All Forum Posts by: Sam Grooms

I can't see any of the images. 

Again, in that scenario, you'd be an active investor, not passive. Also, all of the fees you mentioned are great, but where's the incentive for the sponsor to perform, and overperform? That's what the promote is for. And the 30% is usually only after investors receive an 8% return. If there's additional waterfalls/hurdles, it likely wouldn't be until the investor received 18-20%. 

@Jason W., Taylor nailed it. You can't compare active investment returns with completely passive investment returns. 

 It's a standard figure from lenders, like Fannie/Freddie. 

Weather is a big one. Type of construction is another factor. Materials also have different costs in different markets. Labor is another portion of it, like you mentioned. 

Note that this difference in expenses between markets doesn't just apply to R&M. It applies to almost every line item. You'll need to underwrite to your specific market for expenses. For income and economic loss, you'll need to drill down to the submarket. 

We noticed early on that Phoenix had lower operating expenses than almost every other market. 

$250-$300 is not always adequate, and the lender will use third party reports to calculate this for you. You can see this jump up to $500 fairly easily for some buildings, or in some markets, or with some lenders. 

In regards to your example, HVAC is likely the largest expense you'll see on a per unit basis. And the typical expectation is that you'll get more than 10 years of use out of it. We can get complete HVAC replacement for $2,500, with an expected life of 15 years. That's $167 per year. The roof of a 16 unit two story building will cost about $20,000 to replace. That's $1,250 per unit and lasts about 15 years, so $83 per year. Next largest is likely the water heater at $50 or less per year. Those three alone get me to $300 per year. 

Lenders like HUD are a lot more conservative, and will likely require $500 per unit per year. But even if your lender doesn't require more than $250, I wouldn't underwrite less than $300, and even that is pretty skinny. We're able to underwrite $300, but we come in with cash reserves to replace the roofs (even if they're brand new), to replace a third of the HVACs (or more depending on current condition), to replace a third of the water heaters, and a third of the washer/dryers (if in unit). Hopefully I don't have to use these, but it's better to be safe. And even if you're not as conservative as that, you'll still need some type of cash reserves to hold you over until you can build up your reserves with the lender, which will take a few years.

For the types of buildings we buy, in our market, we budget $450-$550 per unit per year. This includes R&M and Turns, and doesn't include any contract services. 

Looking at last year's IREM report, Charleston averages $700-$900 per unit per year, for garden style buildings. 

 Hey Matt, just saw your profile and I'm interested in your experience with crypto mining. Was it successful? Are you still doing it?

Hey Nick, I invest in and sponsor large multifamily properties. Like Diogo, I'm curious to hear what type of marketing company you own. 

10% average cash on cash over 10 years and 15% IRR is definitely achievable. However, we buy in a 5% cap market, so obviously I'm not buying that cash flow. I'm creating it. We go in and spend $15K+ per door to completely renovate the property, and we're able to increase rents $300-$400 as a result. If we weren't doing such a heavy lift/repositioning, you're right, I'd have to pay 30-40% less to get those returns.