All Forum Posts by: Lee G.

Save your nickels and then buy something. Buying and owning is always more expensive than you think. The last thing you want is to have a major repair -- water heater, furnace, bed bugs, roof etc and not have the cash to deal with it. 

Do your analysis but don't let it paralyze you. I'm happy to get you a couple year one spreadsheets to help you analyze small multifamily units. 

Define your investment criteria. The first building I bought was a 4 plex. I lived in one unit and rented the rest. I'd recommend a 4plex to house hack with so you can leverage your FHA buying capacity. I also bought it making sure it cash flowed with me living in one of the units ($0 rent). Don't forget when you underwrite a deal to include maintenance and CAPEX. Don't skimp on these just because you want a deal.

Finally, set a hard deadline where you will have saved enough money for reserves, a reasonable down payment and when you'll start writing offers. 

Good luck. 

Write offers. Do deals. Try stuff. If it doesn't work, do something different. Start small and go from there.

We develop land in Boise. All of my education has been from the school of real life... We've done all sorts of things from buy and hold rentals,  flipping SFRs and commercial buildings to raw land development. Happy to talk to you. Send a colleague request and we can connect. 

We fight with the earthquake question all the time. We own a bunch of stuff in Utah and elsewhere in the Intermountain West. It's all on fault lines but nowhere near as active as California (where I grew up). We don't have earthquake insurance on anything in Utah. 

Anyway, to answer you question - a number of the engineers you'd engage with the build of your complex will help you find your soils/geo-tech guy.  

How serious are you about doing this? We are looking for deals in Utah and would be happy to help. 

WE are partial to 2 bed units with at least 1.5 baths. We've found we attract all sorts of tenants -- young professionals who want a guest/room office who then develop into young families to more established families who use the second bedroom for the kids. Boomers like them when they downsize for the same reasons as the young professionals. 

The half bath is always near the common living area so guests don't go tromping through the rest of the apartment to use the loo. If you can do a full bath, do it. 

Ultimately it will be up to your market research. I know there is a huge demand in our area for 3 bed/2bath units but haven't found the dirt to do units of that size. We've avoided studios because of where we work - Intermountain West -- where people look for larger units. Just dig around. What's around you? Talk to the property managers. Ask if there is a unit size they wish they had? Or that rents really fast? 

I can help you. Send a collegue request and I'll get you my phone number. We are building a couple apartment complexes in Boise, Idaho now. 

Here's my thought process and some of my math on this Starbucks - 

Buy at 5.5 cap - 1,073,000.00 

NOI @ years 1-5- $58,996

hold until year 5 when rent escalator kicks in. Your NOI goes to is $64,895. I think you are hoping to can sell for no less than a 6 cap which would make your exit worth $1,081,593.33 but given your transaction (exit) costs, you are underwater on sale excluding your cash flows. Now if rates spike and you have cap rates following interest rates, selling at a 7 cap is a loss - 927,080 excluding transaction costs. And yes, you could juice some of your returns by levering some of the deal but that won't cover the transaction costs on exit. Hoping for a 4.5 cap sale I don't think is plausible but I know people are doing those types of deals in secondary cities like Denver, Phoenix, etc. Joel said foreign investors will accept that type of return on a national credit...

Unless you are planning on holding this until you die and praying the location is good enough that the tenant stays for a really long time, this seems like a bad deal. Am I missing something?

@Jason Mak  - Thanks. I see a number of those deals and have been wondering about it. Your exit scenarios make the most sense though I don't think they make an cents (pun intended).

I understand that they are for very low risk folks but what happens on sale/exit? Take the Starbucks I mention above. They have it at a 5.5 cap which equates to $1,073,000 on NOI of 58-996 in years 1-5 and 64,895 in years 6-10. If cap rates bump up to a 7 cap because of higher interest rates, the property is worth $927,080.00.

You seem to mention it in that you are hoping for a renewal. Do you agree that cap rates increase with rising interest rates or is my understanding wrong? 

Thanks.

I've been baffled at some of the absolute NNN deals that are being sent around. For example I saw a Starbucks location listed at a 5.5 cap with a new 10 year lease. The lease has a 10% escalator at year 5. They are asking 1,073,000 for it. I'm wondering how does one exit that type of deal in a rising interest rate environment? I realize a 5.5 cap deal is an all cash deal but typically cap rates move with interest rates so if we get rates bumping up, the cap rates increase ultimately destroying your equity. Like with bonds, the building's value is a function of the return, which in this case is fixed by the lease.

Are you betting that you can renew the lease at a much higher rate at the end of the lease? Or are you just looking for some sort of capital loss/tax play in buying a building like that? @JoelOwens you sell these deals... what is the deal?