All Forum Posts by: Jordan B.

@Dr. Jordan E Smith, as frightening as variable rates may seem on the surface there is much to consider when looking at the product.  One fact, going all the way back to 1971 to 2021 if you average the historical rates you get a little over 7%.  Keep in mind that has numbers as high 18% in the early 80's.  Also, look at the specific loan terms which are always negotiable.  These will be spelled out on the business and loan agreements from the bank.  There is a floor, or how low the rate can be adjusted.  There is a ceiling, or how high the rate can be adjusted.  There is also a subsequent adjustment cap, or the maximum amount the interest rate can move in one adjustment period, usually 2%.  And finally there is a lifetime adjustment cap, or the total limit the interest rate can increase from the initial rate over the life of the loan, commonly 5%.  

Lets break it down a little bit, lets say hypothetically you took a loan out at 3.5% today with a 5 yr adjustable on a 20 year amortization.  Your floor is 2.5% and your ceiling is 7%.  Even if the worst case scenario happens and rates go up, due to your subsequent adjustment cap your rate can only go to 5.5% at the first 5 yr adjustment.  

Here is the advantage of the variable rate to you vs your banker, lets say 7 yrs in rates drop to 2.5%, guess what you can call your lender and refinance your loan and get that 2.5% rate locked in for 5 years.  But within that 5 year period if rates go up its not like your banker can call you in and say hey we need to raise that rate, your locked in for your term.

So in summary, you are not putting yourself out there to end up with a 15% rate, there are many terms within the loan to protect you.  Read the fine print, negotiate the terms and understand your options.  

Joe is right, just running some rough quick numbers the project would be a bust more than likely even if you could find a lender who would loan you $825,000 with roughly 5% down (40k). 

A 4.5% rate on a 20 yr am would get you a payment of $4,966.30 per month.  If you got your assumed market rate for all 10 units you would gross $6500 per month.  Running both of those numbers out annually you end up grossing $18,404.40 left to cover property taxes, insurance, maintenance, and saving for cap ex.  The margins would probably fall over to negative cash flow pretty quick.  I live in southern Indiana and if I average out my duplexes, 5 cost me over $20,000 in property taxes, and we have a pretty low tax rate.  Insurance again averaged lands at about $5,000. 

This deal would need more cash in to make it profitable, not saying its a bad deal but you would have too much debt to make it cash flow based on the above assumptions.  

In my job as a banker we do a lot of figuring for our clients helping them figure out how to best utilize their funds, lending limits, and cash in deals.  I know we can get caught up in deals and start to neglect the little things, but fight for that rate on your loan to be as low as possible.  

If you have $1,000,000 leveraged in real estate and you pay a 4% rate that equates to approximately $111 dollars a day in interest.  If that same loan has a 5% rate you pay $138 dollars a day in interest.  That's over $10,000 lost in the course of the year with the 5% rate vs the 4%.  Push hard on your rates, even if you gain a half percent it adds up!

@Rick Albert, I agree if you are representing buyers I’m going to do my best within reason to keep them happy and get those referrals. If I’m the seller I’ll try and do all I can to remove variables. Like anything there is nuance to real estate deals as well. 

@Russell Brazil, out of curiosity what provisions in your contracts state specified times of entry, or rather the antithesis prohibited times requests for entry.  I looked over all of my paperwork and cannot find any such verbiage, are you referring to limited scope of time for inspections.  Thanks!

@Bruce Woodruff, from experience as a realtor myself as well as purchasing many properties as a business owner I would absolutely insist that I gain access to the property again to complete the measurements.  There are many items that come up where the property is visited in escrow...inspections, estimates for repairs, appraisals and my clients needing some information about their large purchase would most definitely warrant another visit.  I understand with Covid and such that many brokerages have tried to limit exposure, but at the very least this agent should be willing to go and measure for them...at the minimum.

@Chad Keilen, if you can find a local community bank and talk to a business banker.  You will definitely always hit a limit or wall with traditional financing and mortgages.  A business banker will lend to you based on your "Global Cash Flow"  That is not just W2 income but rather equity, rental income, other revenue streams.  

@Lawrence P. Schnapf, yes thank you for pointing out the time issue when it comes to the Brownfield program.  I agree, most developers would not be interested in going into a legal battle wasting time to move forward.  In our situation, the land had to be cleared for development before they would lend on the project.  So our phase 1 and 2 would have been considered more due diligence so to speak.

@Logan Krutsch, I personally developed a storage facility on contaminated soil 2 years ago.  Ours was a former utility company that stores transformers on the lot and left behind PCBs.  In order to get the project done we had to have Phase 1 and Phase 2 environmental tests done.  Phase one is basically collecting site history and information.  Phase 2 was a company came in and drilled 15 core samples and reported back.  Fortunately our levels were within range and no remediation was necessary to proceed.  I do know that if there had been a problem it would have triggered a "chain of command" situation with the EPA in the "Brownfield" program.  In short, they would have followed the title back to the contaminator, and they would have been responsible for the clean up.  If the company was not able or didn't exist anymore the government steps in and remediates with funds that are collected from coal mines, quarries, different businesses that pay into these remediation accounts for situations that arise.

Agree with the majority of the comments above about quality, we started of using Sherwin Williams ProMar 200.  We switched over to their more economic brand Surescrub down the road.  The rep at the paint store said the promar and surescrub are identical in every manner except how finely they are filtered, and a 2 dollar paint filter bag fixes that!  We transitioned all of our properties over time to the same color, that way we buy in bulk (5 gallons at a time) and always have the right color!

On a side note, not to hijack this thread...anyone else experiencing paint shortages and 5% floor surcharges at their local Sherwin?