All Forum Posts by: Simandu Yakubov

@Simandu Yakubov, there is no consistency when it comes to broker packages, but I will note that the brokers goal is to maximize the sale price for the seller. 

That being said, for priced deals, the list price is often somewhere in the middle. It is higher than the T-12 numbers can really support, but still leave something for the buyer. Additionally, while the proforma rents are reasonably easy to determine, the proforma expenses are quite commonly based on T12, and not achievable in reality, specifically insurance and taxes. Some brokers are good about adjusting taxes to post sale numbers, but many do not. And insurance is a major hurdle in many markets these days, where premiums are growing 15-20% per year.

As for a refi: technically yes, but refi's are notoriously conservative, since there is no arms length transactions. I have had lenders tell me I have "above market" lease rates, below market expenses, and then you get into the cap rate question. So, not to say this will be your experience, but as others noted, not only do markets move in 12-24 months, but even your actual numbers can be up for debate. But in theory, if there is enough movement on NOI, then yes, you could refi and recycle that capital.

Generally, as you are getting started, your three main sources of information will be brokers themselves (while they may be painting an optimistic picture, the good ones are still in reality), lenders (many loan brokers will happily take a look at a deal you are considering and throw it into their quick calculators, again giving you some ideas as what numbers they expect to see), and property managers (these are the front lines who are controlling your expenses and revenues, so typically provide the best info).

Congrats on the SFH's. Your theory on the multifamily is correct however in practice in today's market conditions, it can vary wildly. Few properties these days will support a full cash-out, most won't even get a partial cash-out. Sellers expect to take a good amount of the upside, even if their rents are low.

For someone who is coming into this new, you will likely be taken aback by how little these deals make sense.

@Simandu Yakubov You asked many good, thought provoking questions.

If a seller or broker advertises pro forma, then they are typically pricing the property based on that with the hope of finding a buyer who's willing to bite off on it. Buying it based on the pro forma NOI would take away from the value-add strategy because you're essentially paying the seller for the work that you will do and for the increased NOI that you will generate.

If you find a multifamily property where the current NOI is not at full capacity and you increase the NOI, then the value is determined by applying the area's average cap rate to your new NOI. Keep in mind that the cap rate could change from the time that you buy the property until you go to refinance it, so this could impact your proceeds. Assuming that the cap rate compresses because of favorable market conditions, then this will work to your advantage. If it decompresses because of unfavorable market conditions, then it could potentially work against you.

I typically double check the operating expense numbers I use with property management companies who know the area well.  I recommend getting an insurance indication from an insurance broker, a debt term sheet from a mortgage broker, and property tax guidance from either the county tax assessor or a real estate tax consultant.  Taxes and insurance will typically be the biggest variables in any deal that you underwrite.

I'd be glad to speak with you further about it if you have any questions.  I used to host a free  weekly session that taught people how underwrite multifamily deals, so I can probably give you some pointers.