All Forum Posts by: Sam Bates

@John Cameron I'd second @E. C. "Stony" Stonebraker. I use APG on a property I have in the Atlanta MSA and they've done a great job thus far. I'm not sure if they will manage a property in that location or that size, but I can connect you with the owner if you would like. 

@Lukas James, everyone here has provided great information and I would agree that being a limited partner (passive investor) sounds like the way to go for yourself. I've been both on the limited partner and general partner side and it's important to select a general partner you know and trust. Even if you know a trust a sponsor, it still might not be the right deal for you. You should still vet every deal they send you and make sure it aligns with your financial plans at that specific moment. Each deal can be different and can provide you with different outcomes. For instance, ROI, hold period, geographic location, asset class, and many other variables to consider.

If you'd like to set up a call I'd be glad to discuss in further detail.

@Annabelle Rozen,

Pricing has risen dramatically and more than likely continue to rise for many reasons. This is the new norm that we have to deal with to invest. You can still make money if you buy a good asset at the right price.

@Annabelle Rozen,

This is a very open ended question and hard to answer specifically. I live in Dallas have my real estate license and invest throughout Texas, GA, and MS. There are a lot of good markets in the South East and South West where the cap rates are a little higher than what you see in the North East, but cap rates have compressed significantly over the past few years. For instance, you can potentially find B class deals in Fort Worth for around 100K/unit, B class 1980s deals in Carrollton (suburb north of Dallas) are trading over $140,000/door. In the Carolinas and Atlanta area there are 80s-90s product in good areas trading anywhere from $120K to $160K/unit. I'm looking at 100 unit properties or greater so you may be able to get better deals on smaller properties. You can also find lower pricing than this in secondary/tertiary markets or rougher neighborhoods. There will be less competition in secondary and tertiary markets, but there are trade-offs and usually these markets are impacted longer in a recession than a primary market. I have invested heavily in secondary/tertiary markets, but this isn't for everyone.

With prices on the rise, you will more than likely have to put down around 30% plus rehab dollars to meet DSCR requirements. If you go bridge it will be closer to 75% LTC. You will be able to roll rehab dollars into the bridge loan. With Covid lenders, especially agency lenders, have made borrowers bring more P&I reserves so you will need to bring roughly 9-12 months of P&I as a reserve to closing.

There's a lot more to speak about this topic, but here are some basics.

We are under contract on a 134 unit multifamily value-add property in the Atlanta area.

This deal is a 506(c) offering and we're registering it with the SEC.

Why I LOVE the deal

- 100% of units are available for an upgrade.
- The comps indicate a $120 rent premium, we conservative underwrote $90 rent increases.

AFFLUENT SUBMARKET

- Top 5 fastest growing submarket in Atlanta.
- High median income ($67K+ 2-mile radius).

Deal Return Characteristics

- 8.2% Cash on Cash Return
- 15.2% IRR
- 17.6% Annualized Return
- 1.9X Equity Multiple

If would you like more information on how to invest in this opportunity please reach out!

@Ryan Daigle,

Covid-19 has impacted the world and economy in a unique and unpredictable manor so it makes underwrite deals much more difficult now than pre-corona. It's great to have assumptions, but now more than ever it's important to look at each deal on an individual basis and not put blanket assumptions into an underwriting model.

In most cases, I would reduce rents in 20/21 and be more conservative in the coming years. We don't know where we are in the cycle and if Covid-19 causes a long recessions rents in 22 or 23 could be flat or lower than they are now. 

Increase of vacancy is a must. Over 3 million jobs were lost last week so occupancy is going to suffer across the board. The market and asset class will determine vacancy rates so depending on the asset class, tenant profile, and location will determine vacancy.

The more reserves you have the better you will sleep at night. 1 year of reserves is a great number and a rational choice unless you are forced to increase your reserve balance from an agency lender. 

Cap rate expansion of 20 bps per year may be rational. Again it goes back to asset and location. I saw a graph that stated multifamily cap rates across the nation have expanded 73 bps since January. They might quickly compress if we get out of the pandemic quickly. I would look at your purchase cap, historical cap rates, then see where your reversion cap rate is in comparison to those two. Historical cap rates might be too high since debt rates are at historical lows.

@Jay Hinrichs Completely agree! The success some people have had in this cycle blinds their judgement or someone who's never invested in real estate doesn't know to run a background check or what questions they should ask a sponsor. 

@Grant Doyle, I've done both ground up construction and acquisition of multifamily. I believe it is imperative to have development experience or partner with a developer you completely trust. There is significantly more work and risk that goes into development than acquisition so you need to know all the pitfalls that can happen.

@Greg Dickerson made some great points about development.

Additionally, if you plan to hold a development deal they can be a great investment. We've built apartment complexes, refinanced into long term debt and returned more than 100% of investor capital back to investor while still providing more than a 10-12% CoC return to the investors.

With development deals you typically have a higher tenant quality base so you have less headaches than you would with a C class tenant plus your operational expenses are lower since you have a brand new asset with energy efficiencies that an old product can't match.

Lee,

I'm a general partner and recommend you do background checks on any GP you plan to invest with. If you have a personal relationship with the GP and know them well you may want to reconsider, but an average Joe from the street it's imperative.

I would also ask pointed questions regarding their financial and business history and see how they react to the questions. You are entrusting that person to steward your capital the best as they can and if they have questionable character or have limited to zero experience with large sums of capital or capital projects I would run.

Here is a list of 3 background check companies that are recommended for 2020.
https://www.business.com/categories/background-check-companies/

@Scott McGuire I'd echo what all the other posts have said. 506(b) offerings allow for sophisticated investors and there are a lot of syndicators who register the 506(b) offering with the SEC. It may take more time to find, vette, and trust with a 506(b) syndicator because they cannot advertise compared to the other syndications. 

All the syndications I've sponsored are registered as a 506(b) to allow friends and family to participate in the deal. One thing I'd like to point out, and why a lot of people stay away from 506(b) offerings is because of the increased risk of getting sued by an investor. Multiple attorneys have stated that sophisticated investors are more likely to sue if a deal goes awry than an accredited investor because a sophisticated investor theoretically maybe be impacted greater than an accredited investor. This is one of many reasons why we have great relationships and know our investors well. In many ways a syndication is like a marriage and you better know who you are getting into business with.