All Forum Posts by: Kyle Joseph

What are the biggest challenges people face when underwriting a deal? Is it to find and support your deal inputs (i.e. market data, lending terms, operating expense budget, etc.)? The nuts and bolts of putting together an Excel model? Having confidence in your ability to evaluate the deal and that your numbers are accurate? Something else?

Corey  - I am a real estate investor but also help real estate investors with deal underwriting and analysis. I'm happy to help. I will shoot you a DM.

Honestly I have found it very difficult to find seller finance deals that make sense. So if you are finding them, kudos to you. I would think of them as any other lender. Make sure the deal stacks up when you compare it to a bank loan, agency, or any other loan opportunity. Don't do a seller financing loan just to do a seller financing loan. Make sure that the loan brings something to the table. Are you not required to personally guarantee the loan, when you typically would with a bank? Does it have better terms than you can otherwise get? Do you have flexibility to prepay if you choose to refi or sell? There needs to be some reason to do it. Because your counterparty is going to be Joe Schmo rather than a professional institution which will likely add some challenges that you're not used to. Also, I would suggest have legal counsel to make sure everything is documented correctly. 

If you are negotiating a seller financed deal, I'm happy to run a few models for you to evaluate different proposals.

@Trent Brodbeck I have used listsource and had pretty good luck. I find the platform hard to use but that data has been solid.

Hey Wei, sounds like you may have an interesting deal on your hands. Lots to unpack here. I don't personally know anyone in the New Castle market, but I'm sure someone on here does. That said, I think you will also want to underwrite the deal yourself to see how it shakes out. You know the seller's asking price and loan terms (is it interest only or amortizing?). I would start by building out a basic P&L for what the property generates today vs. what it will generate in the future, and factor in any capital expenses required to get there. You can find market rents on websites like Zillow, Zumper, and Redfin. You can get RE taxes from town assessor. Typically you can call utility providers and get that information. You'll need to make a best guess on things like insurance, repairs & maintenance, management, and landscaping/snowplow for now. Feel free to shoot me a DM if you want a little help.

I'm not sure the deal pencils at this purchase price (even with the vacancy, repairs, capex, and management fee being zero). Think of it this way - the 6.00% cap rate is your cost of equity. And your debt costs 7.00%. Debt is paid before the equity is paid (i.e. less risky) and in a perfect world should cost less than your debt. That's why you end up with a 4.0% cash on cash return. Your debt costs are dragging down your equity return when you use leverage. 

Feel free to DM me if you want a little help digging in on the numbers further. I'm wondering if there is opportunity to refresh units, add BR or units, or some other way to increase revenues and value.

@Chris Seveney gave really good advice on content. Not much to add there. But I'll elaborate on his second point. I find it important to think through who you want your recipients and audience to be. Is there a certain neighborhood, owner occupied vs. not owner occupied, length of ownership, debt on property vs. no debt, etc. I like to start with the end state, i.e. exactly who I want to call/text me back, and then work backwards to figure out what parameters I need to set to get to those people. I have tried casting wide nets before, and personally have had better luck being more targeted. 

Have you talked to your lender on these properties so see if they would give you an equity line? You may be able to draw on some of the equity that you have built up, without having to sell the property or refinance and pay higher rate / more principal.

Do you want to directly own and invest in real estate, or are you open to indirectly investing in it? If the latter, you may want to look at some of the crowdsourcing platforms such as Fundrise.  Or invest into other private deals and/or funds. It would give you an opportunity to get real estate exposure anywhere in the country, but avoid the issues you are concerned about. It may depend on your accreditation status though, just check that.

Amanda - Is there any reason that you are focused it being a single family rental? Would a small multifamily cashflow and be a better option for you?