All Forum Posts by: Mark Butler

My business and I are putting together a budget for acquisition of what will be our first investment. We are trying to identify what our budget will be outside of the acquisition price. Trying to determine if we can capitalize a reserve budget, all our closing costs, or any other items outside of the property itself. Any thoughts would be helpful.

@Jay Hinrichs absolutely. This is our first deal of hopefully many. We want to utilize the power of OPM as we grow our capital base so that we will have more to invest in larger portions in the future. This deal, as is often described by many, is more about learning and experience. We are hyper focused on providing our LP a solid passive return while we learn the ropes and hope to repeat/increase volume as we gain traction.

Hello everyone

My business partner (a friend from school) have identified a deal that we are interested in purchasing. We have identified an LP investor through friends and family and are trying to identify what would be an attractive structure to pitch for our first deal. After having listened to several BiggerPockets podcasts we will attempt to keep it as simple as possible. This means that we are not interested in charging management, acquisition, or any other fees but hope to incentivize our GP position with an attractive structure. Here is what we are assuming:

90 % LP / 10% GP capital infusion

Pari-Passu to an 8% preferred return

10% promoted interest to the GP over the 8% return, making it 80% LP / 20% GP

Any other recommendations on how to go about it? We are looking to purchase two rental properties near a college campus with no value add component planned for the near term. Do typical JV structures of this type (buying stabilized or new/turnkey property) fit this model listed above? Or should we adjust the preferred return? If we aren't taking fees should we go for a higher promote to the GP? Any help would be greatly appreciated, thank you.

Hello everyone

Question for the forum. While doing some of my financial modeling on a real estate property we are finding that a deal in Lubbock is passing our initial checks as it relates to the financial performance we are seeking. However, I am realizing that there are a few areas we may not be considering as it relates to the partnership we look to establish.

The goal is obviously to distribute free cash flow to investors based on % interest after we get leased and running. However, I was thinking about a scenario in which we may have outside costs that come up, such as maintenance, repairs, or annual taxes. These expenses are baked into our NOI calculations, but not in any systematic order and are always paid from revenues from the rent. My question is if we are paying out cash flows month to month (hypothetical) and a large cost item comes up do we then need to go back to the investors for a capital call? Or do we keep a reserve working capital account? Do we budget and capitalize this as part of the project budget from the beginning? Any advice would be greatly beneficial, thank you.

@Bart H. interesting, just seems like when I read on this forum and listen to the podcasts that 15% Cash on Cash seems to be a starting block for underwriting new deals by man investors, so if thats not the case, then what do I underwrite too? Or can I not benefit from real estate the way it sounds like people do in this community without recessionary activity beforehand, aka I need to learn to time the market?

Thank you to everyone that has been commenting on this post, it has been incredible helpful. @Bart H. definitely agree that there will be some fine tuning as things move forward and we are interested in exploring all aspects of the process by which we can take advantage of the real estate markets. My goal would be to even get into development someday given I'll be working for a commercial real estate developer after school and hopefully could apply my skills. The near term goal is to get a house our two under our belts not necessarily to make money but just to learn and hopefully that will point us in the right direction. I guess I am having trouble identifying discrepancies in sometimes what I hear on bigger pockets compared to what actual cash flows might look like. We are buy and hold focused off the bat and want to someday have that dream portfolio of as many doors (I'll use doors rather than houses as we hope to get some multifamily going), so when I hear that most of the podcast speakers focus on 15% cash on cash returns to their equity (or down payment) I then seem to turn around and have people discussing that it may not be that easy. Is that because of the current environment? Are these returns based on relying on rent growth? 

Any advice on the above would be greatly appreciated. 

@Bill F. my apologies, I didn't make it clear that this will be a side project and that me and my friends will all be working. We anticipate that this will require time but not a full time gig, atleast in the first few years. We do plan on implementing property management to avoid the 2:00am plumbing calls from tenants to reduce our time as well. We just hope to identify one or two great investment opportunities a year and then guarantee the loans. I'll be working for a real estate developer in Dallas and have interned there while in school for the last year, so my understanding of financing (while it can continue to improve) and various structures should come in handy.

Curious to see your thoughts (or anyone else that reads this) on strategy. I try to wrap my head around the rental market in general, and outside of bustling locations I can't understand how to appropriately market suburban rental properties. Thats why our team is thinking of implementing a student housing strategy closely located to college campuses that either exceed a certain size or are experiencing sound population growth. Yes dealing with college kids might not be great, but we will make sure to do our fair share of due diligence on tenants and implement a solid upfront deposit as a defense mechanism. 

@Matthew Enos great points, really appreciate it. 

@Mark Bookhagen definitely going to have capital calls each of those first few years until our cash flows will support future down payments. great tip on the buyouts and thought process surrounding future differing cash needs as well. 

@Kate J. we imagine that we will have to put personal guarantees or sufficient collateral to secure the initial lending on the first few properties. We are hoping at some point the portfolio itself could start to act as a more secure method of comforting our lenders. 

My initial thought was that if there is any leftover money after making the down payment once internal cash flow starts covering that expense that you could use that as the "dividend" but then need to forecast for forward expenses. Perhaps if there is enough cash to cover 1 year of annual expected costs (including maintenance and vacancy) and down payments clear then a distribution could be made?

The other idea is that ultimately we would like to 1031 our way into stronger quality assets, but our plan does not take appreciation into account whatsoever. We are looking for cashflow and any future appreciation is a bonus.