All Forum Posts by: Ryan D.

Jeremy, the loan is the better part of $2M, so 2% difference on the rate is a decent chunk of money.

I'm trying to avoid a portfolio loan for this exact reason, though yes, in general, the market has gotten Very competitive over the last 12 months. I used to be able to pickup 1 or 2 buildings a year, never any bidding wars, etc. Now I'm making multiple offers weekly and loosing out to buyers willing to bid cap rates down into the 5 range. 

@Star Dawson

“Am I dreaming too big” - short answer, If you’re willing to work for it, then: No, never.

@Jonathan Marcus 1-4 is residential yes, but if you have sufficient number of them all next to each-other (adjoining parcels) then you can get commercial paper against the package. These unfortunately are not adjacent, though they are in the same development. 

@Jeremy Holcomb Portfolio loans are in the mid 6% range now...commercial is ~2% lower, which is why we went there first. The deal wont work at higher than ~5% (at least not for us). 

@Brock Mogensen do you have any specific recommendations? I've called a dozen or so local banks with no luck. 

I've got an opportunity to buy eight 4-plex buildings (all in the same development, but not right next to each-other) for ~$2.1M. I've talked to commercial lenders and they wont do it. Its time consuming and messy to do it with 8 conventional loans. Is there a middle space here? Are there lenders/loans that will cover multiple residential-multifamily buildings in the same development? 

@Michael Ealy

Michael, thanks for sharing your experiences here, it is very much appreciated!

I’m at a point where I own several 4unit buildings that cash flow well, but my market has taken a major jump in the last 1-2 years, & buildings I bought for $200k last year are now selling for $300k, though the rents have only moved up 3-4% over that time, and to me the buildings just aren’t worth what people are paying now (given where the rents are).

We’ve been looking for smaller commercial multi family, but haven’t had success finding ones that are priced anywhere near what I think they are worth (at least a 7 cap based on the existing rents).

I expect we might be able to find better opportunities off-market, & there is where our experience falls flat. What are some suggestions for finding off-market opportunities?

M partner and I are invested in three markets, Southern California, Phoenix, and Northern Florida, & invest for cash flow, & generally in small multifamily. The two western markets stopped making sense from a cashflow perspective long ago, and now sellers in the Florida market have gotten unrealistic (IMHO) about their expectations of property values, making good deals very difficult to find (rents have moved up 5-10% over the last 3 years, while sellers are expecting >50% increase in price over the same time frame). 

So my question is what to do to take advantage of over-inflated markets while waiting for a correction? We're in no rush to buy at the moment & are adverse to move to a new market (we have teams well established in our current markets and don't want to spread ourselves thin). 

So heres what I can think of, would love thoughts & other ideas from the community:

1. Sell existing assets while prices are high
2. Lock in values through HELOCs, so you can access the equity later when prices correct.
3. Refinance with conventional financing to pull out the equity.
4. ?
5. etc...

@Ian Goodstein

Caprate isn’t typically applicable with residential properties. It’s a commercial property thing.

Though note that many sellers will quote you a caprate on their buildings, with their own projections in prospectus. In my experience, these are about as useful as toilet paper & should serve the same purpose. Always understand how to evaluate a property & run the numbers YOURSELF - never trust the sellers numbers.

I had one guy try to explain to me why his cap rate included 13 months of income, & how it was perfectly realistic to expect $0 in maintenance costs!

Three words: Asset Price Inflation.

Remember all that money the Fed printed years back (Quantitative Easing) - simple economics tells us you cant inject this much money into a system without causing inflation, but consumer prices haven't moved much so what happened? All that money went into the equities market causing massive inflation, which is what has been fueling the longest bull run in history (P/E ratios are far above their historic averages). Eventually all this asset price inflation ("wealth") made its way to the average stock holder, who pulled money out of the stock market & used it to buy realestate, which has driven RE prices up far beyond what the cash-flow would normally support. Eventually it will all correct (or crash) back towards historic averages. 

Good article a few years back from BI covering the topic:

https://www.businessinsider.com/money-printing-caused-asset-inflation-2015-12

@Ben Cooper

Couple of points:

“Turnkey” means there is no work that needs to be done, but since this house needs $5k of work right away, it’s not turnkey.

You said you plan to refinance right away, but then you said you plan to refinance 2-3 years down the road....so which is it?

If FHA mortgage is $862k, that puts your purchase price around $890k. Unless this building could gross monthly rent of $8.9k, walk.

You can’t pay your bills with appreciation.

What happens when it doesn’t appreciate?

What happens if the house looses value?

Can you continue to carry such an “investment” in that case?

Investing for appreciation has its place (this is called Speculation), but NOT when you NEED the appreciation to avoid living paycheck to paycheck. Focus on building up sources of cash flow, & then you can afford to take risks like this house.

My two cents.

@Tyler Kress

Real estate is NOT a passive investment - you are starting a small business. Realizing this fact is the single greatest differentiation between success & failure. If you want to be successful in your small business, you need to have experience & a working knowledge of as many aspects of it as you can. Manage your first property yourself (assuming you are close enough), so you gain the experience & have a solid understanding of what it actually takes to successfully manage a property. Once you understand this, THEN you can go out & hire a PM with the knowledge of what a good PM does & does not do.