All Forum Posts by: Tom Lafferty

I purchased a 78 unit property built in 1970 with aluminum wiring last summer.  Pig tailing is not a widely accepted method anymore, but some lenders and insurers are ok with it.  We used Alumiconn connectors on about half the property, and the other half had Co/alr outlets and switches already, and our insurance company was ok with it.  This was a bank loan, but the mortgage broker I use said we shouldn't have any problems refinancing into a freddie or fannie loan, nor should a buyer if we sell.  

Copalum is another method, but is very expensive, and a bit of a scam if you ask me.  You have to hire contractors that are certified by the manufacturer of the device, who have to lease the tools required to make the connections.  In other words, lots of $$$$$$

Our total cost to repair was about $30,000.  This was outlets and switches only, not lights, fans, etc.  

Totally agree with @Jeff Greenberg. With the prices seller are asking (and getting!) these days, its starting to negatively affect the LTV's buyers are able to get. I tried to get a deal recently for which the lender offered 80% LTV, with a max loan amount of $9.6M based on historical numbers. The property ended up trading for a price that caused the LTV to be reduced to about 74%. So for your scenario, the property would have to appraise high enough to cover your "spread," which is pretty unlikely. Somehow appraisals have still magically been coming in at exactly what they need to in order to get deals done, but no way they'd be several million higher.

I'm not a lawyer either, but yes, that sounds like something that could get you into some ugly situations legally.

There are a LOT of ways to get burned buying multifamily if you've never done it.  Be super careful.  How do you plan to manage this?  If you're going to use third party management, and the current owner is self-managing, don't put a lot of stock in his numbers.  Your expenses will be completely different.  Also make sure you are aware of how your state (or the one where you're buying) handles property tax increases for new buyers.  In TX, I am always amused when brokers show the previous owners taxes in their pro forma, knowing very well that taxes are going to increase by $100,000.  

As far as rents go, I would not rely on any online service.  I don't do this when its early in the process, but before submitting an offer, I always go and personally visit comparable properties and talk to the staff there.  For smaller deals, that won't be an option, but you can call similar properties and at least get their rates.  As someone else mentioned, a good property manager familiar with the area will be invaluable here as well.

It is tough to find REIA's or mentoring groups that are specific to multifamily. The Real Estate Guys put on great events, and I continue to attend them. Their syndication event is a great introduction, has great content and well-informed speakers. They also attract high quality attendees. Just know that it is not focused on any particular asset class, and does not go into depth on any particular topic. They cover a lot, and the event would have to be a week long to go into detail.

I don't know about a lot of the others you mentioned, but I would make sure they have long term experience. 

Hi Jessie, yes it does make sense to come to Dallas for Brads event, even if you don't do anything further with his group.  You will learn a lot!  There are a lot of members that live in other states doing deals with mentoring from Brad.  It helps if you're able to come to the events if you want to network with others and take full advantage of the group.  

I think track record plays a big part too.  If you have a lot of experience, then obviously there's value in that.  If someone does NOT have a lot of experience, investors are taking more risk and I think they should be paid accordingly.  

I do t know what type of deals you're looking to do, so that probably matters a lot as well depending on what is acceptable in that arena.  I do multifamily syndications, and on the first one I got 10%.  I had NO experience, and wanted investors to get almost everything.  On the next one I got 15%.  In the group of investors I work with, anything over 20% probably wouldn't be acceptable to them.  I definitely want them to be SO happy with the results that they can't wait to invest in the next one.  

If you're truly wanting what is best for them, then make it a true ownership percentage as Patsy mentioned.  If you guys buy a property that costs $5M, and for simplicity let's say you get an 80% loan so will need a $1M down payment.  If one of the investors puts up $100k, they'll own 10% of the deal.  If you take a share as the sponsor, as you should if you're doing the work, that will dilute their ownership--  Say you get 10% of the deal.  Now that same $100k investor would own 10% of 90%.  When it's time to lay distributions, you take your 10%, then distribute the rest based on each investors ownership.  When/if you sell the deal for a capital gain, it's the same thing-- you take your share and split up the rest.

That's very simplified but you get the idea.

A discount compared to what it would have brought on the open market, yes.  But we definitely paid the seller a lot more of the potential upside than I would have liked.  Just the way it is in a sellers market!

Hi @Account Closed, I have been meaning to post a follow up, but just haven't gotten around to it, so thanks for the reminder.  Things are going pretty well, although we still have a long way to go.  There are still a lot of unit interiors to rehab, but our exterior paint, carpentry, metalwork, are finally about done.  

I suspected we would have a drop in occupancy, and was hoping it didn't go below 50%.  There were over 20 vacant or down units at takeover, and within a few months it had climbed to 33, so about 58% occupancy.  There were a lot of people with huge balances, and many others that just weren't paying.  We've been very lenient for partial payers which we ordinarily would not be, but when you have that many vacant, if they're paying enough to cover their utilities plus a bit more its worth keeping them!  The good thing is that now we can get in and rehab a lot of units right away, but it takes a while to do that.  The units that have been done turned out extremely well, and we're getting significantly more rent than our pro forma.  So far at least $50 higher, but as we get our occupancy up we may push further.  Even at $50, thats $50 x 78 units = $3900/month x 12 months = $46,800 in additional cash flow above the increase we were already shooting for.  The best part though is when you apply a cap rate to that income.  Right now its probably a 7.5% cap, so $46,800/.075 = $624,000 we've added to the value of the property.  Considering that is on top of the first rent increase, I am very happy with the results so far.  Hopefully we can get the occupancy up fairly quickly, as I will definitely be worried about that until we're in the mid 80's or so.   

I'll try to post a few photos of finished units.  

Well, that didn't work!  File sizes are too large and i don't know how to shrink them......

Thanks Paul.  I missed the question from @Dan Bee.  Our investors are mostly from a mentoring and networking group I joined.  I also have a few friends and family.