All Forum Posts by: Loren Jacobs

@Christian Cajina, message me your phone number and let’s connect. 

I am an investor from Alberta with a portfolio here in central AB. Although, I primarily invest in the U.S. I have experience raising money for projects and would be happy to help you develop a game plan to reach your goals.

Thanks for sharing @Jay Chang. The Multifamily Masters events are great. I’ve had the pleasure of meeting some of the gentlemen that started MM! Look forward to hearing about the case study!

@Laurence Obi

A lot of great books and podcasts have already been mentioned. I found a ton of value in using Rod Khleif’s educational material (most of his books and material are free).

Also, it sounds like you are specifically looking to improve your ability to normalize expenses when underwriting multifamily properties. Your best resource for this will be a local property manager. Make sure the PM deals with the type of asset you are looking at, similar size, similar class, etc. Build a relationship with the PM and bring them on a walk through of the property with you. They should be an expert on where the income and expenses are and where they could be. 

Last, David Toupin has a great deal analyzer specific to multifamily and multifamily syndication. In his deal Analyzer he offers a cheat sheet with an average cost per unit per year of each major expense line item. I’ve found this info really helpful to use as a placeholder in my underwriting until I find more accurate info from a PM or through other means. 

Please let me know if there are any other ways I can help you succeed. 

Ah yes, very interesting. This is a hard line to distinguish and a line that a lot of investors accidentally, or even knowingly, take advantage of. 

In 1946 the U.S. Supreme Court heard a case SEC vs. Howey Co. about orange farmers who sold off part of their company to passive investors only to retire and leave them high and dry a few years later. Long story short the SEC came up with the HOWEY test to determine if a contract meets the definition of an investment contract or not. An investment contract presupposes the investor is a passive investor. The HOWEY test states there four criteria that must be met in order for an investment agreement to be defined as an investment contract and therefore for the investor to be considered passive. They are:

1. There must be an investment of money

2. In a common enterprise 

3. With the expectation of profit

4. Solely from the efforts of the promoter

This helps define what a passive investor is. So if my investment does not meet all four of these criteria I must be an active investor right? No, of course it’s not that easy. An active investor must be an active decision maker in some part the enterprise venture. 

Bringing this full circle, giving someone money to go buy real estate and expecting a return on that money without doing anything is illegal, unless you syndicate. Giving someone money to go buy real estate, forming a JV, helping make business decisions or guaranteeing a loan, for example, and expecting a return on your money is perfectly compliant with the law as you are playing an active role in the investment.

Hey Stephen, there has been some excellent advice presented here already. You will thank yourself for following it diligently. 

I agree with @Mitch Messer, you definitely do not need a Pro membership to start and your capital will be better allocated elsewhere initially. In my opinion your focus should be on:

1. Learning as much as you possibly can about real estate investing. 

2. Find a niche you are interested in and become an expert. 

3. Utilize every morsel of free education out there, and there’s a lot. 

Once you are an educated investor you will be much more effective at communicating with others in the industry and adding value. You will find other investors will take your more seriously and, perhaps, even want to work with you if you prove you can bring a lot to the table.

Last, most of the information presented here, including the BP calculators, are geared toward residential (1-4 units) investing. You mentioned looking at a small multifamily deal you found on Loopnet. Using a calculator designed for single family acquisitions to underwrite a multifamily property is like trying to pound a nail into the wall with a screwdriver. Is it possible to turn the screwdriver around and use the handle to drive the nail? Yes. Is it as efficient, effective and accurate as using the right tool for the job, a hammer? No, of course not. If your goal is to acquire multifamily properties find educational materials and deal analyzers specific to that niche. You will find 12% CoC return in multifamily is incredibly difficult to find in assets worth investing in. Most investors are happy with 8-9% at the moment, which is still difficult to find.

If you have any other questions I am happy to help. 
 

Hey James, great questions. 

1. There are an infinite number of ways you can structure a syndicate and the returns. Most common right now is a 7 - 8% preferred return, which we can think of as interest on investors money, which is paid first. Also, investors typically get an ownership interest when subscribing to a syndication deal.  I have been seeing a lot of 80/20 and 70/30 equity splits recently. What that means is 80% of profits, after the preferred return has been paid, to the investors and 20% to the managers. 

2. Most SEC attorneys will charge somewhere between $10,000 and $25,000. Keep in mind you get what you pay for. 

With those questions answered, forming a syndicate for a residential property (1-4 units), while possible, is impractical. As the gentlemen prior have stated, there are other much more practical means of finding capital for smaller ventures. A joint venture partnership is a great way to start. A JV partnership is when there are two or more partners actively invested in a deal together. Key word there is active, all partners must be active to be considered a JV. If there are passive investors you must syndicate to comply with SEC law. In real estate, syndications are typically formed with a group of operators, 3-5 usually, to acquire a specific deal. This strategy is used most commonly to purchase multifamily properties worth $1M+.

Let me know if there are any other questions I could help you with. 

Hey @Arnel Bueno,

As you mentioned, investing in multifamily passively can be a great place to start.  Although, @Eric Johnson is absolutely right, you must have a solid understanding of the entire multifamily process, acquisition all the way through disposition, in order to ask the right questions and effectively vet syndicators.  This isn't necessarily a bad thing, it sounds like you want to learn the process anyways and there are a lot of great resources out there.  The pros are that, if you decide to start by investing passively, you get a behind the scenes look at what actually goes on and how the deal is put together and executed.  You also get access to the management team and can ask away to further your education.  Then, take everything you've learned and put it into your own multifamily deal.

@Brittany D. awesome way to jump into real estate investing. This is, in part, how my wife and I started out. I will list out how we jumped into renting out our first SF which worked well for us. Keep in mind I am not selling this as the best way or only way to go about things, simply what has been successful in our experience.

1. Become very familiar with your local landlord tenant laws and follow them.

2. Based on those laws write your own lease, there are lots of great blog posts and forums here to get you started.

3. Have your experienced real state attorney review, edit and finalize your lease.

4. Have your home inspected and bring everything up to local safety code.

5. Set up your systems for self managing, @Brandon Turner's book on Managing Rental Properties is excellent.

6. Research comps in your area, analyze your expenses and set an appropriate rental rate (does it include utilities, etc..)

7. Build your own supporting documents like pre/post vacancy inspections, rental applications etc..

8. Define your tenant criteria (i.e. income must be 3x rent) and stick to them.

9. Market your property.

10. As your receive inquiries I like to talk to applicants on the phone and ask a few preliminary questions (why are you looking to move, why are you interested in this property, when would you like to move in, etc..). If their answers are satisfactory we email a rental application, once they submit this application with their $25 application fee (this filters out people who will likely waster your time) we run a background and credit check. If potential tenant passes all the previous steps we schedule a walk through.

11. Sign lease

12. FOLLOW LEASE!

Congratulations! You are now officially a real estate investor!

@Brendan Markle is absolutely right. Even for "no money down" deals, you always need capital. Due diligence, rehab (which sometimes you can structure into your debt), marketing, holding costs during turnover, maintenance and cap x all require money and you should never, initially, rely upon cashflow to pay for these. Yes, once the property is stabilized and you've built your reserve funds you can start to rely on that money for some of these expenses, but, that can take at least 1-2 years. Focus on building capital and continuing to refine your REI knowledge. One way to accomplish both is to start by wholesaling. This will help you develop your deal sourcing skills and can also be very profitable.

Leveraging a partner for experience and financing is a great idea.  However, you have to bring significant value to the table.  With all due respect, your post isn't likely to attract many serious partners.  It will be much easier to align with a partner when you have some experience and successful transactions under your belt.  Real estate investors are always looking for deals and money.  If you don't have the money bring great deals to the table and have comprehensive market, sub-market, tenant demographic, business plan, legal, lending, property management, asset management and disposition research complete and put together in a quick and easy to understand presentation.  Make your potential partners life easy.

Hope this helps!

No problem.

If you're afraid of scaring tenants off, you could consider applying the application fee towards first month rent so it isn't money lost if they turn into renters. Of course, you'll need to check and see how to structure that in your lease agreement and that it is legally permissible.  

Personally, I'd rather scare off lukewarm applicants than waste hours of my time, but, that is a decision we each need to make for ourselves considering our circumstances.