All Forum Posts by: Reginald Ross

@Zaid Bender

Forecasting interest rates isn’t horribly necessary per se as long as there is a sufficient buffer in your pro forma numbers.

In reality, the fed has repeatedly indicated that they intend to keep interest rates low for the foreseeable future (5 years-ish?). I’ve seen a few folks mention 10-year treasury correlations but that applies more to home mortgages as opposed to multifamily. Multifamily interest rates will usually be calculated at prime + risk premium for each lender.

If the current administrations maintains its spending trajectory, it could apply upward pressure on rates if inflationary forces become too strong, but the market shock from COVID introduces some uncertainty that hasn’t completely manifested and is hard to predict.

Personally, I’ve never worried much about interest rates. When I perform a sensitivity analysis, interest rate fluctuations usually have a low overall bearing on the outcome.

You have to remember that interest is an operating expense and decreases your taxable income, generally speaking. So, the true impact isn’t exactly straightforward.

With regards to an exit strategy, if interest rates increase, you will technically have less buyers in the market but the ones that are left, will be looking for opportunity.

That’s why operational excellence is on an order of magnitude more important. If you choose your initial investment wisely, run the property strategically and position it optimally at the time of sale, buyer scarcity can we somewhat mitigated.

@Andy Mirza

Agreed Andy. I know what it looks like on paper (no pun intended) but always enjoyed testing my assumptions. Appreciate the perspective.

@Terrence Evans

Thanks for the comment. I’d estimated something similar. I might contemplate a sale in the high 5 digits/low 6 digits but it’s good to get an anecdotal perspective.

@Dave Meyer

The data is great but what I would suggest is helping your audience decide where to focus. THAT would be worth something.

For instance, perhaps have a dashboard page that prioritizes the most important metrics and highlight metric variances by exception.

@Matthew Horstmyer

The 6-month policy isn’t an arbitrary one and my philosophy actually addresses your concern about underutilized capital.

In general, there is typically a trade off between risk and reward for any investment. As a syndicator, I have an obligation to be a good steward with my investor’s capital and spend a significant amount of time identifying the optimum capital structure of each investment which includes market research and actually quantifying the risk premium.

What I’ve found is that the equilibrium reserve amount typically works out to this 6-month value due to current lending practices, legal constraints, etc. Big Banks adopt this policy for a reason.

I’ve experimented (in solo ventures) with less reserves and never got into a insolvent situation but if something catastrophic would have occurred, the possibility still existed.

So, now I choose to give away a few % of annual return on equity in exchange for a protective buffer. Also, I live on the gulf coast and hurricanes happen frequently. A $58k hurricane deductible isn’t easy to come up if you don’t already have it Investors (and myself) like that peace of mind.

Did that answer your question? I feel like I meandered a bit lol

@Chris Seveney

I figured it would be considered garbage on the open market but wanted to get BP opinions.

At 4% interest, 25 year amortization and no scheduled balloon, I had just planned on incorporating into my long term passive income schedule.

I will say the borrower is a AAA+++ borrower and there is a high probability that they would refinance or sell the property in the near future which would result in a windfall but yeah, if a frog had wings, he wouldn’t bump his *** when he hopped, right?

I’ll be holding a $332,000 junior note that will result from a real estate sale next month. The first payment isn’t due to me until March 1st, 2026.

Is there a market for junior notes of this nature?

@Matthew Horstmyer

I used to keep $1,000/door in reserves for my single family portfolio but decided to pack my war chest when I started buying larger multifamily properties.

Now I alway maintain at least 6 months of PITI + max insurance deductible in addition to any funds earmarked for CapEx.

Hey guys, I’m a multifamily syndicator in the southwest U.S.

The current portfolio consists of strong value add properties and it’s rapidly growing but I know that even more growth would be possible by expanding access to capital.

Have any of you had experience bringing on pension funds, finance companies, family offices, etc as L.P.’s?

@John Ringgold

Great idea for a thread and I’m really digging all the great ideas that have been shared but I guess I’m just cynical.

Do most tenants really care or respect lease terms like “you must clip your dogs nails once per week”?

I make the sure the important legal stuff is present and call it a day.