All Forum Posts by: Michael Yin

Thanks to everyone for your helpful and informative feedback.

I have several questions related to paying for inspections when buying large apartments (100+ units)

1. ) Where does the money come from to pay for the thousands of dollars these inspections cost? Does it come out of the pool of money that's collected from the investors for down payment, closing costs, and other transaction fees? 

2.) Are the fees paid directly to the companies performing the work before closing, or are they paid at closing?

3.)  If they're paid before closing, what happens if the deal falls apart due to inspection results? Is that money lost, and if it came from the investors, do they understand that things like that happen sometimes?

@Account Closed when I was asking what you'd add the the list of items you'd want to see when underwriting a deal, I meant the list of items I posted yesterday (that I would put together when talking to investors and lenders about a specific deal). Thanks for the feedback.

@Account Closed as a capital investor, is there anything you'd add to the list/outline I posted above that you'd want to see when underwriting a deal?

Also, is there a particular format that's commonly used for a "investment criteria" sheet, or is it sufficient to state it like this: 

• Class: B or C apartment community (not already renovated)
• Number of units: 100+
• Cap rate: around 10% or higher
• Has one or more “Value-Plays”
• No structural problems
• No significant environmental issues

@Matt Rodak We may take you up on that role-playing sounding board offer when we have the presentation ready. Thanks for your detailed feedback.

@Account Closed Thanks for the feedback. Based on what everyone else is saying, we'll be moving in the direction of seeking out investors and lenders; then the deals. Thanks!

@Steve Olafson Sounds like you're suggesting it's best to have the funding (investors and lenders) setup before looking at properties and making offers. Did I interpret that right?

@Matt Rodak We'd started going down the road of putting together a hypothetical deal. We went to look at some properties we could use as the subject (not listed, just properties close by) and visited surrounding comps, but then got bogged down on how to show rent rolls and other financials. We also wanted to pick a property that hadn't already been renovated, but we're not finding any around us. Would you have an example of the hypothetical deal package (including what you mentioned before - investor deck, financials, business plan) that you'd be willing to share?

Here's the outline we we're going to use... what would you leave out or add?

• Executive Summary: Include 1 or 2 page summary description about the deal and your plan. Highlight all the strong points of the property and the deal.
• Mission Statement: In a few paragraphs that succinctly state your purpose
• Background/Resume: Present information about yourself and your experience
• Financial Statement: List your assets, liabilities, and net worth
• Site Location: Include list of benefits, maps, and proximity to shopping and schools
• Demographics: Present information about the people living in the area (income, education, etc)
• Competitor Analysis: Determine who your competitors are and the present average rents and sales comparisons
• Marketing Strategy: Define your target market (tenants, buyers, etc)
• Financial Analysis: Include all the relevant financial data:
  • last two years of financial statements for the property
  • current year-to-date profit and loss statement
  • current rent roll
  • and pro forma operating statements
  • five-year profit and loss projections
• Improvements: Define capital improvements to be made to the property
• Repositioning Plan: Cover the following items as needed
  • Explain how you plan to operate the property
  • Plan for replacing the property management team
  • Plan for developing a new marketing plan
  • Plan to implement a resident retention program
  • Plan for changing the reputation of the property
  • Plan for building a sense of community
  • Plan for making changes to the current resident base
  • Plan for acquiring your target renters
  • Plan for resolving any current issues
  • Give summary of when and how the property will reach break-even, and how you plan on paying the lender/investor
• Key members and advisors that are part of your team: show that you're a professional that knows how to leverage the experience of others to increase your credibility
  • property management company
  • attorney & title company
  • contractors
• Purchase Agreement: Include your sales contract with the seller
• Key Milestone Dates:
  • when the due diligence period expires
  • the expiration of the financing contingency
  • closing date
• Exhibits: Include
  • photos of the property
  • aerial maps
  • tax returns
  • sample floor plans, and the like

My partner and I are interested in buying an apartment with 100-200 units. We'd like to find a B class property with some value-play that we can re-position and resell within 3 years. Would you have investors and lenders waiting on the sidelines ready to fund a deal that fit those parameters, or would you work with a real estate brokers to find a deal first?

@Jack Martin Thanks for the extra explanation.