All Forum Posts by: Nigel Prentice

Hello,

I've done a few deals as a private investor, lending money out to buddies who are doing fix and flips and buy and holds. My money is lent to them to acquire the property and for construction costs. Things have gone very well so far, and I'm looking to scale this out.

What are the current terms people are seeing in the marketplace for hard money lending?

1. Interest Rate?
2. Upfront Points?

I'm doing deals in Houston, Texas, but any feedback is much appreciated.

Thanks a lot,

Nigel

@Dennis Nikolaev, I'm looking to do the same as you, so my answer my not be authoritative. But all the research I've done indicates that the cash out refinance loan is not solely based upon the opinion of a single appraiser, and certainly not on comps (like with a residential deal). Rather, commercial values are based on the performance of the property itself.

Value = (Net Operating income) / (Cap Rate)

Here is a full BP article on calculating the value of a multifamily:

https://www.biggerpockets.com/blog/2016-07-06-multifamily-real-estate-value

Your original question is about reducing the risk at the refinance stage. It would follow, in my mind, that knowing your attainable Net Operating Incomes, which is based on your future rents and your expenses, will give you the information you need to predict future value. And my guess is that commercial lenders who be more than happy to discuss these terms BEFORE your original purchase to give you a "ballpark" feel if your target numbers are something they would lend against. (I've actually done this last step of talking to a lender to know what sort of numbers they are looking for)

Good luck!

I would use the Rental Property Calculator on Bigger Pockets. However, this is limited and does not allow for detailed analysis of commercial multifamily properties at the size you're interested. I use an excel spreadsheet which can be found by googling: Michael Blank's analyzer.

No matter what, you should get very comfortable with the Cap Rate, NOI, Purchase Price formula.

Cap Rate = Annual NOI / Total Purchase Price

Annual NOI = (Income - Operating Expenses) * 12

Once you have a handle on that, then I would move on to learning how to get those numbers which go into the formula:

Here's a good summary of valuing a multifamily property: https://www.biggerpockets.com/renewsblog/2013/04/0...

Here is a lengthy and super detailed blogpost on the same topic. He is basically teaching you how the formulas work and how commercial properties are valued: https://www.biggerpockets.com/blogs/8814/73755-18-...

And in this one, he provides his own downloadable spreadsheet to analyze deals like yours: https://www.biggerpockets.com/forums/48/topics/496...

There are lots of resources on Bigger Pockets and beyond which will continue your education and give you tools to do the analysis. Good luck!

A few more questions that might help folks understand your situation.

1. Do you already have tons of real estate experience, or is this your first deal?

2. Have you ever managed an apartment building before?

3. Why is there currently such a discount on the purchase price? Bad neighborhood? Deferred maintenance? Vacancy?

4. Are there any units vacant right now?

5. What is the specific town and University you are talking about?

6. How far from the building do you live?

7. Here are some expenses that you haven't mentioned:

- Vacancy allowance

-  Insurance

- Property management

- Taxes

- Utilities (you seem unsure)

- Maintenance

- Capital Expense Reserves

8. Have you reviewed the rent roll, expense history, and pro formas from the previous owner?

9. What specifically do you plan to do to force appreciation, and therefore possibly increase rents, and therefore property value and overall financial performance?

10. As mentioned, I don't think FHA loans can be used for commercial multifamily in the same way a for residential.

11. What is your financing vehicle?

As others have mentioned, you may have a good deal on your hands, but there likely needs to be more rigor for us to offer an opinion. Good luck with everything and I'd love to hear more about your property!

Thanks!