All Forum Posts by: Mike Carr

I appreciate all of the responses and everyones input but I think everyone missed the "Question" part of my post...about the banks refinancing criteria.

@John Nachtigall  you make a lot of assumptions in your post about my track record and my level of respect of money without actually knowing anything about me or my history. I have over 15 years experience in property management including self storage facilities over 900+units. I have raised money before for properties and have nothing but the highest respect for the money partners. I treat their money better than mine.  I also know from experience that I would rather have a money partner who respects and understands that sweat equity is just as important as the money itself...no deal can work successfully without both working in unison.  I have been in partnerships that were not favorable so I have learned my lesson about how and who I partner with. There has to be mutual respect for what each party brings to the table...experience or money.

As far as the example...the initial split is 70/30 (investors/sponsor). NOT the other way around. In this example I would not get 70% until their principal is paid back in full.  Once the principal is paid back  in full to the investors, then will then have the option to either stay in the deal at 30% or get bought out according to their %. Since this was just an example...some deals will be 50/50, 60/40, 70/30, 80/20, etc. I am fully aware that I will have to take a smaller equity position on the first few deals.

This has been pretty common for the syndications I have seen with sponsors who have the same goals of refinancing and holding long-term; multi-family and self storage. 

I would really like to put the focus of this thread back on the question from the original post...how do banks underwrite/approve refinacnes with equity split changes?

Thanks 

@Don Konipol Thank you for the insight. What split would you suggest I keep as a minimum for attracting investors? I am more than willing to take less than 30% on the first few deals in order to put some deals together. 

Question about refinancing a syndicated deal.

Goal: I want to start syndicating self storage facilities. The long-term goal is to refinance the syndicated deals around the 5 year mark to pay back the principal invested and hold the facilities long-term. Once the refinance is complete and the principal is paid back, the percentage of ownership would change. 

Example: The Limited Partners will get an 8% preferred return plus a 70/30 split with the LP's getting 70% and I (general partner would get 30%). Once the principal is paid back at the refinance, the preferred return would end and I would now get 70% and the limited partners would get 30% (they have the option of getting bought out if they no longer wish to stay in the deal).  Every deal is different so this is just an example.

Question: I have been reading more and more about how most commercial loans require the borrower to have a net worth of what the loan amount is. During the refinance do any loan requirements change? If the limited partners want to be bought out and the refinance will leave just me as the owner...how much will the banks look at my net worth as part of the approval? Even if all investors stay in at the 30%, how will that effect the approval process?

Thanks for any help. 

@Jeff Sheraton 

I know this thread is a bit old but I just stumbled upon it. I recently spoke with a newer management company in the area (Rentwell) and they do self storage/garages. I know their leases for rental properties are top notch so i'm guessing they will have a solid lease for self storage as well.  

Also, I am getting into self storage investing as well so if you come across anything you don't want or cant take down hit me up. I have a small mailing campaign dropping today for self storage in Wilmington. 

You don’t see value in injecting money into a system that’s producing 15% returns? Whether I manage it myself or have 100 people on my team, 15% return is still 15% return. How I run my business should not be how you judge value. In fact, more people overlooking and managing a property the more secure the investment will be. There is much more to owning rentals than just hiring and handing it off to the management company…class C and D properties come with their fair share of headaches so you have to stay on top of management/maintenance.

Months and even years of experience are needed to create the correct systems and processes to find, manage, and maintain these types of properties for the long haul. If you think you can do all of those tasks better on your own to earn a few more dollars then by all means go ahead. Having someone else do all of that work for you outweighs the few percent you might save by doing all of this on your own. A simple google search will not find you discounted off market properties that you can easily manage or maintain….average returns on similar properties on MLS( in my area) are 8-12% without factoring in management. To have a sustainable business that will last for many years you have to know and do more than just buy some crap on the mls and hand it to a manager.

Im providing a win-win scenario for both partners involved and will only purchase deals that do so. This will provide a great value for introducing new people into the business and for people who don’t have time to do this on their own. 

I would explain that there is risk with any investment vehicle. My name is still full recourse on the loan so I technically do have skin in the game. Buying below market and performing rigorous due diligence is how we minimize that risk. 

A 75/25 split would not be worth my time at all. Infinite return or not, $2,675 is still $2,675 at the end of the day. The only way I would accept 75/25 is if they hadsignificant funds and would want to grow into larger properties together. 

To justify 60/40

1. Knowledge and track record of success.

2. Access to off market properties through our own marketing.

3. 15% is a pretty solid return compared to whats currently on market. 

4. Equity in the deal....FMV is in the $145k-$155K and with a bank loan at $90,00 that puts the equity at roughly $60,000. 60% partner would have $36,000 which is almost what they put into the deal.

5. Systems and relationships that I have created over time to properly manage and maintain rental properties. Even though the property will be in the hands of a property manager, I still overlook every detail to make sure everything is running smooth. I still keep records and dates as if I am managing the property myself. 

6. Grow a rental portfolio with an experienced partner without the hassle of finding and managing the property. This alone provides a ton of value to people who do not have the time to do this on their own.

I definitely like your idea of looking at this from the jv partners eyes. I've already thought of a few questions scenarios that a jv partner might want to know or ask. 

Thanks for the in depth response. 

I need some help overlooking the #'s before I present this to a potential JV partner. I have been marketing to small multi-family properties in my market (Delaware) and have wholesaled two so far. Id rather be buying these but I am having a hard time with banks and creative financing methods so I want to approach a few people in my market to JV. Any help is greatly appreciated.

My background: I have helped managed and maintain my parents' rental properties for over a decade. I started my business a few years ago after college by flipping and wholesaling properties. I just started to build my rental portfolio a year ago. I currently have three cash flowing properties. Short-term goal is to have 30 total units through multi-family properties in the next 2 years with a JV partner.

JV Structure: 60/40 split. Jv partner gets 60% and my company gets 40%.

My roll would be to find the property, perform due diligence (cover costs), manage the property manager, inspect when necessary, make repair/operating decisions, and provide monthly statements and updates. 

JV partners roll would be to provide funds for down payment, fund operating account (15% of gross rent), fund mortgage escrow account (if bank requires one), and cover closing costs.

We will open an LLC/LLP to purchase and manage the property through.

Property: Triplex with FMV of $145,000-$155,000 range. Gross rent is $26,400. I have not seen the inside of this one yet. But this is a typical deal we have been coming across.

     Purchase

Price                                $120,000 

Down payment            $30,000 (25%)

Closing costs                  $6,000 (5% estimated)

Mortgage escrow            $3,618 (6 months of payments)

Operating account          $3,960 (15% of gross rent) 

TOTAL initial investment $43,578

Expenses

Taxes             $957

Insurance       $800

Management  $2,640 (10%)

Utilities           $900 (sewer and common area)

12% misc       $3,168 (covers repairs, lawn, snow, etc)

TOTAL           $8,465

Mortgage

$90,000 balance at 5.25%. 20 year amortization. 5 year balloon. $7,236 ($603 per month). I am looking for 30 year fixed financing as well. 

60/40 split

$26,400(gross income) - $8,465(expenses) - $7,236(mortgage) = $10,699 Net (pretax)

60%= $6,419 which is a 15% cash on cash return from the initial investment.

40%= $4,279 for my company. 

Questions: Is this something you would present to a JV partner? How is the structure of the deal?...is there an easier ways to structure/operate this? Are there numbers I am not factoring in? How would you go about asking a potential JV partner? Thanks for any insight on this process.

What size is he looking for? I always come across small multi-leads (2-4 units).

Congrats. What type of financing are you planning on for 35 properties? Cash? portfolio lender? BRRRR method? I have roughly the same goal of 30 properties in the next few years and the hardest part for me is finding the correct financing to make that happen.

Franklin Mint Credit Union in Wilmington does a lot of in house loans from what I have been told. However, I have not closed a loan with them so I can't say too much about them. Fulton in Newark also works with a lot of investors.