All Forum Posts by: Michael Worley

 Vacancy is a killer in all things real estate. Better to have a slightly lower rent and lower tenant turnover than trying to push rents excessively. That isn't to say you don't push rents higher, but the cost to lose a tenant if you're not at maximum occupancy is a serious consideration.

Assuming you have more than one unit available, the cost to lose a tenant can be a month (or more) plus make ready costs. Most people use a cost of 1500-2000 per unit turnover as an estimate. So if you take 1750 as the average cost, it takes almost 3 years to recoup the cost of a vacancy created by pushing the rent $50.

Push rent slowly, be behind the curve on rental rates if you're not fully occupied. 

The next biggest thing is to keep up with maintenance so as to minimize large repair costs due to negligent upkeep. The whole, an ounce of prevention is worth a pound of cure argument.

It's either long term capital gains (taxed at capital gains rates) or short term capital gains (taxed at ordinary income rates). How long have you owned the shares?

The small loan program is not limited to "affordable housing" in the sense of HUD housing projects, it is geared toward providing "affordable housing" in the sense of being apartments vs. single family homes. They allow traditional multi family projects 5-50 units and the program is geared specifically for the "mom and pop" landlord.

@Daria B.

The simple answer is that it depends on the legal description. Two buildings on one legal description is financed as one property. Two buildings on two legal descriptions is financed as 2 properties. If you want all of the buildings on one property and they are not currently platted that way you can have the city/county replat them through what's called a consolidation. You will have to pay for a plat, then a subsequent survey (the difference between a plat and a survey is the plat does not outline the structures, the survey does) to borrow money with the property as collateral. The lender isn't usually the one that requires it, the lender requires a title policy and the title company won't issue one without the property survey.

As for the financing, you can finance Multi Family properties with Fannie Mae but will likely have to go through their small loans program for this scenario. You can have an unlimited amount of Multi Family loans through Fannie (they are non recourse loans).

As far as if I ever run across this as a banker, yes it's not uncommon. Any banker worth their salt can give you all the information they need in order to make a credit decision. If it's a commercial loan, ask the banker to do a site walk with you after you give them the financials (assuming the numbers look good, they'll want to understand the property/collateral in more detail, no point in doing it before you have some numbers).

If I may get wonky here for a moment, let me give you the banker's point of view.

By definition a portfolio loan does not get sold, the term means the lender holds it in their own 'portfolio'. The term portfolio lender or not isn't the whole story. A loan is a portfolio loan or it isn't but that doesn't mean all loans the lender does are one way or the other. More specifically you'll hear things like on balance sheet (portfolio) or off balance sheet (sold to a third party) financing.

As a banker I can bore you with more details if you want, but I think the big take away is to learn to understand the jargon. The reason is that if you understand the terms being used, you can understand if something is in or out of context. Nothing screams professional more than someone who understands the lexicon and then negotiates using that information.

For people who listen to the BP podcast, you've probably heard (and I can confirm) that professionalism matters a great deal in the lending process.

Right, wrong or indifferent, the facts are that if you know the secret handshake of any club, you're more likely going to get a warm reception from that club. Knowing how banks operate and the context of terms you're negotiating goes a long way.

How do you know he's not factoring in maintenance? He's got expenses, which isn't broken down by line item. Maintenance is likely included in that figure already, as could be property management.

BTW - 10% property management for a MF property is highway robbery.

Any deductions you take are either Cash Expenses or Non-Cash Expenses. If they are NCE then they are add back to your income (depreciation, depletion, amortization, etc). If they are CE then they are deducted from your income because they are actual bills you pay.

There isn't any other way a lender will look at it. Lenders have different tolerances for risk, but all lenders should get to the same income / expense numbers if you are presenting the facts accurately.

FDIC insurance is $250,000 not $100,000.

There is also zero downside for any person or organization that borrows money from an institution that goes bankrupt. The loan agreement is a contract that governs the repayment terms so no bank or organization can come in and renege on those terms.

The FDIC requires information to update the Statement of Condition and Income report for all FDIC insured deposit banks in the US.

Any bank, public or private, that is an FDIC insured bank has that information available to the public through the FDIC.