All Forum Posts by: Account Closed

Hi @Jackson Babcock - thank you! It's definitely a team effort and we're grateful to have a solid team.

Here's what happened near closing - 

Our bridge lender wanted to change the loan amount 2 days prior to closing (reducing it by $325K) which would require raising the additional amount and diluting existing investor equity - fortunately we were able to sell them on why this would create too much of a risk for us and them.

Interest Rate Cap Insurance - came in at $60K vs $20K because of interest rate environment & bond market volatility within the last month 

On our first acquisition we also had some surprises at closing - 

Insurance came in 3X the budget - for both our underwriting and the lender's (this is more of an issue specific to Texas)

Lender required $100K more of CapEx expenses the week of closing

Additional unexpected insurance challenge - the corner of one of the buildings was incorrectly designated as being in a flood plain.  We had to purchase the flood insurance to get it closed and then have it resurveyed and recategorized as not being in a flood plain - that was not easy and was an extra expense.

In summary...term sheets from lenders are "flexible" and they can ultimately change and do whatever they want. :) But they are the biggest investor... so you really have no choice. 

Feel free to reach out if you have more questions - best of luck with your acquisitions!  

Investment Info:

Large multi-family (5+ units) commercial investment investment in Lubbock.

Contributors:
Tracy Hubbard

236 Units / Class B / Value-Add

What made you interested in investing in this type of deal?

Recently Appraised (Jan 2021) with $3.64M Built-In Equity - Based Solely on Stabilization / Rents are $119 Under Market / Opportunity to Convert 64 Studios to 1 BR Units / Seller is Already Achieving 10%+ Bump in Rents on Renovated Units / Very Light Interior Rehab Needed / Roof is 2 Years New /Addtl. Income Opportunity through Internet Upgrade & Covered Parking / Seller is Undercapitalized - Allowing Us to purchase at $800K less than seller paid 1.5 yrs ago

How did you find this deal and how did you negotiate it?

Sourced through Broker relationship

How did you finance this deal?

Non-Recourse Bridge to Agency - 75% LTC / 3 Years IO @ 4.65%

How did you add value to the deal?

Light Rehab of Units, Raise Rents, Covered Parking & Internet Upgrades - 3 Year Refinance

What was the outcome?

Just closed and starting major renovations this coming week (3/31/21)

Lessons learned? Challenges?

Patience is the name of the game! Started speaking with the seller in February 2020, took many months to come to terms on price - went under contract in October 2020 . Never compromise your underwriting to get a deal done - wait for the right deals for your investors. Make sure you have plenty of contingencies in place - Bridge loans bring some unknowns at closing and can swing 6-figures

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Definitely - make sure you have a solid team!

Mortgage Broker: Brandi Shotwell with Reno Capital
Attorney: Dugan Kelley
Insurance: Matt Sutika
Cost Segregation: Brian Bigham with Madison Specs

@Sandy Metivier There's some awesome podcast recommendations here! I'll PM you some webinars that were helpful to me. 

@Tucker Cummings Congrats on deciding to pursue Multifamily! My biggest piece of advice... start big - 100+ units vs 20-50 units.  Most people think they have to start small but you don't - AND you'll end up in the large MF space eventually.  Smaller MF is such a headache - you've gotta deal with tenants (or pay astronomical PM fees), you use up a lot of cash, and it's very difficult to scale.  My Father and I did our first deal at 173 units and just closed on another 236 units.  Disclaimer - it's NOT easy - there's a lot that goes into it, but you can do it - so why not start there! :)

@Mark Koster You've certainly done your due diligence - nice job! I can help you on the apartment syndication-specific questions - 

QUESTIONS

• What unique risks are there with the value-add apartment syndication model that go along with the higher returns? How to mitigate those risks? 
• (***Biggest risk is always the operator - their leadership skills to execute the business plan and their  underwriting to hedge and mitigate risks. I have a webinar recording my mentor did a few months ago that will help you know what to look for - it's called "Tricks Syndicators Play to Make the Numbers Look Good".  I'll PM it to you)
• What is the long-term outlook on value-add apartment investing? Are current IRR numbers sustainable over the long run? Is the "value-add" component creating a more speculative component that could be riskier if the market shifts? 
• (***also depends on the underwriting, the market, and assumptions made by the operator in the pro forma - sent you PM with details)

@Toby Ima The multifamily/syndication space is certainly crowded and can be a bit confusing knowing what to look for - at least it was for us.  We've been in 2 groups - it took making a mistake on the first one to know what to look for and find the right mentor/coach.  Once we did - our success took off.  

I'll try to not make this post super long - but here's a few things to look for when vetting a coach:

1. Willing to partner with you in any market as long as they like the deal

2. One-on-One coaching DIRECTLY from the "main" guy/expert - avoid groups with "sub-coaches" (<--these are put in place because they can't handle the volume of new members)..makes you wonder if they're focused on building a coaching empire and making a ton of money from that - OR a true successful real estate portfolio & focusing on the success of their members. 

3. Make sure your coaching is coming from someone with 7K - 8K unit portfolio - across multiple markets - and been through a full deal cycle on multiple deals. There's a lot of gurus popping up selling coaching and they've only done a few deals.  You need a strong backing when doing these deals!

4. Avoid groups with weird rules (must use their buying broker and/or can't talk to brokers directly, can't partner with people outside of their group, nickel and dime you on additional fees, etc)

5. Culture of the group - is it established & maintained? These people will be your partners - make sure integrity, character, etc are required values to join the group. This starts at the top with the leader.

6. Reputation in the industry - with investors (is the portfolio hitting targeted returns), with brokers (are deals closing once under contract), with lenders, etc. Be careful who you learn your underwriting from!

7. How many people in the group are doing deals and getting into General Partnerships? How long does it take to do so? Track record of members

Hope this helps! Trust your gut and intuition...if it feels like a dog & pony show with a lot of flash & money & sales pressure...it's most likely just that - a dog & pony show.  Don't get me wrong, the money is great but there's a much deeper and more impactful way to build a long-lasting business.

@Roy Mitle - Evan has excellent points above - and agree that it's important to check with the sponsor & evaluate their underwriting.  There are several ways to mitigate this - we typically use a 0.1 cap rate escalator in our pro forma as a hedge (in addition to many other important underwriting factors). If you have more in depth questions feel free to reach out - happy to help! Best of luck in your RE investing journey.

@Harry Marsh He's not Charlotte based, but IMHO he's the best in the syndication business! Dugan Kelley - both a SEC and Real Estate attorney.  He's exceptional at proactively creating terms that mitigate our risk and protect our investors AND getting all parties to come to the table, work through challenges, and get the deal done (it's no surprise that not all deals are smooth haha!) 

@Ben Bolingbroke There's great feedback and experience on this thread.  My personal opinion - completely worth it IF you get in the right group.  (Our first deal alone will return 9X the coaching investment - so worth it if you get deals done). The mentor/coaching space can be confusing for sure - and was especially hard for us to know what to look for when we started (and we paid some "dumb tax" getting in the wrong group at first). BUT that experience helped us figure out exactly what to look for in a coach and group to be successful - happy to share the experience if you'd like. Best of luck in your journey - multifamily is a wild but fulfilling ride! 

@Steve Morris As a commercial broker you've probably seen how crowded the mentorship/education space can be ... definitely confusing for the newbie and too many "exerts" popping up overnight selling mentorship or education without a real track record.