All Forum Posts by: Mark Mosch

Jeff's got a good point.  Whatever you do, try to find an attorney to run things by to make sure you don't get yourself in trouble.  If one of the "friends and family" in your syndicate turn out to be not so friendly, then they could cause trouble if the syndicate isn't organized properly.

You also need to show them something along the lines of results.  I have found that if you've done even something small, doing a nice writeup in powerpoint showing how you got into the deal, what you did, the returns you made, etc...show that you might be able to generate these returns for your potential investors.

Then you just need to put it out to your network.  You would be amazed the appetite out there to find a reasonably safe investment with someone who they know, that pays them at least 8% (which is the usual preferred rate these days for investors to ask for).  There's no one place to go to, nor is there a quick way to do this, but it is very doable.  We just started a fund and were looking to raise $2 million.  We ended up cutting it off at $4 million and turning down money so we could get started.

The key there was to have a track record that we were able to professionally write up - I had about 9 years experience running smaller properties from 4-24 units - and the investors felt this experience would translate to bigger properties.  Second - get a good team - legal, accounting, and property management (even if they're friends who you cut in for a couple of points).  If you are getting investors, you'd want to have the agreements and all put together up front so if someone says, "Oh, why don't you send me your information", you can 5 minutes later send him your PDF/Powerpoint of your background/track record, your proposed deal structure (either a basic document on up to a Private Placement Memorandum), and a very detailed pro-forma of your proposed deal, showing the annual projected cash flows out 7-10 years, then showing an estimated sale in the final year.  This way, the investors feel like "this guy's on top of it" and you'd be surprised at the positive reactions you'll receive once you start putting it out there.

Some of the bigger investors i know who invest large family funds and the like all are saying "there's a lot more money out there than there are good deals".  So good luck - and go find some of it!

If you had a great deal, you could write it up, then go show it to everyone who you think might be interested.  If you get 5 or 10 people each in for $50 to $100k, then you start having some flexibility to get bigger properties.  it's amazing the kind of money you can raise these days if the deal is good.  We just started a fund back in February - based on the results of some smaller multi-family deals (8-24 unit properties) I've ran for a few years.  We initially wanted to raise $2 million to go after bigger properties, but ended up increasing our plan to $4 million and ended up cutting it off even though we probably had another $1-1.5 million from people who took longer to get around to getting back to us.  Granted that we'd been doing the multi-family thing for a few years, but my point is that if you show a legitimate deal to people, it looks a hell of a lot better than the crappy 4-5% they can get on preferred stock dividends, or the .5% they can get on a CD or something.  You'd be surprised what you can come up with.

the only issue with the seller carrying - which is a good strategy if you can do it, is the primary lender often will look at the 'total leverage' on the property - they sometimes don't want you borrowing half your down payment so are in effect doing 10% or less down. the reason they lend only X% of value is because they want a safe investment that has a good debt coverage ratio (DCR) and if you load up with other debt, that hurts the DCR and could bring it under their lower limit. So, yes - it's great if you can do it, but make sure that your main lender is ok with it. Don't wait until escrow is about to close then get a bad surprise when the lender won't move forward. So ask first.

Everyone's right - you must just move up to the next tier to get commercial financing, though.  Ironically, it's easiest to get financing for things over $2 or $3 million - because then it becomes much more about the building and less about you.  For that awkward tier between like $200,000 and $1,000,000, you most likely will need to go with a local or regional bank who will carry the loan themselves.  You likely would look at 25% down, and 20-25 year amortization due in 10 years.  Rates for this tier i have found in 2015 to be between 4.5% and 4.9%.  You will also have to guarantee the loan personally - the non-recourse financing isn't available until you are borrowing north of $1 million.  they will also look at your real estate management resume - so the more smaller properties you manage, the more favorably they will look at you even if you've never done something as large as what you are trying to finance.  Let's see - also - if you have an experienced property manager managing the asset to be acquired, they will be more comfortable and that will offset your lack of experience in that size of asset somewhat from the bank's perspective.  Overall - it can be done, but you just need to be really persistent and don't expect the first bank to just roll over and approve you.  But if you stay persistent and keep working it, you will find someone, as banks these days are much more prone to want to lend on multi-family than 3 or 4 years ago.  Final tip - make sure all your personal records that they will want to see are easily accessible.  Make sure all your tax returns, P&L's for the properties you own, K1's... etc are all in PDFs that you can shoot off to a bank nice and quickly - makes them more comfortable with your professionalism.  Good luck!

Depends if you are going to manage it yourself.  If you are an out of area investor and you will need to have a property manager run it, then definitely must include that cost.  If you are going to manage it yourself, then it's more of a negotiating tactic.  In general, if you are looking at this as a scalable business over time, at some point you really need to figure in a cost for this so if nothing else, this doesn't become your 9-5 'job'.  Once you've reached the limits of what you can manage, you can't expand any more anyway without property management.  So - when you are negotiating with the seller, you can use including property management as a way to show him the market value of his property is a little less because any professional firm acquiring it would need to figure these costs in.  Although...hopefully you aren't competing against other buyers who are small and are happy to manage themselves.  Good luck.

I'm currently in escrow on one 56 unit and one 103 unit property.  Both were found by finding a great/highly referenced property management firm in the targeted geographical area.  I actually got the referral through Bigger Pockets.  I then went and visited them and did an initial survey of the area with them.  They then kept me in the loop whenever something came on the market that was attractive and aligned with my investment criteria.  So one deal came up to them that never was on the market - and we jumped on that.  The second one popped up of all places on Loopnet, but since my property manager was right in that area, he saw it immediately and realized this was an out of area seller who didn't know the local market too well and we jumped on that too.  My point - good relationship with local strategic partners like a property management firm can really help your acquisitions.

Try CBIC...they are based in Seattle, but handle a lot of the Northwest - use them from properties in Montana.  Their number is 888-825-2242.  They won't crush you by having to insure at full replacement value - they are somewhere more reasonable when it comes to the valuation, which seems to be what drives the premium cost.  Good luck.

Peter - to answer your question about where - not in California.  As some people here have mentioned, cash flow is only part of the story - driving appreciation is the other.  However, despite California being a great source of appreciation for your properties, the cap rates have been bid so low, that we can't get the kind of base yield we need for our investors there.  Our fund tries to take a balanced approach being providing a 'decent' (8%) current yield from the cashflow to the investors, but then also having some upside due to adding value and driving up rents over time to give us some forced equity.  In California, the cash flow side of things is way too low, so we are working in MSA's that give us a better current yield but still have some appreciation potential.

I manage a fund that raised a few million to go after MFH.  We are looking for things in the 50-200 unit range.  We are still able to see 7.5-9% cap rates on C+ to B properties in secondary and tertiary MSA's.  It's getting harder, though, as a lot of owners are getting greedy.