All Forum Posts by: Eric Claxton

Couldn't agree more Andy- Multifamily will remain one of the safer sectors of active commercial investments for the near future in my opinion (hence the reason we continue to invest. ha)

Originally posted by Andy O.:

Late to the discussion here - but this is my biggest concern with a apartment purchase in this environment.

This eases my mind, at least a little bit: http://www.freddiemac.com/multifamily/pdf/mf_property_valuations.pdf

Conclusion
It is an unusual time for multifamily fundamentals and capital markets. With interest rates low and the stability of cash flows from rental properties attractive, the asset class is getting more attention than usual. On the surface, it is easy to raise red flags when looking narrowly at some factors, such as cap rate, impacting the market. Yet, with a more broad view, it becomes evident that current valuations in the multifamily market are not at the edge of a cliff. Interest rates will almost certainly rise in the medium and long term, which will have a downward affect on asset valuation. However, there are offsetting factors (e.g., rent growth and new multifamily supply)that will push values up. With the understanding that today’s valuations are justified and forecasts of fundamentals are strong, market participants can be confident that the positive attention that the multifamily sector has drawn in recent years is not doomed to a rapid shift downward and that multifamily markets remain healthy.

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We do this for nearly all commercial assets be buy- Message me, ill be glad to talk to you about it. It has worked well for us and has provided us with some perks.

Originally posted by S. ONeill:

[b]I have some questions. I found three properties owned by an LLC. All of which of are vacant. 2 of the properties are commercial and the last is a residential. I've done research threw my counties records.. As far as I can tell this LLC is belly up .. Their are also tax liens against all the properties for the last 3 years ..

I would like to know if you can make an offer on the LLC outright .. and take on all the properties and liens that come with it ? if this is possible, then would I be able to payoff the tax liens before cp's foreclose on the properties?

Any advice would much appreciated and if you can point me in a direction ..

Thanks

Steve in Phx, AZ

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Karim,
we have RUB systems on all of our older multifamily assets. We love them! All of our newer assets have their own sub-metering systems (much better).

Good luck!

Originally posted by Karim Shah:

Thanks John, that'll be be great if you could send over the names. I appreciate it.

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Jane- I know you're new to development, and its far reaching- but if you wanted an additional source of capital for financing the ground,curb,paving,storm,sewer, etc- you could create a CID (Community improvement district) to assist in this.

These special districts can be created on your parcel of land (of course you will need to buy it first), and they have many of the powers that a small city has- including the borrowing of money by accessing the secondary bond market.... I know thats alot to do for a small project, just thought I would give you something else to consider for the future.

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Ron, PM me, we may have something laying around on one of our hard drives that we have used in the past.

Originally posted by Ron Czecholinski:

Anybody have any thoughts on this? I have checked with a couple attorneys and escrow companies (and google) and can't find any templates for loan agreements that would work for new construction.

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Corey, I couldnt agree more. We are buying in tier two markets where rentals are strong, historicals look look. The funds wont touch a property unless its in a major market like NYC, LA, Chicago, Atlanta, Miami- and there are so many good deals in these smaller markets. We just bought in Austin Texas, Kingsport TN, & Charlotte NC (gastonia).

Originally posted by Corey Dutton:

Fannie and Freddie have had 85% of the marketshare for Multifamily financing since the crisis. This has left little room for other lenders to compete. However, the government just ordered Fannie and Freddie to curtail lending on multifamily in 2013. This will be an opportunity for lenders to compete in this space.

With regard to the bubble you wrote about, I think this is certainly something to pay attention to. Hedge funds have already created speculative bubbles in some major U.S. markets. Def something to be aware of. Looking for opportunity? I say go where they are NOT.

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Hey Josh, our company normally buys in the $5M-$20M, so we use HUD (not fannie) a great deal. We have found that fannie is cheaper to do, however does not offer as high LTV's and interest rates are slightly higher (at times). HUD (223F is the one we use) allows you to refinance at up to 83.5% LTV, 30-40 year terms, around 3.5% interest, non-recouse (except for standard bad boy carve outs).

1. What is the general range of building value that makes sense for this kind of loan? How small of a building will qualify? - $2M is the smallest that I would go on a fannie or HUD. again fannie is cheaper to do, but it is still costly.

2. What kind of lender can write this loan? I have heard only small lenders. Is that true? --We use Grey Stone out of NYC. They are wonderful.

3. What is different about the underwriting that makes it a hassle? -- You are dealing with the feds, they want to know everything. Underwriting is a check list, you must have everything in its proper place, or else they send you to the back of the line again and you start all over.

4. What makes the terms better? --Higher LTV's (HUD's 83.5% LTV), non recourse, lowest interest rates, assumable,

5. If you have had experience, do you find hte Fannie Mae loan to be a better option?-- We have found that fannie offers a good product, but its always HUD for us, unless its a very small property where cost is a factor in the over-all deal. And in this situation, LTV's will become a factor for fannie.

Originally posted by Josh Prince:

I have been looking at and buying apartment buildings in the $500k-$2.5M range for the last couple of years. I have always either purchased with a loan from a bank or all cash and then refinanced with a bank that held the loan as a portfolio loan.

A few people have told me that I may be able to get better terms (for example, non-recourse) if I get a Fannie Mae loan, however it will be a hassle. I did a little google searching and I found this overview on the Fannie Mae site:

https://www.fanniemae.com/content/fact_sheet/multifamilyoverview.pdf

However the article is short on practical information. I hope someone here has some experience and can help me with the following questions:

1. What is the general range of building value that makes sense for this kind of loan? How small of a building will qualify?

2. What kind of lender can write this loan? I have heard only small lenders. Is that true?

3. What is different about the underwriting that makes it a hassle?

4. What makes the terms better?

5. If you have had experience, do you find hte Fannie Mae loan to be a better option?

Thank you very much in advance!

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William, I couldnt agree more about downtown charleston. I was raised in Savannah and my family still resides there. There are much better assets to be found in Hilton Head, Savannah, etc.

Originally posted by William Donaldson:

I was born in Charleston and still have ties there. The downtown real estate market is ridiculously high. I know two girls that rent out a tiny converted attic space that I probably can't stand up in for $700/month EACH. This potential property will most likely appreciate above the national average, but does that outweigh the limited cash flow you'll be earning from this property?

Downtown you'll be paying high city/county taxes and high insurance cost (remember we're overdue for another Hugo). That's cash straight out of your pocket every year. Is this in the safe part of downtown or is it getting towards the areas you should never, ever be in after 7pm?

I believe what Joel was getting at is that you have the means to buy either residential or commercial. You can find a CAP rate as small as this with NNN properties no problem! I'd recommend looking outside of the hot downtown Charleston RE market and focus on growing areas like James Island, Mount Pleasant, Hilton Head, etc. In the Upstate you can find multifamily properties grossing $3k/month for a fraction of the cost of the property, not to mention the lower taxes/insurance. I'm sure you can find these kinds of deals a little inland.

TL;DR - You will not find attractive cash-flowing properties in downtown Charleston. Anyone with money (and there's a lot of them in Charleston) want property downtown.

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Paul,
I agree Joel is a huge asset to the site- always very entertaining reading his answers. We have done alot of deals the way Joel outlines, however we see a difference in what we do- light rehab (we refer to it as CAPX, which is the items HUD will require us to upgrade and repair before we can stablize and refinance the asset)- and Rehab is what I think Joel is referring to- total rehab from the studs up (which we would only do in a tax credit asset or 501(3)C bond deal for a nonprofit asset -it is very costly & time consuming).

We have found that when you start rehabbing multifamily one thing is always true- always expect to spend more than you budget. If you dont, then things will get sticky. For example, last year we bought an asset (400 units), and thought that it was a clear case of mismanagement, and the asset just need standard CAPX and a correction of course in management. Well after we bought it and begun the rehab we found that the original $500,000.00 in upgrade we had planned to spent , soon grew to $1.8M because we got in and found there was alot hiding behind the walls and under the flooring. We had no choice but to spend to fix the asset- because without doing so, we wouldnt be able to sale at a profit nor could we stablize and refinance. In the end, it worked out fine for us- it was just alittle stressful for a month or two.

Bottomline: you can make great returns (25%+) on buying value-add multifamily, and turning it around for resale or refinance.

Originally posted by Paul Khazansky:

Joel Owens first, I've been following your posts for some time now and think you're certainly an asset to this site. I appreciate a comprehensive response to my question.

The thing is, the example you provided is a slam dunk deal, which may or may not happen. I wanted to know what one can realistically and conservatively expect in a rehab business on average. Assuming you won't be "killing it" in every single rehab deal you do, what are reasonable expectations?

1 Vote

All Forum Posts by: Eric Claxton

Eric Claxton has started 5 posts and replied 32 times.

Post: New Member here in Denver, CO

Post: 5 year loan on apartment building, then rates skyrocket?

Post: Using My own LLC to Purchase another LLC /

Post: RUBS for Apartment Building

Post: Spec homes: Will this work? How to approach lenders?

Post: private money for development and new construction

Post: Multifamily crash coming? (possible buying opp?)

Post: Questions about Fannie Mae Multifamily (Apartment) Loans

Post: Multifamily Deal Analysis - Charleston, SC

Post: Appropriate returns in rehabbing multifamily