All Forum Posts by: John Wijtenburg

My basic format includes the following:

• Executive Summary (written last) with property info, deal points, and investment summary
• Property information - location, physical details, amenities, photos
• Financial/investment information - competitive properties & their performance, comparable sales, operating projections, sources & uses of funds, cash flow projection
• Market and sub-market information - demographic information, demand drivers, existing & new supply, area amenities
• Sponsor information - summary about your platform or investment strategy, short bios on the principals, existing portfolio, case studies / track record (if brief - may be delivered separately)

You need a cash-out refinance. How you use that cash is up to you, but the lender may want you to deleverage. Most banks will want the property to season before providing a cash-out refinance.

Get in touch with a local mortgage broker to get a better sense of the market for your particular deal.

Regarding strategy, your level of indebtedness is a very personal decision. Keep the HELOC if it enables you to build the business you want.

Are your friend good at what they do? Are you fair and timely with payment and expectations?

If so, by all means, hire them.

If there is any doubt, find someone else.

Remember, though, this is their business. Plan to pay full price. If you go in looking for a discount to market, you'll end up with discount-quality work. 

@Raymond Berwick Congratulations on taking this step!

So many considerations go into structuring you offer. The information below worked for me in hotel deals, but it may be different with multifamily and the investors that you approach. Also, consult your attorney in putting the offer together. You may have SEC-compliance considerations depending on how you're offering the investment.

By the law of large numbers, if you go to enough investors, you'll find enough dry powder to fill your deal. That said, you have limited resources to focus more on the deal than the capital raising.

I like to start by reviewing similar offerings on CrowdStreet. They have an intensive vetting process and guide sponsors to the offer that would perform best with their audience.

From what I saw, most multifamily offerings have an 8% preferred return and 30-50% sponsor promote thereafter. This is a standard and simple deal structure that most investors are familiar with.

You can get more complicated by adding IRR hurdles to earn into higher promotes. For example, you may have an 8% preferred return, 80/20 to 15% IRR, 70/30 to 18% IRR, and 50/50 thereafter. This would align interests so that you get more upside as you perform better.

Regarding projected returns, most private investors like to see a combination of IRR, multiple, and cash-on-cash return on a five-year hold.

• IRR - internal rate of return is your compounded year-over-year return based on all distributions
• Multiple - all cash distributions (including return of capital) divided by the equity contribution
• Cash-on-cash - annual cash distributions divided by equity contribution

For value-add multifamily, you can probably be in the mid- to high-teens IRR, 1.5x-2.0x multiple, and 8-15% cash-on-cash.

Your cash flow projection will determine how these numbers shake out. That is, a strong cash flowing deal in a stable market may get all the IRR from cash flow, but a business plan that relies on heavy renovations may get more IRR from capital appreciation.

It all comes down to aligning the right investor to the deal. Some want current cash (think retirees) and others want value appreciation (think self-directed IRA investors).

Hope this helps. Please feel free to message me for specific clarification.

@Matt Millard With a master's degree in economics, I feel about as certain about the impact of negative interest rates as any armchair economist.

This is uncharted territory.

We can look, historically, at the impact of prolonged interest rate manipulation, but our economic environment really is so different today.

Thought #1: Capital and labor markets are more fluid than at any time in the past. This is why wages are so sticky even with the unemployment rate in many markets beyond full employment.

Thought #2: Global interest rate manipulation makes it more difficult to control our own. We see this in the Treasury yield curve. Regardless of how much pressure the Fed puts on short-term rates, Treasuries are still considered the gold standard for risk-free assets. The more hairy it gets out there, the more demand for Treasuries.

Thought #3: The global savings glut persists, and there's nowhere "good" to put your money. This is a concept that Ben Bernanke brought up in 2004. It's the reason we see so much capital flowing into the US regardless of how funky our economy may appear to insiders. This creates asset price bubbles. However, absent any economic shock, we can sustain the economic fundamentals because all economic actors are operating on borrowed money.

In a simple way, you can think of it like a ponzi scheme, but that is the nature of a debt-centric economy with fiat currency. It allows us to do more with less, but it also has risks related to overleverage.

Again, these are things that I think about. I trust few people with "answers," as nobody has a crystal ball.

@Scott Passman This is an excellent post. Thank you for your generosity.

I would only change one thing - move the relationship points (last two) to the top.

Relationships are everything in this business. It doesn't matter if you're looking for a deal or looking for a partner. If you're trying to do this alone, you'll get nowhere fast.

My answer may seem like I'm punting, but it's an important lesson. Patience is essential.

That said, there are a lot of active steps you can take while sitting in a passive, patient position.

1. Build relationships with major deal sources - brokers, owners, and influential third-parties
2. Underwrite every deal that seems to make sense
3. Find a small group of trusted advisors (your "kitchen cabinet") that can answer questions - BP is great for this
4. Put out some offers at the prices that make sense in your evaluation - even if you don't win the deal, this will give you a taste of the process

As far as analyzing deals, my strategy is usually macro-driven. I look for locations with a great economic fundamentals in-place - solid rental demand, good area demand drivers, and reasonable barriers to new supply.

After that, it's all about the deal.

Get to know a submarket better than any of your competitors - rental comps, sale comps, new developments, active players, etc. After that, underwriting each deal will become a breeze. You just drop it into your template.

@Jim K. I really love your perspective and explanation. Well said.

It's difficult to reconcile the two when you see so much extravagance in this business. I think of Grant Cardone and *************. I think of people that I work with daily that set material goals before service goals.

To be clear, I don't advocate spending beyond your means. However, as Jeff Bezos says, revenue solves all problems. If you can't solve your lifestyle problem, a lot may be revenue related.

Thanks to everyone for your input. Great stuff here.

@Jim K. I think of abundance mindset as taking the actions necessary to create more in your life regardless of the cost. I think of a scarcity mindset as holding back on those things because, even though you know there's a potential ROI, you can't move to spend the money.

I grew up in a very frugal home. It took me years to break from a scarcity mindset, and now, I'm living a very comfortable life. Still, every so often, I fall back to my old training.

For example, I had to consciously convince myself that the $750 I paid for melanoma surgery was a good thing... that I was happy to pay for it. My initial reaction was disappointment and fear for my finances, even though I can more than afford it.

I know I'm not alone in this. And I'm so grateful for the responses because as much as it helps me, I know it will help others, too.

I think a lot of people have trouble reconciling an abundance mindset with the omnipresent, "live below your means," advice.

To achieve great success, we're told that we must take risks, act as if, and spend money to make money. The other side of the personal finance tells us to skip the daily coffee, never eat out, and live a life a step or two below our current status.

This is something I struggled with and still do.

Are these two sides of the same coin or different coins?