All Forum Posts by: Mike Roy

I would make sure I knew the market cold before making a purchase.  Investors buy markets as much as they buy an individual property.  You want to understand whether there are demand drivers in the market that are positive for rentals.  You also want to understand vacancy rates; desirability of specific neighborhoods; and whether there is a path of progress you can get in front of.  

Remember that, with turnkey, you are paying a premium for the convenience.  Ideally, you would want to know the returns on comparable deals if you found them yourself so that you can attempt to measure that premium and determine if it's worth the price.

We prefer to provide the W/D hookups, but not the appliances themselves, in what is primarily a B class portfolio.  The purchase and maintenance of the machines can be more trouble than their worth.  If it were me, I'd move the machines you already have into my unit and just leave hookups in the rental.    

@Armando DeMarchi - If my dad had made millions in real estate, I would try to learn as much as I could from him and copy him exactly. 

With respect to your question though, I would suggest taking your due diligence period very seriously and assume nothing.  Buying your first property can be an emotional experience, and it's easy to rush and overlook things simply because you want to get the deal done.  Some of the best deals will be the ones you don't do.

@Nathan Brooks - I like to see at least $150/door to protect against the downside risk that rents could decrease or that some expense could suddenly spike, like water/sewer or tax rates.  If I'm at $150/door, I feel like some unexpected bad things could happen and still provide a reasonable chance to break even. 

That said, I also look very closely at cash on cash return, i.e. what I'm paying for that $150/door.  I think it's important to keep both metrics in mind.  If I buy a fourplex that produces $150/door, $600 total and $7,200 annual, I want to get to that number with a $60,000 investment, not $120,000, for example.

I would just note that most good deals I've seen do not provide any cash flow on Day 1.  There are usually things that need to be done on both the income and expense side to create the cash flow.  So when I consider cash flow, I look more to what the finished product will produce and what that finished product will cost.      
 

@Dave Holman - Amen, indeed!

@Charlotte Dunford - Here is what I would recommend to a new real estate syndicator:

1) Do a couple small deals on your own first.  Create some success stories, a track record, that you can share with potential investors.

2) Raise money from investors who can afford to take risks and are not putting their last dime into a deal. 

3) Educate those investors about the risks of the investment and elements of the deal that are unknown/speculative.  Investors need to know that due diligence costs money and may result in passing on a property.  Your number one job is to protect investor capital, and you should let investors know on the front end that you will do everything necessary to do that, including backing out of a deal. 

4) Ideally, you should be putting some of your own money into these deals.  Having "skin in the game" will give you credibility and make the bad deals like this easier to get through with investors if they know that you too suffered personal loss.

5) Be transparent and have a high level of communication with investors.  When things go sour, own up to it and explain why.  As a syndicator, your greatest assets are your relationships.

What happened here goes with the territory of syndication.  RE investors are rewarded for taking risk, and those risks don't always work out.  As long as everyone is on the same page and you have more wins than losses, you should be fine.

You'll get 'em next time!

Originally posted by @Julie Marquez:

@Mike Roy I would love to put it back into the LLC after financing it in my name, or is that a big no-no?

Investors do this all the time, but I would caution that it may trigger a "due on sale" clause found in conventional mortgage notes.  While I haven't heard a single case of banks actually invoking this clause, it is still a risk you should be aware of and educated about.   

@Julie Marquez - You may want to reach out to a mortgage broker that perhaps can find more competitive terms on the conventional side. My understanding is that 70% LTV on a conventional cash out refi is the norm. The rate seems very good though.

If you do place back into your name, you may want to compensate with a little more insurance or an umbrella policy.

@Brendan Stratton - @Dave Holman is a successful multifamily investor in Brunswick and swears by heat pumps as primary heating sources.  He has a lot of experience in this area and might be able to point you in the right direction.

@Kenneth LaVoie is an expert on building efficiency and has taken advantage of Efficiency Maine's numerous rebate programs to keep the winter out of his multifamily units.

I personally have separated all the heating systems in my units, mostly with Rinnais, but you can get away with that in the Midcoast more so than other Maine towns where the expectation is that heat will be included in the rent.

@Hannah Jones - Sounds interesting!  Mind sharing all the numbers?  I love hearing about these creative deals in Maine.