All Forum Posts by: Marc Izquierdo

@Alina Trigub

Thanks for the response.  Yea that's part of my question, can I offer a 3+ mortgage position?  Hopefully we can get an answer to that!  Maybe I'll just reach out to a few lenders to see.

Hi everyone,

I’m interested in raising debt for small multifamily deals but I have a few questions about it and how I want it to work with my proposed strategy.

One of the things I'm wondering about is how to structure a deal with multiple debt investors and what security they can be offered. For example, I find a duplex for 200k that needs 20k of work to get rented and operating. Since I only have one deal under my belt, I'm assuming that potential investors won't be comfortable with lending me 100% of the project cost. So my strategy would be to get a 70%LTV loan and mortgage from a bank and find maybe 1-3 debt investors to finance the rest. So at the end of the day I would have one loan from a bank (1st mortgage), a second loan from an investor, and maybe a third from another investor.

My questions are:  Is this a feasible strategy?  What type of security can I offer the investors?  Can I give them 2nd and 3rd mortgages?  How would a bank feel about that?  If I can’t give them mortgages, then I guess I can only give a note and personal guarantee?  

If anyone can offer some info on how to best structure something like this I would really appreciate it.

As additional info, I plan on buying in an LLC with a commercial loan.

Thanks in advance!

@Patrick Liska Yea that makes sense to me all the way up to the 1031.  It sort of sucks that investors wouldn’t be able to escape the recapture tax.  Maybe they can though?  I’ll keep poking around to see if I can get an answer to that

@Todd Dexheimer Very interesting.  I’d love to talk to them.  Would you be able to connect me with them to ask some questions? 

@Brian Burke 

That absolutely makes sense.  Yea I definitely believe I was approaching it wrong but your advice has helped shift my mind.  I really appreciate it.  The information is invaluable!

@Omar Khan

Ok so you’re saying investors would see it negatively if I said to them that in 8 years, I return your initial capital and buy you out of your equity for a return of XX% overall?

@Patrick Liska Yea the estates are good point.  I wasn’t aware of the fact that investors will still pay the full capital gains tax even after the cost basis of the property has changed (after inheritance).  Interesting.  The depreciation and recapture is interesting .  How does recapture come into the equation with investors?  After you sell, does anyone with equity in the property owe recapture tax?  I’m now interested in how the end of a syndication works since everyone with equity may not want to 1031 into something else.  

@Yonah Weiss Yea I was also considering that strategy of a buy out at some point. I guess that strategy would require a refinance probably later in the projects life (maybe 7-10 years?) where you could return their original capital plus buy them out of their equity stake. For example, consider a scenario where you bought a property at 500k (300 debt and 200 equity) with an investor funding 100k (you the other 100k) and both of you splitting equity 50/50. 8 years from now the property is worth 1M. So at the end of the project, you refinance and take 800k (80% LTV - that's optimistic but for example purposes), the investor is entitled to 50% of the value of the building at that point so you owe them 500k, plus the 100k they originally invested. Then have enough to pay the outstanding loan balance. Hopefully 800k would cover that. I guess you could play with the numbers during underwriting to see when the beatbox time to to refinance would be be. Interesting to think about.

@Brian Burke

What a great answer!  That is exactly what I was looking for.  It makes complete sense.  

Since I want legacy type investments for myself, that’s exactly what I’ll do...but for myself!  I’ll grow my business (using investor capital) to fund that but again, on my own.

Again, awesome explanation.  Thanks!

@Brian Adams

The length of the investment was one of my thoughts and whether or not someone would want to keep their money tied up.  But suppose investors were ok with receiving cash flow for the rest of their lives (that is what I want at least!) - maybe I’m being unrealistic of what investors want though (still new to this)

Exactly, the investors have equity and therefore enjoy the proceeds. And just like you said, that'll increase their return but not IRR because there is no sale. That is where I struggle. You can get investor cash on cash returns up to 20%+ after a refi.

@Susan O. Sounds like if 80% of the buildings income comes from dwelling units then it’s 27.5. So in your case, since 50% is coming from dwelling units, you would depreciate at 39. Not sure about splitting it but based on what was posted, it seems like they’re looking at how the whole structure performs and therefore classifying the whole structure. So I would think that you couldn’t split it.

Hi everyone! When I’m underwriting a deal and there is a sale involved, there is no doubt that IRR is one of the best metrics to use and to give your potential investors. However, my model is to buy, refinance, and hold into perpetuity. In the future I may sell if the opportunity arises but it’s not in the business plan. Without a sale, IRR sort of breaks down. So to substitute IRR, all I’m left with is an average annual return or an average cash on cash return over say 10 years (because I have to define some time period) to show investors what they’ll make. Every syndication example that I’ve seen has had a sale at some point in the model (usually 5-10 years). Thus an IRR was able to be calculated. I’m wondering what people suggest if you dont plan on sellIng as far as marketing your deal to investors. How does a conversation like that go? What numbers would they be interested in since IRR is off the table now. If anyone has experience or suggestions I would appreciate it! Thanks in advance