All Forum Posts by: Michelle Mercer

Quote from @Henry Clark:

If I misstate something or don't couch the statement in softer terms, I apologize ahead of time.  Don't know your full background.  I won't dance with my terminology.  Going to do this in bullet format.

1. SFH/MFH valuation is different than Commercial non residential. SFH/MFH is very much sales Comp based. Commercial non residential is more Cap rate based (which we don't use) and lease contract based (terms N/NN/NNN; term length and remaining; etc).

Action- as noted above, have your lease contracts reviewed by an attorney or Commercial broker.  Understand their weaknesses and strengths.  Your commercial asset is truly worth only what your lease contracts contain and the strength of the lessor.  Not the cost of the building. Understand the strength of your lessors. For an SFH/MFH you potentially have 1,000 potential renters or buyers. For Commercial you might only have 5. Your vacancy exposure is far greater. Perform stress tests on your business model. Dropping 1 of the tenants for a year or lost revenue. Have a commercial Realtor review those three tenants as far as their strengths.

2. Bank terms SFH/MFH is usually 15/20/25/30. Commercial has amortization periods of those terms but usually a 5 year balloon period. If you're on real good terms with your bank and both your personal and business guarantee is highly positive, they may give you 7 year period. 3 year balloon payment, your Bank has a question or wasn't being friendly. Ask them why they only gave you 3, they should give you 5 without you asking.

Action- find out why they only gave you 3 years.  Stress test.  Wait till you have 3 months before your 3 year period is up.  How much bandwidth do you have or bargaining strength to move banks or refi with your current bank.

3.  Use the lookup functions.  Read everything with @Joel Owen. 

4.  Financing- Understand why you got 6% from a business approach.  If you're going to do Commercial Syndications as noted in your Personal profile, you don't want your financing based on your personal assets or businesses.  Maybe to get started but not long term.  

5. Financing- per your personal profile, your sourcing funds from overseas. Make sure there is a hard Vetting process for your deal or buy box strategy. There is no one on BP or myself, if we didn't have previous CRE experience I would trust with a $1.75mm deal. Realize the original point of your post is to develop that background. But I question your ease of funding source at this stage of your entry. So, this is not taken personal, I wouldn't trust myself on my first CRE deal for more than $200,000. There are a lot of things that can go wrong Big and fast in Commercial versus SFH/MFH.

6. Buying at 11 cap. Understand why. What are terms of leases? What are Capex items coming up? EPA/Abestos/Brownfield issues? Property Tax impacts?

Congrats. Your deal and financing are truly great.  Just understand why.  That is part of your future deal analysis.

These are SO great. Thank you! Truly appreciate it. I talk really direct to people and I love when people talk directly to me without dancing around. Please keep doing so. 

I know couple answers to your questions. I’m not confident/experiences to know if these make sense. Please evaluate. 

honestly I felt it’s pure dumb luck why we had this deal. Several things happened at the right time. 

I’ve been looking for a warehouse space for my other non related business for over a year and couldn’t find anything. I posted on FB to see if anyone has leads. Then someone (a commercial realtor, not representing the seller) from Facebook, sent me this property for sale that has one vacant space. The original plan was to purchase it and have my business occupy the vacant unit. But after doing the numbers, and realizing I can’t do SBA since doesn’t meet 51% occupancy requirement, I felt this is a really good investment. I didn’t intend to purchase it as an investment. 

1. I’m okay familiar with commercial valuation process. not an expert for sure. But I did have business buying and selling experience, I felt it’s similar. 
North GA Forsyth county markets calls a 6.5-7 cap now for industrial. Based on our current leases with all three units filled, the property should be valued at 2.6M, our leases are weaker (see below) so I’m not surprised it appraised at 2.4M. 
but when we bought it since it’s 1/3 vacant with lower rent, based on market’s 7 cap, it should be valued at 1.9M, which is how much it was listed. we bought it 1.7M but with pretty strong bank commitment letter and we offer to close super quick, in 45 days. I know they received way higher offers. And my bank indeed closed in 45 days. At closing, seller mentioned they needed the money to help other business’ cash flow. So I felt the 45 days closing helped me getting the deal? 

2. Our lease terms are not great. One of the tenant is actually seller lease back for only 1 year with options to renew after year 1 with 5% increase. We negotiated but they did not budge. Other two tenant are 3 years (the existing tenants) and 5 years (the new tenant we put in). So bank only went with 3 years term. Otherwise bank would go with 5. It’s 15 years amortization. bank will renew the loan with 0.5% fee after 3 years terms end if new leases are signed. 

I’ve talked to my investors about this, since bank gave us 6% (so cheap) we went with maximum bank is willing to lend. If they really don’t wanna not renew the loan, we together have the capital to just pay the balloon. If all my investors back out, I will sell some of my assets to pay it off. 

at the same time, vacancy rate for this type of building in the county is ridiculous, like 1% in the city and 3% in the county. I’m a business owner and I’m looking for a 2000-6000 sqft small flex/warehouse for my business for over a year, it’s been hard.

3. Leases: Georgia NAR (they call it GAR) actually has standard forms written by lawyers, used by realtors. There are standard forms for commercial realtors too. I used my FB commercial realtor for this whole process. I like him. Young, high energy guy. Hungry for business. He’s rather inexperienced but he’s the only one willing to work for me…I’m a newbie buyer. I asked his broker to review everything including insurance, TI, CAM etc, and I met with the broker several times. His broker is really well known for the area makes millions per year in residual commission. I can’t get that guy to show properties the same way this young guy did. I want a guy experienced like that to work for me though…it seems hard. Any suggestions would be appreciated. 

5. Investors - all family and friends known for long time, all accredited, all invested very small percentage of their assets into the deal. I need to correct my profile. They are not REALLY oversea people, they are US citizens/greencard holders but they are ethnically minorities, English is not first language and they weren’t born and raised here. We share same culture background.

These people used to buy those CA/NY homes with cash or buy investment with negative cash flow hoping it would appreciate…and filthy realtors would really took advantage of these people. But I helped them to realize there are other RE markets besides CA and NY…I coached them quite a bit with their RE investment (for SFH side), without getting any commission, consulting fee of any sort. I used to have realtor license but I don’t take clients. I gave business to others. Truly helping these folks for free. 

Most of them started investing in cash flowing RE because of me, and majority of them now own 5+ single family rentals now and already made good money with RE investment with my strategy. I’m a newbie in CRE but I’m pretty experienced SFH LTR investor. 😂 They trust me. I don’t have doubt about that. 

I only needed $600K downpayment but I actually received $1.5M verbal commitment within 24 hrs after I mentioned the deal in a private group chat. I had to reject a lot of people even. 

that to be said, I invested the most. I own 50% of the warehouse, 30% are from sweat equity, 20% my personal saving. Other investors owns 5-10%. I didn’t charge any syndication fees or even asset management fee, and I didn’t do a water fall, just did an equal split. So my investors are getting 9% on the dividend side and no cap/limit when we exit. I think they got a good deal too. 

Legal- I literally searched syndication lawyers on BP and I used one guy from <crowdfunding lawyers> to draft coupe hundreds of pages, multiple documents and filed with SEC and all that. I think I’m covered?? But honestly I don’t know much about syndication besides what my lawyers taught me..yet I already did one, and this contribute to my uncomfortable unconfident feeling.

not sure if anything above makes sense…I really felt it’s either dumb luck or its too good to be true and there’s a catch I didn’t know about, and this made me feeling very uneasy about the whole thing. I want to learn AS much as I can to get rid of this feeling.

Please, poke holes. I want that. 

Also, since you are a builder, i want to ask for some suggestions. I really hope to be a builder, for industrial multi units properties…we have such shortage of those, my network has a lot of business owners I can rent these to. in the immediate term, I want to buy land and build one for my own business. any good ideas how should I start to learn about new construction or being a builder?? I have a commercial contractor with connections in the county that already did some great work for this warehouse  

I do have another question also about CAPEX and reserves…building has a new metal roof, it's industrial mental frame, metal beam, shell condition flex/warehouse, no HVAC, NNN leases, new septic. I'm paying to converting it from well water to city water and fixing the parking lot broken concrete. But after that, I have a hard time thinking how much money I need to save for capex? Those mental beams should last longer than my life, those new metal roof should have 50 years on them?

And how much money I need to set aside for reserves in case of vacancy. Again, as long as  2/3 of units get rented, our mortgage is covered. And our leases ending for three tenants are 1 year; 3 year and 5 years. So not at the same time. Currently on the market there’s low vacancy rate but who knows if we go into a huge crush and all three of them went belly up (they all have been in business for over 10 years

At first I thought 12 months worth of mortgage as reserve but my banker said he thinks 6 months. Thoughts? 

I just went to visit Juneau this summer, for pleasure and for business. And decided not to invest. I can share some of my perspective. 

So I’m an investor in Sun Belt, I own OOS properties myself. I do commercial real estate. I currently have $1M project ready capital, not 1031 money, just some capitals sitting there. So I’m looking for a new deal. In short, I’m someone you want to convince to partner together. 

Share my two cents, though I have OOS properties, AK is way outside of my comfort zone, there’s a reason why cap rate is very high. When I visited, it reminds me those out of no where little coal mining town in PA or Midwest. They cash flow well but when you add in appreciation, Sun belt still performs better. 
The city is full of seasonal workers. 2/3 of the population is gone during winter season. It’s really hard to find a good property management team. It’s one of those small towns where everyone knows each other. If I would be the equity partner in this deal, I need someone with LOCAL resources, knows the ins and outs of AK. When I visited and talked to some of the locals, it’s like a different world, he talked about something like doing one grocery trip once a month and eating McDonald was a huge deal for people. The whole management thing made it really hard for me. 
I live next to a Delta Hub, and direct Flight to AK is still only one per day during summer ONLY and can cost $2K, or spending 10+ hrs to flight non direct (I could’ve flew to Europe with that much time) and vs right now if I need to fly to my OOS properties, it’s $200 on southwest. 

The headache of managing it, the low appreciation, all makes the cap rate not as attractive as it looks. 

That to be said, if you have anything in FL, let me know. 

I don’t particularly care about multi families. But multi units industrial is what I do. 

Quote from @Henry Clark:

At your next refi you want 5 year or 7 year period not 3.  Too much risk with a 3 year term.  

If your lease tenants leave, appraisal goes down, or interest rates go up, this puts stress on your refi.  

At year 2 I would refi.  Don't wait. 

I might be too naive here. But interest wasn’t a concern of mine since I financed it in the worst time possible and still got a pretty good rate. 

I had a pretty good relationship with my bank. I have a small business not related to real estate that generates about $2m/year; I also introduced him couple 7 digits businesses, so bank loves me for that.

When I needed the financing for this piece, they gave me 6% interest rate, half point,  prime was 8.5%!!

I did have to put in a personal and business guarantee. I don’t see the interest hike up too much more from what we are now. I don’t want to refi early to kill the relationship with the bank. I mean…they did gave me prime minus 2.5%…

Also, we bought the property at 11 cap as is without improvement, our rent currently is actually a bit below market so we can get tenants in before closing. If we do go for market rent, we shall be able to reach 12.5 caps, so even if interest does go up even further, we shall be able to handle.

Anything I’m missing? I want to hear all opinions. This is the part I feel im too inexperienced to manage confidently 

Quote from @Henry Clark:

Start a checklist.  Keep adding to it. As you have time start learning about each one.  

Congrats on your deal. Here are some bullet points to add to your checklist to learn.

Zoning

Planned zoning

EPA

Abestos

Dissect your contract.

NNN- what are they or you responsible for?
Hvac

Roof

Driveways

Parking

Just like housing, you need to set aside or budget for Capex.. Your $180k cashflow is not true cashflow if you don't factor in Capex. Get quotes on all your Capex items. Get replacement age on each.

Lease-  have a commercial realtor review.  
Your property is worth what it leases for and for how long.  By itself it loses money.  Key is your lease.

Evaluate the type of customer.

Do a stress test.  If you have 3 tenants take each by themselves out for 1 year. 2 years.  

Insurance-  what coverage do you require tenants to have?  Are you listed as additional insured?  Has to be renewed every year.  Have your insurer review their coverage.  What is your exposure.  If I slip in the shared parking lot who is responsible?

Insurance- personal property coverage

Insurance- clean up cost

Insurance- both you and tenant, Business income loss coverage

Fire systems- joint systems, who is responsible?

Signage?

Billboards?

Exterior lighting?

Security systems?

Easements?

Flood zone?

Sit down with a Commercial realtor and go through a normal due diligence process.

Look at your three tenants.  Develop a value add plan by unit.  Example is o e side on a retail road, or can you slice into 2,000 sqft spots for $1 per sqft per morning or more?  

thanks so much for this starter checklist. Indeed a lot of things to think about. 

Quote from @Jamie Bateman:

@Michelle Mercer I took the time to provide two detailed responses for you (and others) but for some reason my posts were taken down by the BP moderators. Instead of adding value here, I'll have to request you go through my Labrador Lending website and I can send you the two PDFs (that I had converted to PNGs to meet the BP-forum requirements) that we prepared for the 2023 events. I have no connection to any of these events. 

Hi Jamie
Thanks so much for spending the time posting the replies. I sent my info via your site. Hope you hear from you soon.

I invested in NEO - Cleveland OH/Akron OH area in 2014 and left there in 2020, 1031 most of my properties to North Georgia. I still have 2 doors there.

NEO has good cash flow, but low appreciation, high tax, it's harder to set up your team, not many resources. 

When 2020 hits, I 1031 exchanged most of my OH houses to North GA and later 1031 into commercial properties.

What I found is 1% rule doesn't really matter that much. A 1% OH house will cash flow similar to a 0.75% sometimes 0.6% GA house (depends on the interest rate) due to property tax.

One example, I had a house in Solon OH. It was sold for $375K, people who bought it paid 20% down, monthly payment is $2200/month. Property tax was 9K/year. The rent was $3000/month but with long vacancies. $3000/mon is considered very high end rental. It sits on the market for 2-3 months. In the 7 years I had it, on average I make about $300-$400/month. That house appreciated to $430K now. If they would want to refi and take equity out, they can take prob $45K.

I sold that house and 1031 into a house in Johns Creek GA for the same $375K, way smaller land, not as nice of a house, but same good A+ school district, PITI was only $1700/month, because property tax was $4K/year. The house used to rent about $2200/month, but it gets rented out within the first day of showing. You also make the $300-$400/month. But now, after all that people flood to GA, the house is rented at $3500/month, and also gets rented within first week of listing. Finding contractors, property managers, lenders, realtors are all super easy. Also, this house now worth $700K. I just opened a HELOC and ready to purchase with cash. I have a line of $375K (compare to OH's $44K). And I'm buying another commercial property that will generate me about $3500/month cash flow NNN.

My GA rental definitely outperformed my OH ones, at least in the past 4 years.

I love N GA so far - lower property tax, more population economic growth. I'm not sure if there are still neighborhood pockets where you can cash flow well anymore...but in general, investing in sun belt line where population and economy is growing performs better than Midwest.

FYI, the example above are for the "livable class A rental" - not the typical rentals I buy. I usually buy in Class B-B+ rentals. For me they used to cost about $100-150K. and for GA, it used to costs like $180-$250K..but I don't believe you can still buy these cheap houses in ATL area anymore, there might still be cheap houses to purchase in NEO (again, they don't appreciate that much at all).

Hi all,

I've been investing in real estate for 10 years, mostly BRRRR in Midwest and Georgia, STR in TN/NC, and recently bought an industrial warehouse in GA. I got it by accident and not really sure what I'm doing next. I want to learn it more systematically so I can feel more confident. Any books, courses, strategies, suggestions will be appreciated.

Deal:

It's a 3-units M1 property listed at $2M, bought it for $1.75M three months ago. Leased it out prior to closing. Appraised at $2.4M after leasing, so instant value add of almost $700K. 

Financing from a regional bank, $620K downpayment, 5.99% rate, 20 years amt, lock for 3 years w/ personal & business guarantee. It's been cash flowing nicely - rent comes in at $180K NNN, mortgage is $98K. That cash flows better than my SFH deals and it seems to be easier than SFH LTR.

I'm managing the property myself. Honestly so far I've done nothing besides just paying the TI to my tenants and collecting CAM each month in addition to rent...My CAM estimate is way off, so what I collect is low. The tax & increase bill increased a ton this year from what I got quoted to what it ends up with. I also didn't realize how much hassle it's going to take for simple things like adding a water meter...

My goal is to get into development - building industrial warehouses each 3K-10K sqft, very similar to this deal.

Questions:

1. What should I be aware of? Is it really little to no work like now?

2. Is there any crush course/in person program trainings for me to learn, so I can do it more systematically?

3. I'm searching for my next deal. Since I'm really new to Commercial Real Estate, I want to find a broker that has investment experience that's able to guide me through...what is the best way to find these brokers? I'm in North GA area.

Hi all,

I'm a new to Note/Tax Lien investing. I've been investing in real estate for 10 years, but mostly BRRRR, Short Term Rental in Blue Ridge mountains, and recently syndicated an industrial warehouse.

I know absolutely nothing about note/lien investing, and I'm trying to find a several days crush course on it.

I searched and found papersource seminar, note expo and Diversified Mortagage Expo. Is there anything else I can attend?

For books, I have 16% Solutions, BP's RE Note Investing book, anything else to add to the list?

Thanks in advance

Originally posted by @Aubrey Prado:

Hello @Michelle Mercer! I currently live in NM and hold properties both in Ohio and NM. I lived in Johns Creek for 20yr of my life until I moved away for the military 6 years ago, but I visit frequently. Johns Creek is a very upscale area, with tons of country clubs and golf courses. With that comes high property costs, but also very very little crime and good schools. There is also a strong tech industry presence in JC. I went to a few good private schools in the area and am intimately familiar with the private schools around north GA if you are looking for some insight. I do not know of any MFH in Johns Creek aside from a few new apartment complexes that have been built in the last few years. It is a great place for a forever home. I do not know the typical rent/value ratio in JC, however I do know that it had one of the top 10 highest average rent increases of any city in the country for 2018. If you are looking for slightly lower class rentals in the ATL suburbs, Marietta has tons of MFH and renters, however it does have more crime and worse schools. Marietta houses a few military bases as well as a college campus. If you would like more insight from a local/on good private schools for your kids feel free to DM me. 

 Thanks so much for your insight. 

I've only been talking to couple people and researching online for couple weeks. I think I want to get rentals started in Duluth, Suwanee area, and live in Johns Creek. The property price is higher, but with the lower property tax, I'm basically making the same monthly payment as my current primary resident in Ohio! It's so insane to think about it.

Originally posted by @Curt Smith:

Hi Michelle, A general help on strategy read my paper on buying rentals, linked off my profile 1st paragraph, How To buy a bullet proof rental portfolio.

A 2nd help is if you are serious about setting up a system, team and set of local peers, you should consider joining the local REIA that I ended up choosing for all my local support, contractor referals, legal helps etc. GaREIA.com has a unique resource a google group for deal makers, full timers who help each other over an email list. And a new investor group where folks help each other with where to invest issues and how to.

Agent;  find listing agents from actual listings.  Go to realtor.com find deals you like, scroll down and see "presented by" then call and verify they are the listing agent.  I bought 99% of my rentals off zillow and realtor.com email alerts NOT by using a buyers agent.  I only delt with the listing agents directly and .... they told me / helped me beyond what you'd get via a buyers agent.

FWIW I like helping new investors buy their first rentals.  So they too can say "I quit" and go full time.  

Your target audience is so similar to ours! Dual income hard working blue collar, stable financial people. For my portfolio in Cleveland suburb, I bought houses in school ratings >7 (our schools are GA schools seems so different, I stay away from school rating 5-6). I'm visiting ATL early July, hope we can meet up! If there is any REIA events during that time, that would be perfect!