All Forum Posts by: Nicholas LaGatta

Thanks for the comments, Justin.  

#3, My RE business in its current state (9 units) urgently needs an CPA/bookkeeper, so fund management experience should be a criteria in our search.  My current property manager is in my brokerage, but he would probably only come into the deal if the property was near Atlanta.  A deal in Georgia would also be nice, so I can pick up a commission.  Any idea how much a CPA and attorney would cost to set up the deal?

#4, I need to communicate the deal to the investors, so they understand it and feel comfortable investing, know what they're signing up for, and know the assumed returns.  

I'm leaning towards a $1-1.5M deal that I could access with just 2 or 3 partners.  If I could get something somewhat near Atlanta, the entire deal becomes simpler, since I can be the agent on the deal and use my current property manager and contractor.  

Although, I talked to an apartment buyer this week that strongly recommended against buying an apartment in Atlanta, since there's too much competition and it's hard to get good enough returns.  In fact, when I look at Chattanooga, Macon, Covington, Augusta, etc., the cap rates are much stronger, but I doubt the appreciation will be as strong and I know the deal would become way more complex, since I can't be on-site as often or leverage my existing GC, PM, closing attorney, etc.  

I'm a moderately experienced moonlight investor with solid and relevant non-RE professional credentials, just got my real estate licence, joined my PM's brokerage, and I just had 3 deals pay out.  I'm working on leveling up in real estate with goal of going full time in the next 1-2 years. 

I've started discussing with a few investors about setting up an equity partnership to buy small apartments, most likely in rural GA or surrounding states.  I've been deep in the weeds with research to put together the nuts and bolts of this.  Before I go too deep, BP is always a great place for a sense-check.  

Below is a list of target property criteria (broad for now, but I'll dial this in) as well as a list of open questions that I'd love your feedback on.

Target Properties: 

-$1-4M purchase price
-6+ unit multifamily apartments in GA and surrounding states
-Value add opportunity through capital improvements, increasing occupancy, and/or raising rents
-Property class B or C, no war-zone areas
-Near stable employment, education, transportation, entertainment/amenities, and future development

Open Questions:

1.Is it realistic for me to be able to set up and operate this type of fund part time?

2.If it’s not realistic, I’m considering taking my capital and investors and bringing them into someone else’s deal as LPs to learn the ropes and gain some experience and credibility. I’m only home 3 days per week, so assume REIAs are not realistic for me. What are some other ways to get connected to people already doing these types of deals?

3.If this is realistic, what is the correct order of operations to get this set up? Do I start with an attorney, CPA, consultant, other? Are there companies that specialize in setting up and managing these funds, soup to nuts? How do I find the right professionals with the right experience?

4.My investors will mostly be non-accredited but with basic financial sophistication. What’s the best way to communicate the deal in straightforward terms? I haven’t found too many offering memorandums that clearly do this, so I’ve started building my own from scratch.

5.What else might I be missing here? Any other advice or words of wisdom would be welcome.

Hi, Bryant. I've gone deep down this rabbit hole before. It's great if you happen to own the right property, if there is the right opportunity, or if you for some unfathomable reason want to do STR. Although, I don't see it as a viable primary strategy. You will get better return on capital by buying an actual duplex or 2 lower end SFRs, unless you are talking about doing this in a high value area, but I assume you favor cash flow over equity (pretty sure you do based on interest in this).

I made two "feuxplexes" I operated as STRs and did great, but I wouldn't do it again.  I have two duplexes that outperform them financially and from the standpoint of my initial time invested.  I also ALMOST bought two ambiguously legal triplexes and I'm glad I didn't.

Happy to discuss my experience further if you want to reach out directly.

I would go ahead and get a loan estimate from a lender with your current situation, then ask them the impact if you waited to 7/1 with higher rents.  There are too many moving parts here to know if waiting would make a material impact.  However, I can tell you adequate debt-service coverage can lower the interest rates on certain loan products with certain lenders for certain borrowers, but it might not matter at all.  

I don't see it being worth the effort or money to break the lease or do cash for keys just to make this refi happen, just ride it out until the lease expires.  Worst case, accept a higher interest rate if you want the cash out right now.  

I don't see any value in getting an appraisal at this point.  Your lender most likely will require their own appraisal anyways.  

While trying illustrate the point I was making above, I came across this page: https://www.zillow.com/atlanta-ga/home-values/

There's plenty of evidence to support and counter my points.  Whatever alchemy goes into the Zillow Home Value Index and Zillow Home Value Forecast seems to supports my position, while actual single family median sale price does appear to be down by 8% since June.  As for forecasts, if anyone has a crystal ball that's correct more than 50% of the time, please DM me.

I see a lot of semantic confusion in these types of discussions.  Honestly, I'd like to have a better understanding of the key factors involved myself.  What I do know is that market pricing does not equal market rate of change.  

I haven't seen data to support a market price decline in Atlanta and I haven't seen anyone forecasting a decline as of present.  However, I have seen anecdotal evidence to support a present slow down in the rate of increase of market pricing, although I understand there is still an upward trajectory.  

I understand the average purchase price of homes in Atlanta continues to increase, but not as quickly as in the past year.  List price could also be used as an early proxy for market trajectory, but it's a weaker correlation than purchase price since list price changes based on a combination of Porter's 5 Forces (basically the whim of market stakeholders).

Does this make sense? Does anyone have a different point of view or access to better data/analysis? I'm eager to get access to MLS in the next few weeks, so I can do more substantive quantitative market analysis.

Yes, that's my understanding and market experience, but I should caveat that I'm not an appraiser.  If I remember correctly, my appraisal included a mix of a couple of single family homes in the immediate areas as well as the nearest similar duplex, which was a couple of neighborhoods away and adjusted for being in a lower-value neighborhood.  

I would use sales comparison approach, same as a single family.  You should be able to get in the ballpark with price per square foot and adjustments for room/bath count, amenities, locations, etc.  I might adjust down slightly for a duplex in most areas, since the number of buyers would be more limited.  
I have two duplexes and have analyzed dozens more.  The math seems to hold true to the above, so far.

I didn't have any alarm requirements, that would have been kind of a deal-breaker, since the place hard to be rewired and we were replacing and repairing most of the windows.  

I used Vacant Express recently for a recent fix and flip, although I bought it through American Family Insurance.  I actually ended up getting a payout of around $5k after a car crashed into the front porch.  The adjuster was friendly, professional, and efficient.  The pay out was prompt.  

Expect it to run 10-20% more than regular landlord insurance.  I'm definitely grateful I bought it.