McElroy's "The ABC's of Real Estate Investing" and "The Advanced Guide to Real Estate Investing". It breaks down the actual process and formulas and is very minimal on the "motivational speeches" that so many of these books seem to fill their pages with.