All Forum Posts by: Mike B.

Brent,

We simply chase cash on cash return and know that all the other benefits will fall into place if its there. You mentioned it is a 12 unit building, which might be part of the problem if you are having trouble locating a buyer. That size is suited to a mom and pop type investment and those operators might be having a tougher time raising equity to invest. A lot of money is chasing higher yields right now in the larger transactions that are being syndicated. That said, you did not mention the market or if that military base is the sole major employer in the area. There are a lot of factors that we consider when looking, but I would love to know more about a newer build property selling at over a 10 cap!

Mike

Hi Ben,

Both Hotpads and Craigslist have been mentioned. I find it good to check both and place some phone calls asking about rents as if I was looking to rent from them. By comparing the two sites and the calls, you can get a feel for the real rent in the current market and learn what kind of concessions the comps are giving to get renters in. Concessions can disguise what your effective rents will be, so its good to know what and why they are being offered in the area.

Good luck, 

Mike

@Dorance Creighton No problem....it literally is THE book on syndications. In fact, the state securities prosecutor that taught my masters level syndication course in school used it as his bible to teach from.

It can be pricey on Amazon....check your local college if they have a real estate program because you can probably pick it up in their bookstore for less than half the cost of the Amazon pricing.

@Vee K. 

Maybe the deal is just priced too high and it will take several months of no response for the seller to come back to reality or at least find a broker who will give him an honest evaluation. Keep it on your radar and hold firm to the price that makes sense for your to pay.

Awesome set of books....more info and detail in these two books than in the 20 or so guru courses I have purchased over the last decade...combined. I might have actually taken the plunge way back then if I had access to those books and that detail. And as a bonus, this is how I found BiggerPockets.com!

I actually originally found the books through Amazon and ordered them, and once I learned what BiggerPockets was, I ordered another set so I could get the PDF for my iPad. Now the second set of physical books are in my 19 y/o stepson's hands so he can help me start a part time venture.

Thanks for writing and offering such good information!

@Vi K. I think having conservative numbers is a good thing. Needing a second to be able to get into the deal is what is taking away all of your return.  If you can't find a deal that has enough meat to support that, then you might find it more advantageous (and less risky) to partner with investor money. Raising money is a whole new game, but it is not as hard as it sounds. There is money out there for solid investments with secure real estate behind them, it just takes organization and time to cultivate it. You also need to be aware of SEC securities laws so you don't find yourself in hot water. A great reference for this is a book by syndication attorney Gene Trowbridge "It's a Whole New Business".

Even though the rate and terms can be amazing, I would caution people against this type of financing for a few reasons: 1. Reserve deposits are often high up front, causing initial capital requirements to be not worth it. I have seen as high as $3000/door required. 2. Reporting/auditing and inspection requirements can be cumbersome and costly. In fact, the HUD REAC inspections have spawned an entire industry of consultants. The costs to comply with some often ridiculous and subjective standards can be insane. 3. The HUD process to have reserve funds returned to you is time consuming and tedious. And they can just categorically deny any money you spent on capital improvements leaving you to pay the bills from operations while they hold your reserve money. I have calculated the returns received on a couple of properties we have with this type of loan, and compared to what the returns would have been without the associated costs listed above. It was several hundred basis points difference. So if anyone is looking at the terms of these loans and think they sound attractive, just remember that nothing is free and everything has a cost in one form or another.

@Kia DeBose The book that first got me interested in multifamily was "The Complete Guide to Buying and Selling Apartment Buildings" by Steve Berges.  In fact, after completing a masters degree in Real Estate Finance and working for an investment company that buys and operates apartment buildings, I can say it was one of the most informative books I have ever read on the subject matter. It was an easy read and explains the financial evaluation process very simply.

Edit the above post, I would do NONE of 2 & 3 before a signed contract. I would absolutely do the market due diligence before even submitting an LOI if possible.

@Abou C. I would break due diligence down into three categories:

1. Market - Know the neighborhood, local economy, bus routes, who lives in this neighborhood and why and where do they work? Check the competitors thoroughly and make sure you know what the prevailing market rents are and what amenities that includes. Check the comps for who pays what utilities and pet policies.

2. Financial - copies of P&Ls along with their corresponding tax returns/bank deposits to prove them, a current rent roll (and depending on the size) estoppel letters from the tenants confirming lease charges are what is represented in the rent roll, a thorough lease audit of all tenants to include the screening they underwent before being handed keys, last 3-5 years of insurance loss runs from the owners carrier, and understanding the property tax assessment and how a sale might change the current charges.

3. Physical - A thorough inspection of the site, inside and out of all units and grounds. This includes all appliances, mechanicals, and systems. Check with the building and zoning department for open permits and permit history to see if any improvements you find to the property were properly done. Check with the Police and Fire Marshall for call history and past inspections. Check any and all easements you might find on the survey. Check the lighting at night and the grounds/roofs after a good rain if possible.

While this is not an exhaustive list, it is a pretty good start. Experience is something you never stop acquiring, and I still learn something on each deal I have been a part of that I could have done better. And of course, I would do NONE of this without first having an accepted LOI and signed Purchase and Sale Agreement. In fact, your PSA should spell out how a lot of these items will be conducted.