All Forum Posts by: Kenneth Reimer

@Jaysen Medhurst We are worlds apart! We sell deals with less than 200 points in spread!

@Wes Love Out of all the transactions I've done, there's nothing that necessarily changes based on unit number. However, you do get better pricing as the loan size increases. It's hard to say what the best loan is before you know what property your purchasing. I have clients that do bridge financing with an automatic conversion to permanent financing so they can get all of their renovations out of the way very early on in their holding process. Outside of that, just be careful of yield maintenance prepayment penalties. Unless you're absolutely sure of your holding timeline (and even then things can go sideway), yield maintenance prepays can be punishing. The largest I've seen, on a loan balance of $1.4M, was over $300K. Other than that, define your goals and select the loan program that fits the bill the best! Happy to answer any follow up questions if you have them Wes. Good luck! 

@Jaysen Medhurst Interesting. I think the main difference is I have my California lenses on.  A 5% cap deal only gets you 60s to 70s vintage product in suburbia out here. 13% ROE would be the deal of the year! What's the typical spread between cap rates and interest rates on the deals in your guys' markets?

@Jaysen Medhurst Is that specific to Alabama? Out here in California the days of 75% LTV are pretty much gone. We're seeing 70% LTV as the maximum with 25-30 year amortization schedules. If it's a strong deal, some lenders are willing to put interest only components in place. I just refinanced a property at about 50% LTV, 4.26% amortized over 30 years, non-recourse and no prepayment penalty, fixed for 5 years with two 5-year resets.

@Joshua Mellor Joshua, great question. The answers above are solid answers, given the authors' propensity to take risk. I feel as though the idea of risk is commonly missing from these forums. @Jaysen Medhurst mentioned above that 5% is a dismal return. I would agree with him as an investor that's willing to take risk in the form of debt, and it sounds like he is too, but 5% isn't terrible if you're a highly conservative investor and you're at roughly 50% LTV on a triplex. Jaysen, do you agree?

If your goal is to grow a portfolio, and you don't have extra capital to place, either a refinance or stockpiling of cash flow is necessary. Given the current interest rate environment and your appreciation, my personal investment philosophy would lead me to refinance the same debt load into a 30 year note and continue cash flowing. That being said, I'm of the mind that I'm willing to stay patient and get rich very slowly. The faster you're trying to create wealth, the more risk you will be taking. All in all, you're in a great position so evaluate your risk profile and choose the option that corresponds the best!

@Michael Ealy The relationship between cap rate and cash on cash return has nothing to do with location assumptions and it would be wrong to learn that it does. A mathematical formula doesn't make assumptions, it's objective. Now, if you'd like to take the conversation a step further and delve into how in-place cap rates aren't as important because they can be indicative of potentially higher future returns, then that's a great point to make. I make the distinction because there are new investors reading through these forums trying to learn and saying that a capitalization rate doesn't have anything to do with returns is plain wrong. To say that a cap rate on actual numbers is indicative of your potential return would of course not be accurate, but you guys aren't expounding on your ideas well enough to make it clear. 

Yes, a cap rate isn't the end all be all metric for evaluating a deal. Yes, you can buy a 34% cap in an A location if the seller didn't know what they were doing. No, real estate is not an efficient market. But, cap rates absolutely have to do with returns. To say they don't is empirically wrong. Debating how prudent cap rates are is a whole different conversation.

@Ben Leybovich So are you concluding that IRR, CoC, and GRMs are not market-driven metrics that indicate investor sentiment? That's silly. The cash on cash return is just the leveraged return that is calculated using cap rate as an input.

How can the cap rate, a metric that defines your unleveraged rate of return, not have anything to do with returns?

@William Durel Hi William, it's a great question. As a broker that has worked in a highly competitive market, it's very tough for buyers that don't have reputations built up within the community that they're looking to acquire. If you're strategy for finding deals is working through brokers, make sure you see the broker as an interested party. When I have a deal coming available, I have a short list of people that will always treat me and the seller professionally, so I know I can safely recommend a buyer and not run the risk of tarnishing my reputation. As for finding deals, markets oftentimes get competitive to the point where it's a good idea to work through the listing agent if you're savvy enough to make your own decisions. Other than that, I think making a point to call the active agents is important. The squeaky wheel gets the grease, or at least gets to view the deals before they're tied up by other people!

In summary, I would ask the most active brokers good questions when you speak with them. When I see a deal come on market, I immediately call the agent and start asking good questions, such as:

1. Does the seller want to fully market this or are they reviewing offers as they come in?

2. Are there certain terms of an offer that are important to the seller outside of just being highest on price?

3. How do you think we should craft an offer to make it most attractive to the seller?

4. Would a schedule of real estate and/or personal bio make my offer more compelling?

5. Are you representing other buyers that are making offers on this deal?

With the answers to these questions, you can deduce how to write an offer that the seller will find compelling to create a win-win dynamic and be selected as the buyer to enter into contract with. Hope this helps my friend. Feel free to ask more questions, great topic!

Kenny Reimer

@Danny Randazzo On my personal holdings, I've spent very little money as the quality of a leasing office is essentially only valuable as a leasing tool and a perk to a buyer. A common upgrade that I really like is matching the flooring, paint, and finishes to what you're putting inside new renovated units if you're undergoing a consistent renovation plan. That way, in the case that you're building isn't large enough for a model unit and you're trying to build out a wait list, you can have the potential resident get a feel of what the finishes are like. Other than that, I wouldn't overthink it unless we're talking about a 100+ unit building. I'm of the opinion that if you ensure it's clean, organized, and has a manager that actually answers the phone, then you'll accomplish 95% of what the leasing office is meant to do.

@Vernon Trice III An investor would pay off the note and absorb a prepayment penalty due to a variety of reasons. 

1. The prepayment is such that refinancing at a lower interest rates makes sense for their hold time.

2. The deal has become a problem for them.

3. Playing defense late in a market and 1031 exchanging into a higher quality area.

4. They have no choice and must sell.

Investors typically weigh their desire to sell against the size of the prepayment penalty. The bigger the prepay, the bigger incentive you must have to sell your property in order to pull the trigger.