All Forum Posts by: Kenneth Reimer

I've been experiencing lenders tighten there underwriting, and a 1.3X DSCR has been somewhat common in my experience. To be fair however, I'm looking for permanent debt on a mobile home park I own in which the trailers are also included in what I own. So, it's rare. To make it more complicated, I have ACV insurance, so that makes it harder. But in summary, I've still been experiencing lenders make it a big harder to obtain financing.

@Joseph Henry So often I see replies of people answering the question of what they would do as compared to what you should do. We need a lot more information to help you make a decision. How do you feel about debt? Would you self-manage? Do you have interest in growing a portfolio? How experienced are you with rental real estate? Do you qualify for real estate professional status?

Also, I'd be curious to see the underwriting of how you calculated the $2800 figure. In my experience, underwriting single family home rentals in California typically results in sub-4% unleveraged returns, which is awful given the alternatives. 

Sure, Section 121 is powerful if you're considering sale and need to exclude a big gain, but passive cash flow is more powerful in my opinion. I own 52 units of California real estate, and it's the best thing I've ever done financially, but owning the right assets is absolutely imperative, and it's difficult to do. Which is why we see all the "real estate investors" not really making any sort of meaningful cash flow. They don't have an eye towards understanding the hidden expenses in how a property is set up. Does it have negative grade? Where is the water flowing when it rains? What kind of electrical panel does it have? How much wood is exposed to the elements? 

All these questions and thoughts should be brought up by whichever real estate broker you use. In my opinion, I'd never hire a real estate agent to help me with investments if they don't personally own investments themselves. It's easy to pontificate about this deal or that deal, but no matter how good a deal looks, it's still scary to wire in a big chunk of your net worth to a property that will most likely cause problems for the first coupe of years while you stabilize it. 

@Kyle Souza A great contractor is a competitive advantage for a buyer, and they won't often share their contacts. Further, the best contractors (those that are honest, licensed, and have prices such that you can actually buy deals and make money) are also very often too busy. They have a stable of a few investors, and those investors use them constantly. 

You're going to run into the problem of finding a property that appears to be a deal, underwriting what the "norms" are of renovating the interiors/exterior, then finding out that the contractor's prices are actually 25% more expensive than all the norms that we've all been told. 

The days of renovating a 750 sq. ft. 2 Bedroom / 1 Bathroom interior for $10K are over. Inflation has hit materials, labor is extremely expensive, and there's always skeletons buried in the closet that need to be addressed when you start pulling a unit apart. Panels more commonly need to be replaced, dry to is abundant, and vacancy is expensive when you have a full-recourse 70% LTV loan breathing down your neck at 6.75% interest.

This is why finding deals off-market is absolutely imperative. "6% cap deals" aren't a thing in Sacramento anymore. Be very, very, very careful of using a broker's underwriting. Most brokers don't own investment real estate and therefore have no idea what things cost. And even if they do, a broker isn't incentivized to be realistic; they're incentivized to paint a rosy picture of how the property will operate given the best conditions, of which very rarely, if ever, occur. 

All that is to say investing in real estate is very difficult, and that's why it's so damn profitable when you get it right!

@Kyle Souza A couple quick and fast tips on qualifying for multifamily loans are having enough experience in the eye's of the lender, a 1.3X DSCR (using lender underwriting..not broker's underwriting), and a net worth equal to or greater than your loan size. I'm not sure how prevalent that last one is these days, but I've been asked to prove it in the past. Ultimately, your ability to get a multifamily loan is going to hinge on the property's ability to support its own loan. This is the main difference in commercial vs residential. Commercial loans are pretty much DSCR loans by definition. Further, you'll need to ensure you get the proper insurance, and that has been more and more difficult in recent years. Oftentimes, we see inexperienced buyers missing key sticking points with insurance companies, and it derails their purchase. For instance, not knowing what type of panels are on the naughty list in the eyes of the lender will trip you up during a DD period if you haven't underwritten your line item expense of replacing them. The buyer finds out too late into a DD period that the insurance company will require the panels to be replaced, and the buyer ends up trying to negotiate with the seller. Just one of the many hiccups that can occur when a buyer doesn't work with an experienced multifamily broker that understands the potential pitfalls, how to avoid them, and most importantly, what a good deal looks like.
Happy to chat further if you have questions Kyle! DM me if need be!

@Jesika Ibarra Hi Jesika, while I don't know of any opportunities at the moment, I would recommend working for a small boutique brokerage if you ever run across an opportunity, commercial being the best. I feel like I got a PhD in real estate from working as a multifamily broker, and it without a doubt catapulted me into the world of full-time investing. 

Further, you should come to the REI meetups in Roseville! They typically have great speakers, and there's a lot of experience in the room during networking. Hope to see you there!

@Joseph Fenner Joseph! I love the ambition. I wouldn't listen to people telling you it's unrealistic. Sounds like it's just unrealistic for them. Though, I would consider tweaking your goal. 167 properties at $500/month is $83,500 a year in cash flow and much easier to do on larger deals than aggregating smaller ones.

Instead of asking where you're going to find the money, I would be asking where you're going to find the deal(s). Further, your chances of hitting that cash flow number are much higher finding one or two great value-add apartment deals than it is finding 167 good cash-flowing single family homes (which is an oxymoron in my book...SFRs very rarely cash flow over long enough time horizons). 

When I was a young multifamily broker, my goal was to broker enough to save up the money and buy deals to retire. I was told it was a 15-20 year goal because that's how long it took others. I found a fantastic deal in year 1, bought it on the 2 year anniversary of me stepping into the brokerage's doors, and that deal now pays my partner and I about $13,000/month each. It can be done, you just have to know how and where to look.

Action Steps:
1. Educate yourself on what a good deal looks like and how to structure the capital stack.

2. Figure out who would be the right partner in your market. This is tough and it takes time, but the big investors in your area would be tickled for a young/hungry guy to bring them a fantastic off-market deal, and would most likely give you free equity if the deal was good enough (I know I would). 

3. Find the deal. Hunt for them. This takes a ton of time. Find the run-down apartment complexes in good areas. Forge relationships with the owners, and find authentic ways to create win-win scenarios in sale situations.

Is it easy? Nope. In fact, it's tremendously difficult. But the more difficult it is, the more money you can make. 

Finding the deal is the hard part, not the money.

@Chris Packer Chris, Gino is spot on. Cash is the oxygen of real estate investments. The only way to lose the game is to run out of cash. And although the expenses you stated feel like they're doable, these are only the expenses that you are currently aware of. If there's anything I've learned over my entire portfolio, is that there are always more projects around the corner, they take longer than you think, and they're more expensive than budgeted. I would lock in a solid profit. The point of investment real estate is to make money. The point of making money is to increase the quality of your life. And it sounds like this deal is stressing you, so time to move on in my humble opinion.

@Chris Blackburn Hey Chris, that's pretty standard from what I've seen in my experience, especially if the seller is an institutional client. You'll get mom and pops that still think it's 4% or 5% regardless of deal size, but that's a lot more rare these days. You'll also find some clients that like to juice the commission on performance metrics, similar to what you posted, but that is also relatively rare as most owners feel if they're paying you north of $300,000, you should just try to get top dollar with strong terms. The thinking with the institutions is that you're not doing as much as you would on a $5M-$10M transaction as the sellers and buyers typically already know eachother, have teams to underwrite the properties, and have attorneys to handle the contracts. In all fairness, making between $300-$400K on deals this size is incredibly good money given the time you spend.

Hey @Mary Jay, this just happened to me. My insurance company investigated and determined that it was in fact an Act of God. The only way I would be considered liable would be if I was negligent about maintaining the trees.

@Justin Koopmans

1. Yes, California realtors who have access to CAR Forms have access to Seller Financing forms. Though, you may just ask your title company. I purchased an apartment building in 2018 and I had Fidelity send over their boiler plate seller financing form as a Word doc and I just edited it. Though, I wanted the form to be as simple as possible for the sake of not scaring off the seller (it was also direct so simplicity is often key in my opinion). You can edit it, but be careful to not get too cute, the quality of your contract is the quality of your deal.
2. CAR forms and attorneys are going to be your best bet. There are other form companies that would be able to help, but a CAR form is going to most likely provide some familiarity to the seller as they've probably seen them before, and an attorney will be able to give you peace of mind. I don't believe your other options (other form companies) are worth it given the dynamics. Just be mindful to communicate what your thinking to the seller long before you show up with either one. Put them at ease by telling them what to expect, and be willing to go through it together. Even the word attorney can sometimes scare people off.