All Forum Posts by: Matt Ward

 It is one size fits all. Unless, of course, you are suggesting that someone who knows absolutely nothing (as is evidenced in the original post) raises money from people without the council of a securities attorney. Are you really suggesting this? 

I mean, I know advice on BP has been rolling downhill for a while, but this would take the prize!

 I am not an attorney, however:

whether you choose to do a PPM or not has nothing to do with the amount being raised, but the operational structure. If you want to run a democracy partnership, otherwise known as a nightmare, then you don't need a private placement. If you want to operate the deal with everyone else silent, then you need a limited partnership structure, which is going to require a private placement.

 Well, the PPM and SA will cost you $25,000. Local attorney will cost another $7,000 - $10,000.

These costs are the same regardless if the deal is $500,000 or $5,000,000. But, obviously, on a $500,000 deal these costs alone constitute 7%. It gets hard to underwrite returns having loaded the deal with these costs.

Additionally, there's an engineering inspection, appraisal, survey, etc. And, they don't cost much less on a $500,000 deal than $5MM. 

Depending on the size of the property, it could be a number of buyers which include individuals, partnerships, nonprofits, flippers, syndications, hedge fund/private equity, REITs and institutional money. 

There is a lot of stealth wealth in the Bay Area with folks able to drop a million down payment easily but they are the millionaire next door type. They can be folks working in the tech sector for 5-20+ years, doctors, business owners, etc the folks that have high incomes and have saved or let it compound in the stock market all this time. It is also folks that bought a house in prime parts of the Bay Area 20 years ago and are sitting on a boat load of equity. There are just a lot of folks with a lot of money but they don’t flaunt it. 

I met one seller that owned over 100 units in SF mostly bought after the crash. He was getting ready to sell his 18 unit building working on it with his two helpers. He looked like an ordinary guy but after speaking with him, he was laser focused on real estate. He said he started from the bottom owning in Oakland and continued to invest over a few decades to get to where he was now. Besides myself offering on this building as a syndication, there was a nonprofit that was the highest bidder but not winning, a group offering all cash from the north bay and and the ultimate winning buyer after the building fell out of contract twice if I remember correctly was financed. 

The largest owner of real estate in SF is a private company fueled by institutional money born out of the crash. There are syndications that operate in the Bay Area. Many of them operate quietly and many of them already have the money they need from high net worth clients which is why you rarely see Bay Area projects on crowdfunding sites. Although it’s a capital intensive business, the return on equity is solid from the MFH I’ve seen flipped on the market. 

For myself, I have a few partners that see eye to eye with me on buying MFH. With my conservative underwriting and the long term potential of owning in SF, I think I have the appropriate margin of safety with my offers at this point of the cycle. There are a lot of strategies in real estate but I do believe most people would be served well investing in their own backyard.

For 5+ multifamily buildings, lenders usually require enough down payment to have the building cash flow at a minimum of 1.15-1.25x debt service coverage ratio (DSCR). For these types of buildings in the Bay Area, this will take anywhere from 30-55% downpayment or more. Also, if you buy a building with all cash, it should cash flow on day one :) But you are right for 1-4 family buildings and only put 20-25% down, you probably won't cash flow on day one if you get a regular loan. However, I know investors getting interest only loans for 3-10 years with 35% down and great rates and they have breakeven cash flow. I think its safe to say in 10 years we should see higher rents and they can refi and be in a better cash flow position, especially if they are buying mismanaged buildings with below market rent. I agree you need holding power and proper reserves when you invest, but that is true if you invested anywhere.

You have to buy right and see past day one numbers and employ value add strategies. The successful investors that I know are minting cash flow in the bay area. There are a lot of strategies being employed to get this cash flow and create value. No one will hand you a deal in the bay area unless you are a known player that has a track record of being a closer. You have to go out there and find it yourself.

Here is a great example of what my investor friends and I have been talking about recently. There was a 20+ unit building with very low and less than half market rents in a rent control city sold early last year. It's now listed on the market fully rehabbed fully occupied with market rate rents for almost double the price. There is a lot of money to be made if you can figure out how they operator did this. 

Folks say there are no deals in the bay area including myself in the past but I have been proven wrong time and time again so I no longer say this. I've sold all my out of state properties to invest in the bay area. You can make money anywhere by buying right but you get rewarded over and over again by buying and holding in the bay area even if you didn't buy right or mismanage the building, I've seen it very often. 

@Andrew Brewer

You don't buy in the Bay Area for cash flow.  The only play I see at the moment is asset preservation.  You have to go out of state for cash flow.  

As an investor buying at these prices and taking a negative cash flow loss each month and praying for appreciation is not investing its gambling.  I read a post of the lady takes a -$2,000 loss each month for Mtn View property.  Ouch!  That's painful.  Real life money leaving your real life checking account.  

Please don't show me a chart about how CA prices go up in next 10-20yrs. LOL. Can you hold that long for your exit?  Say that you can and it took 10yrs.  That means you had to change your life and take that negative loss each month.  Forget that!  Life is short, I am not eating top ramen for the next 10yrs I want sushi. =)

I would use it to secure a a secured line of credit and then lend money to the flippers.. when I had my HML company 500k of liquid funds like this got me a 2 mil dollar line.

I lend it at what ever the street rate is plus points..  easily make 250k a year on this.. or you can keep stacking up 200.00 a month rentals if you want that brain damage..   I mean there is one thing bout being a mom and pop buy and hold I get that and that's great for those.

but if you have the wherewithal to secure a 500k LOC.. why not use it to its full advantage.. you would also leverage it and do flips and make again 200k plus per year 120 to 140k net in your pocket.. lots of things..

I mean this BRRR for some reason folks think it was invented in the last 5 years.. when I was in my HML days I did 40 of these a month for investors all over the country ALL turn key worked in the BRRR method. it was only when financing for rentals collapsed did turnkey change its model to fully finished houses.. they were all BRRR before 08..

@Matt Ward

Feel free to send me what you're looking at.  Happy to take a look.

Form 4797 > Sch D / Sch D worksheets are set up to calculate unrecapped Sec 1250 gain as "allowed or allowable" IIRC.