All Forum Posts by: Leo M Christensen

@Spencer Gray.

The investor has a lot of capital and has a track record with deals as large as 26+ million $ deals. And has stated he wants similar deals in my area.

And I agree the exclusivity part is the one that gets me the most. It’s kind of like him wanting me to marry him, but he can date others.

A commercial fixed rate mortgage here would be at about 2%, so the rough math would look like this:

Let’s say it’s a 1 mio $ property

His 20% down payment at worst case 10%

And 80% mortgage at 2%

200.000 x 0.1= 20.000$

800.000 x 0.02= 16.000$

That’s a total of 36.000$ = 3,6 % in financing cost.

This means in order for that to pencil out I would have to find deals at 7% cap rate or higher, with fees included. And my salary for management etc would on a 1 mio $ deal be 1000.000 x 0.3% = 3.000$

Of course my math could be off, and I'm not including property optimization and eventual refinance (BRRRR), but unless the deals get massive it's seems like a tough call.

I’ve come in contact with an investor who’s wants to invest with me. But the terms seem a bit steep.

The basics of the deal looks something like this:

We open an Llc with 50/50 ownership.

He provides the cash for down payment at an interest rate of 7-10% - and I would be liable. Usually in my country down payment on commercial is 20%

He is a passive investor so all dealfinding, management etc goes via me.

I would be prohibited in doing other deals my self (not the case for him). If there’s a plus, which doesn’t go to reinvestment, at year end we can choose to pay it out. I would be compensated for my admin work with 0,3% of the accumulated value of properties. So before I would be able to live off that part it we would have by properties for 15 million+. There are more details but these are the main ones.

My question is this. Do these terms seem standard to you guys who either are moneylenders of have done this type of partnerships before?

All the best

Leo

@Cody Cook I'm very aware of my problem being a good one and I'm grateful for it.

If you ever do decide to come to Denmark for a visit, I'll be happy to have you stay over in our spare bedroom. I love connecting with likeminded people and expending my contact base.

I'm very fascinated with the returns some of you guys see over there in the US, and the rather free markets you seem to have.

Anyway, thanks for your input, it's been good o share thoughts.

Keep in touch 

kind regards

Leo

@Cody Cook thank you for your reply

I'm in Denmark, which is a small country in northern Europe of 5.5 million people. Don't know if you have heard of it, we're mostly known for our cute girls, beer, beacon and the highest taxes in the world. But that's a whole different discussion which I'll happily take with you some day.

I see your point regarding whether or not the condo would be probably be able keep appreciating over a course of say 30 years, despite short term bumps in the economy. It's could probably be defined as a "B" or "B+" condo in an "A-" area close to the capitol of Denmark, so it would always be easily rentable. However, as you touched on, the cashflow would be very small if re-financed to the full 80% because of the relatively high HOA fees (special assessments and all). Almost to the point of breakeven. And my goal is to be a longterm investor in positive cash flow properties primarily. And that is why I've made this discussion, because I understand that there will be debt pay down over time etc. but the positive cashflow would be almost non existent until way out in the future. And this would all be contingent on a bank being willing to do refinance.

if i sold, could take the profits and buy more units in an area further out, but because of the high prices currently, this of course limits the buying power, unless i find a real steal. The returns you can get in my overall market however are nothing compared to you guys in the states. We have very tenant friendly laws and regulations. For example, if a tenant sues regarding to high rents for an apartment, the government can force the landlord to reduce the rent dramatically. And all of a sudden one would have a negative cashflow and a tenant which one could not evict. I'm writing all of this to give you picture of a very different market than yours, where there are a bit more considerations to keep in mind than you might be accustomed to.

But I really appreciate you input, thank you

Hi everyone.

I would love to hear your opinion on the following case:

I have a condo, that i bought in '09 and the market has appreciated a lot since then, plus I've renovated it quite a bit. It's a very popular area and it rents out very easily. However, it has fairly high HOA fees so the cashflow after all expenses is about 440$ pr. month, which is not bad, but I'm currently paying interest-only on the mortgage. The interest-only option runs out in about 2 years.

My dilemma is that I have, do to the appreciation, a good deal of equity in the condo (around 175.000$ after tax) which I would love to reinvest, but I'm have a hard time getting a refinance do to debt to income ratio. 

So should I: 

- sell and take my short term profit and re-invest in an area that is not so hot, but i might get more units?

- hold and keep trying to refinance, thus betting on the market to hold the level it's at now?

- Do nothing and keep the cashflow as is, and the try to find another mortgage company when my interest-only period ends?

- or a fourth option, not mentioned above?

I look forward to hearing your thoughts

Kind regards 

Leo

hi @Suhan Junaid.

m2 is square meters, like you use square-footage as a measurement.

The differentiation between private and commercial in Denmark is 6 unit and up, so these deals are all considered commercial, which is what I'm intentionally pursuing. This is why property A can be bought at the lowest price due to only 2 out of 9 units are currently rented, however it's in a rural area which can influence future vacancy and, as I described, in a best case the rental income per square meter (or square foot) is the lowest of the 3 deals. 

My personal preference of real estate strategies is BRRRR, because that, to me, makes the most sense. This means that deal A should, on paper, have best chance for appreciation through a better run operation.

The situation is that deal A is owned by the bank, which is trying to unload their real estate holdings currently, because they're trying shift direction. I'll try to break deal A down with the current numbers I know:

current annuals:

rents: 116.000 kr (17.800$)

expenses: 117.000kr (18.000$) this includes management set at 30.000kr (4.600$) which I or wee would do our selves for now.

So the deal is running a negative on operations alone currently, which plays in favour for the negotiation. However, in order to make any positive cashflow after financing we would need minimum 7 units filled asap. The units are rent ready and in really good shape so maintenance and cap-ex would be at a minimum for the foreseeable future. In the proforma set at 45.000kr. (6.900$).

The valuation of this commercial property is would set it at factor of 10 x current income, eg. 116.000 x 10 = 1.160.000kr. (178.000$)

The BRRRR comes in getting it fully rented at a monthly rent of 4.500kr (692$)

(4.500 x 12 months) x 9 units = 486.000kr (74.700$)

So future valuation should be (using 10x factor) 4.860.000kr. (747.000$)

I know my valuation calculation is pretty basic.. what do are your thoughts?

regards

Leo

Hi JD.

The numbers I'm showing are all annual. And yes the returns in DK aren't great which is exactly why I'm looking at MFH to be able to make it. I see your point in rural vs urban. 

Thank you for your feedback. It's much appreciated.

I'm currently the owner of 3 units (doors) in some of the major cities of my country, Denmark. My situation is this. I quit my job in order to complete my BRRRR project which will be done mid january. I've found a good team around me, one carpenter and allround handyman for rehab and a guy who has 88 units (doors) currently. It's a good team, even though the other investor is pretty diluted in various businesses and thusly not completely focussed all of the time. This is where I believe I contribute to the team.

I primarily look at multifamily with 6+ units, because I'm not able to get loans for SFH do to by debt to income ratio, and this brings me to the three deals I've found.

deal a)

A foreclosure deal in a rural area with 9 units where only 2 are currently rented. It's rent ready and in good shape all around, however the previous owner was a bit of a crook and mistreated his tenants. 

The total m2 is 875m2 and best rent scenario fully tenanted is 555kr (86$) per m2.

This by far the cheapest, but empty and we would have to rebrand the place repair the bad rep the place has currently.

deal b)

This is a fully tenanted deal in good shape on the mls. It's about 20 min drive from a bigger city and a 14 unit property and has 825m2 doing about 833kr. (128$) per m2. The price on this (or the price on the material) 7.400.000kr. (1.138.000$) and looks like an ok deal, if the price can be negotiated. 

Deal c)

This is in center of a midsize city that universities ect. Its 10 units build in year 2000 and currently has a contract with the government that provides tenants with special needs which makes it 100% tenanted all of the time. It's 691m2 an makes 763kr. (117$) per m2. It's by far the priciest at 9.200.000kr. (1.415.000$) however in the material they say that they are willing to sell if we pay approximately 150.000$ and take over the existing loan of about 9.000.000kr. (1.385.000$)

So to recap, I'm looking at three deals that are very different, but in each their own way attractive.

I would love hear your thoughts and provide any information you might need.

best regards

Leo