All Forum Posts by: Michael Thach

Quote from @Melanie P.:

Quote from @Michael Thach:

Quote from @Melanie P.:

Quote from @Michael Thach:

Quote from @Melanie P.:

Quote from @Michael Thach:

Quote from @LeeAnn Owens:

Do you live near your investment properties? I'm pro-multi family for a few reasons. My multi family is 6 hours away from where I live, and I would have no idea what was going on there if it was an SFR, but I have 3 families there who will all tell me if something is going on. When (good) tenants share a space with other families/renters they are more likely to keep up on exterior maintenance (which is the tenants responsibility per my lease). I can also have 2/3 units empty and still cover most of the mortgage.

I think that for you investing in a multifamily would be a great idea, but you should maintain the diversity in your portfolio. Pull equity out of a few properties if you can, buy a 3-4 family to get your feet wet rather than jumping right into a 9-unit. 

My backround, started with SFH and duplexes. Still own 11 of this and start to buy commercial multifamily properties to do MTRs. Got about 15 and manage another 10-12.

Understand the following. Commercial real estate are not based on comps, but on Net Operating Income and Caprate. If you buy your property with 1.7m and the net operating income is 120k / year and you can double it to 240k / year , you would also double the 1.7m to 3.4m. This is when you bought it for a reasonable CAP Rate and sell it for a reasonable cap rate. I am speaking of 5.5% Cap to 6.5% Cap rate range.

My honest opinion.... SHF is a slow appreciation game based on economy, location, timing... commercial multifamily with MTR and STR is forced appreciation game within 1 year. The appreciation will be what you put in. Commercial multifamily for value add investor is a fair game, you get paid what you put in. You might need few months to convert those long-term rentals into MTR and STR, then you operate those 12 months, to collect a T12 ( trailing 12 month ) for the next investor and you will sell a cashflow turnkey ready product to the next investor.

This is not true for lower-priced commercial properties. The cap rates are all over the place on properties that trade under $5 million. And there is no guarantee that if you buy a small commercial or small multifamily at a 6% cap rate that you'll get a 6% cap rate on sale. ESPECIALLY when you just bought a  year prior for half of what you're seeking now. I see small commercial in the same city that trade between 5% and 18% cap rates because net income isn't the only factor for small investments where the owner may do a portion of the work to operate the property and the buyer will use employees. Every buyer evaluates these properties differently. 

I did it before. So you say that in your city if I buy a multi-family for a 6% Cap and I double the NOI in a T12 I have to trade it for a 18% Cap ? Which City does that ? Show me 1 real life example.

There are less drastic trade rates example from a high end multifamily with a 5% cap converted into a hotel and then trade with 8%-10% cap, but this is not what I am doing. I am not changing it into an hospitality project. 

 You, "did it before?" Cool story , bro. Share details with me please and prove me wrong. You can do so privately and I'll come back here and apologize. I cannot tell you about transactions that have not occurred and will not occur because they exist only in your fantasies. 

First your claim was your background is SFH and you were "start to buy commercial multifamily,,,:" Now you've had a 100% exit in a year but forgot that when you were making up your first story in the thread. You also seemed confused about how many units you own and how many you manage. Other than wasting the time of actual investors what does coming here and making up lies do for you? Kill time? Why not learn the material here and do something with it? Study instead of acting the clown. Let's see a couple years ago you were "room hacking" and have never worked for anyone else in your life because you're a "businessperson." LOL! It's like you read a lot of marketing for syndicators and then spout it as your own story.

Since you've made it clear you don't understand what a cap rate is and so this can be both humiliating and educational I will explain. Cap Rate is the expression of what a property's closing price was in relation to its NOI. Unlike a 300 unit apartment complex the NOI of smaller commercial can and will vary significantly from year to year. You can double NOI just by reaching full occupancy sometimes that doesn't mean that you can now sell for double. Commercial buyers ABSOLUTELY use market comparables - comparable rents, neighborhood comps, sales comps. When you buy a commercial property you know what it's cap rate was at the time of that sale only. When the next sale happens you take the NOI from the prior year and divide it by the sales price and that is the new cap rate.

PLEASE stop wasting our time here with this nonsense. You can't feel good spending your free time as a liar. Grow up.

I don't want to botch this tread but the question of the tread is " Should you transition into multifamily ? " The answer is a clear yes and also transition into commercial. 

I understand that the claims I am doing here without a clear case-study and personal sources can lead to scepticism. Which is perfectly fine and healthy as an investor because at the end of the day, we all want to learn and share strategies which are working. 

So let use two of my examples. Why it's better to do multifamily, especially commercial multifamily. 

https://www.zillow.com/homedetails/604-Cragin-Park-Dr-Las-Ve...

This property got acquired 2022. 

453k Purchase, 20% down = 90.6k + closing cost of around 4k. 

Renovation to 5 units MTRs. Total renovation cost 120k and took us 5-6 months. 

This is how it looks now. 

https://airbnb.com/h/ind3

https://airbnb.com/h/ins5

https://airbnb.com/h/far2

https://airbnb.com/h/japa288

https://airbnb.com/h/eng4

From the booking calendar, you can find out that all are booked, you can also see the rates. If you subtract airbnb fees, management fee, tax, insurance... you see that this property is making 4-5k in monthly net cashflow after all expenses. 

This investment will be a good investment for most investors. 210.6k down and around 50k return per year after renovation is a 23.7 % return, cash on cash. Downside of this type of investment, is difficult to sell, after you divide them into 5 units, even with permits and general contractors, it will be hard to sell to a family. The issue is, if you want to sell it to the next investor for 700-800k it's not possible unless they pay in cash. No lender will give a loan out for that amount because residential single family houses and multifamily are based on comps. Meaning what did a similiar house in the neighborhood sold for. The valuation is not, " how much is the property making ? "

This lead us to the second example. Which I own with partners. 

https://www.loopnet.com/Listing/1321-Kari-Lee-Ct-Las-Vegas-N...

Is a 5plex, bought for 

710k, 30% down with a DSCR loan with interest only, means 213k down payment + 5k closing cost.

NOI is around 40.5k. Caprate is 5.7%. (40.5k NOI / 710k Purchase price ).

We spent 12k to buy out long-term tenants to start a renovation process. From the picture you can see the condition, inside was pretty much the same. We spend around 205k and 5 months for renovation. New roof, new AC, new windows, new paint, new flooring, appliance, furniture... simply everything. 

Total cash in the deal is 435k. 

Of course lets back it up with proof. 

https://airbnb.com/h/modernmadrid

https://airbnb.com/h/mtm1316b

https://airbnb.com/h/tropicallv

https://airbnb.com/h/stmt168

https://airbnb.com/h/1320ekarilee

From the calendar, you can see that the booking is strong, everything is booked. From the nightly rates you can estimate the monthly income, minus tax, insurance, cleaning fee, ect. ect. To make life easier have a look at the year end statement. Upper part is management fee. Lower part is payout to investors. 

Partly of 2023 we had to do construction, so this is not the total income but it's a big part of it. Approx. 85%. 

New net operating income will be around 81k. I want to point out to anyone who is reading this post to make the following very clear, each quarter in cap-rate is a big difference in property price. 

I let every investor decide, what the CAP-rate should be. A property which made 40.5k in NOI is now making 81k and got improvements worth of 210k. Is is worth a 18% caprate like above mentioned for 450k ? Or can we assume that the cap-rate stay the same for 5.75% caprate for 1.4m ? This is something each investor need to ask themself. For what price would you sell the property with this performance and with 205k in capital improvement invested ? I doubt that any one will sell it for 8% Cap at 1.012m, this would meant just slightly profitable. No investor in their right mind will spend 5 months of construction work to be breakeven after 2 years. I really hope that this breakdown shows how important cap rates are, each quarter points mean thousand of thousand of dollars.

Commercial real estate broker are confident being able to sell it between 5.5% to 6%. 

So when I said double initial investment. The math behind it is this. Selling for 1.408m - 6% closing fees, agent fee, transfer tax, title and those kind of stuff. Leave us total 1.323m. Paying off interest only loan of 497k. Leaving us with 826k. We invested 435k, leaving 391k in profit. Don't forget 1.5 year of holding time is generating about 60-70k in positive cashflow which gets distributed quarterly. So each investor more than doubled there investment. 

It's possible to sell it with a T12 to the next investor but it would caused paying capital gain tax, so it can be hold for 2 years to avoid this.

Back to the question of someone should transition to multifamily and I suggest to commercial multifamily is a clear yes, because the exit plan is beautiful. 

I hope investors here understand what happened here. It worked for me, it will work for you. This forum should be about sharing. The market is big enough for all of us. Even after this model is saturated, there will be other models to invent and follow. Real estate is easy, based on simple math. The art is to create value and not squeezing out tenants. I am big believer of being an " add value investor " and not being a slumlord. 

If anyone got questions, need more info let me know. Always willing to share. 

 Any plans on getting the units licensed? The city WILL find out about them eventually.

We are doing +30 days, which is considered MTR... totally legal. Wouldn't post here if it's something sketchy. 

 All of the above options I read here are options which can be taken. Just read about Deferred Sales Trust... I don't think this wise to avoid tax to take installments pays in exchange. 

Depending on person the lump sum of the sold property invested will make more over the years what you save in taxes today. 

Another post suggest, taking out equity to the limit where you have to pay taxes and to the level where rent payment is covering the equity taken out make sense. But this is kicking the can down the road. The house will appreciate and if the kids inherit the property, they will be stuck in the same situation. 

As some already suggested. Selling it, paying the taxes, invest the rest in a good portfolio, using that income to rent something or buy something nice is the way to go here. Don't make life difficult, saving 100-200k in taxes is not worth holding 2m hostage. Free that 2m and let them work. Those 100k-200k is are recouped in no time.

This is very true. I agree with this. But this requires different knowledge, experience, team and involvement. In my case I would do commercial multifamily turned into MTR. There is just so many ways to make a deal profitable. This is the beauty of real estate. Someone might just see an abandon unprofitable property, some will see a goldmine after repair and STR. Different knowledge, skillset and personality will lead to different results in the same situation.

 This depends very much on personal preference. Do you want to learn real estate and have a word to say ? Having it under your control is what I prefer but I have investors who like me to manage their investment. They are mostly high earning income individuals who don't want to spend the time and headache involve.

Return wise, both will make most likely about the same if they are manage to their full potential. So is also very important to compare who is the property manager and who is the syndication team.

 This is very true. One thing which holds true is that the people managing the retirement funds know not much than we do. Otherwise we wouldn't have retirement funds restructure and renaming them every 15-20 years. It's better to care for your own retirement fund, I am pretty sure most of us will do a better job. 

Keep in mind that retirement funds are managed too, big investment companies like Blackrock, Goldman Sachs and Co are tapping into those funds to fund their deals oftentimes unfavorable for the retirement fund. The person managing it, is a goverment employee it's a sheep compared to deal makers of investment companies. 

 Happened to family members of mine in freeport. Damage was 35k. If they are licensed and you have a written contract is possible to try but in most cases putting up 5k in retainer for an attorney, going back and forth for months and +1 year to settle for 15-20k... is it worth the hassle ? 

Some attorneys will tell you straight up " don't through money after bad money " ... I know it hurts... but end of the day family members did not sue. 

" Just capital return " sounds not favorable for limited partners. Did they determine the IRR and how much they give to Limited Partners before they share ?

As suggested you can pull out public records from the recorders office from the county. Mostly is like dad or mom bought the property, " selling " gifting it to children because they won't qualify. it also happens between couples or married couples dealing a divorce. Is nothing so crazy or out of the norm. 

 Sounds like a very solid investment. It's good to be the " little guy " on the street, this means the other properties are making the heavy lifting. As you mention... this investment is not so much about the $400 cashflow but appreciation over time. Is a solid long-term strategy. With interest rate falling, I see home prices rising at least 5% for each 1% of interest drop. 

I don't want to botch this tread but the question of the tread is " Should you transition into multifamily ? " The answer is a clear yes and also transition into commercial. 

I understand that the claims I am doing here without a clear case-study and personal sources can lead to scepticism. Which is perfectly fine and healthy as an investor because at the end of the day, we all want to learn and share strategies which are working. 

So let use two of my examples. Why it's better to do multifamily, especially commercial multifamily. 

https://www.zillow.com/homedetails/604-Cragin-Park-Dr-Las-Ve...

This property got acquired 2022. 

453k Purchase, 20% down = 90.6k + closing cost of around 4k. 

Renovation to 5 units MTRs. Total renovation cost 120k and took us 5-6 months. 

This is how it looks now. 

https://airbnb.com/h/ind3

https://airbnb.com/h/ins5

https://airbnb.com/h/far2

https://airbnb.com/h/japa288

https://airbnb.com/h/eng4

From the booking calendar, you can find out that all are booked, you can also see the rates. If you subtract airbnb fees, management fee, tax, insurance... you see that this property is making 4-5k in monthly net cashflow after all expenses. 

This investment will be a good investment for most investors. 210.6k down and around 50k return per year after renovation is a 23.7 % return, cash on cash. Downside of this type of investment, is difficult to sell, after you divide them into 5 units, even with permits and general contractors, it will be hard to sell to a family. The issue is, if you want to sell it to the next investor for 700-800k it's not possible unless they pay in cash. No lender will give a loan out for that amount because residential single family houses and multifamily are based on comps. Meaning what did a similiar house in the neighborhood sold for. The valuation is not, " how much is the property making ? "

This lead us to the second example. Which I own with partners. 

https://www.loopnet.com/Listing/1321-Kari-Lee-Ct-Las-Vegas-N...

Is a 5plex, bought for 

710k, 30% down with a DSCR loan with interest only, means 213k down payment + 5k closing cost.

NOI is around 40.5k. Caprate is 5.7%. (40.5k NOI / 710k Purchase price ).

We spent 12k to buy out long-term tenants to start a renovation process. From the picture you can see the condition, inside was pretty much the same. We spend around 205k and 5 months for renovation. New roof, new AC, new windows, new paint, new flooring, appliance, furniture... simply everything. 

Total cash in the deal is 435k. 

Of course lets back it up with proof. 

https://airbnb.com/h/modernmadrid

https://airbnb.com/h/mtm1316b

https://airbnb.com/h/tropicallv

https://airbnb.com/h/stmt168

https://airbnb.com/h/1320ekarilee

From the calendar, you can see that the booking is strong, everything is booked. From the nightly rates you can estimate the monthly income, minus tax, insurance, cleaning fee, ect. ect. To make life easier have a look at the year end statement. Upper part is management fee. Lower part is payout to investors. 

Partly of 2023 we had to do construction, so this is not the total income but it's a big part of it. Approx. 85%. 

New net operating income will be around 81k. I want to point out to anyone who is reading this post to make the following very clear, each quarter in cap-rate is a big difference in property price. 

I let every investor decide, what the CAP-rate should be. A property which made 40.5k in NOI is now making 81k and got improvements worth of 210k. Is is worth a 18% caprate like above mentioned for 450k ? Or can we assume that the cap-rate stay the same for 5.75% caprate for 1.4m ? This is something each investor need to ask themself. For what price would you sell the property with this performance and with 205k in capital improvement invested ? I doubt that any one will sell it for 8% Cap at 1.012m, this would meant just slightly profitable. No investor in their right mind will spend 5 months of construction work to be breakeven after 2 years. I really hope that this breakdown shows how important cap rates are, each quarter points mean thousand of thousand of dollars.

Commercial real estate broker are confident being able to sell it between 5.5% to 6%. 

So when I said double initial investment. The math behind it is this. Selling for 1.408m - 6% closing fees, agent fee, transfer tax, title and those kind of stuff. Leave us total 1.323m. Paying off interest only loan of 497k. Leaving us with 826k. We invested 435k, leaving 391k in profit. Don't forget 1.5 year of holding time is generating about 60-70k in positive cashflow which gets distributed quarterly. So each investor more than doubled there investment. 

It's possible to sell it with a T12 to the next investor but it would caused paying capital gain tax, so it can be hold for 2 years to avoid this.

Back to the question of someone should transition to multifamily and I suggest to commercial multifamily is a clear yes, because the exit plan is beautiful. 

I hope investors here understand what happened here. It worked for me, it will work for you. This forum should be about sharing. The market is big enough for all of us. Even after this model is saturated, there will be other models to invent and follow. Real estate is easy, based on simple math. The art is to create value and not squeezing out tenants. I am big believer of being an " add value investor " and not being a slumlord. 

If anyone got questions, need more info let me know. Always willing to share.