All Forum Posts by: Spencer Gray

Way too much risk for the reward. If you have to do a rehab and a full lease up I would not do it unless I could take most, if not all, of my cash out within 12-16 mo and then see at least 8% cash on cash after the refi. 

You can put your money into a syndication (with an operator with a solid and seasoned team) of a stabilized, cash flowing asset (200+ units) in a B area and be earning 8-12% cash on cash year 1 without ever meeting with a contractor, tenant, pay bills, etc. For all the work you are about to do, and the risk, why? Are you doing it just to do it or are you looking at it strictly s an investment to make money/build wealth? 

I would stay focused and have a specific plan. I you go in saying "we can do some SFH, and some small MFH, and some big MFM, and some flips" - to me at least I would not want to invest because you have no focus and have not yet found your niche. The pros have a niche, a formula, and are a sure thing. It sounds like you've had some success and know what you are doing, but it sounds like you are still finding what your specialty really is. A confused mind says no and trying to explain returns, objectives, track record, thesis on multiple different real estate strategies will be confusing.

I would try to syndicate a 100+ unit apartment complex with him as a partner/gp who will guarantee debt - or figure out what your niche is. Pay a preferred return with a 70/30 split, not 50/50. I would rather make 30% off millions than 50% of nothing. 

P & R Mortgage (Merchants Bank) I believe does more multifamily lending in Indy than anyone else, as that is all that they do. Super investor friendly, have all kinds of great debt products (Fannie, Freddie, HUD, Bridges, Mezz) and will work with you through the entire process.

I just saw this post bump. Before seeing that it was originally posted over a year ago, I thought it was interesting that many of the responses/excuses were "market is too tough, cap rates too low, market at the top."

That's what everyone was saying 4 years ago, 3 years ago,, 2 years ago and last year. Are cap rates low? Yes. Can they go higher? They will. Can they go lower? Yes, they almost certainly will. CAP rates have continued to drop this past year, and I agree that a 3-4% CAP on the coasts raises eyebrows, we still are seeing 5-7% cap rates in the Midwest for large MF. With plenty of good financing options, the spread between interest rates and cap rates is still there, and with a value add strategy that makes sense in a particular market, there are plenty of opportunities out there - albeit hard to win at times.

If you are a long term holder, your underwriting is conservative and you have a business plan that will be executed - what other excuses are there? Just do it!   

It's not uncommon to go month to month after your lease has expired. I'm not familiar with Illinois housing law (came here hoping to learn) but having your rent increased by $50/m after having no rent increases for two years is pretty generous, especially when you are getting a brand new furnace and AC. If I were you and wanted to stay, I would insist on signing a new 1 year lease. 

@Claude Sicard

I agree with @Chad Nagel that your maintenance seems pretty skinny, especially if you are having a 3rd party (or a management co) do the majority of the work. I would use 10% of your gross rent for maintenance instead of 5%. If you were well seasoned and knew exactly what it costs you it's one thing (5% is still low) but if not I would error on the side of being more conservative than even the probable. I'm sure there are plenty of pros on here that hit 5% for maintenance, but I bet they still underwrite 10%.  

I also think you should include reserves for capital expenditures. You will need to (or should) be doing ongoing capital improvements in addition to ongoing maintenance if you want your property to appreciate. I would set aside or plan on spending at least 5-10% of your gross rent, because you will have years with $2-4k+ for cap ex. 

On the upside can you charge back your tenants for utilities? or is that for common area/coin op? Could you add washer and dryer hookups, charge more rent and turn the laundry facility into another amenity like storage where you can then charge for additional rent? 

Are rents at or below market? If you improve the units could you compete with higher end comps in the area and bump rents?

If you can push the value you may still have a deal even with more conservative underwriting assumptions. 

Singleness of purpose.

@Angela Jossy

First off I think the idea of a houseboat as an AirBnB is really cool. I would stay on it! But I think if you do what you're saying you want to do you will loose money. 

I think you should decide whether it will be either A.) Tour boat, B.) AirBnB or, C.) Yearly/Monthly Rental . I don't see how you can combine any of the three very well unless you are AirBnBing unti you find a permanent tenant (if you can get permission from the Marina after waiting in line). 

I would run the numbers on options A-C with very conservative maintenance and insurance estimates. Have you run the numbers already? What is your vacancy assumption for the AirBnB? 

It sounds like you really like the idea of having a boat, having an AirBnB, and buy and hold investing - all three of which sound like fun or great ideas but maybe they should not be combined. 

If it makes financial sense to add a boat to your tour company then I would say look at a variety of vessel options and pick the best option for that purpose - don't use a cruiser that's been converted into a tiny home as a tour vessel just because your friends have one for sale! Again it comes down the ROI.

Real estate investing is great because we're not necessarily re-inventing the wheel - not that there isn't a massive amount of creativity put into getting deals done - but the general mechanics are relatively straightforward and have been done thousands of times for centuries. When looking at any investment that veers hard off course and is pioneering new territory you have to assume that the amount of risk increases tenfold - therefore the potential return should compensate for that risk. If the reward doesn't match the risk, it's not worth doing. If everything goes as planned, which I would put as less than likely, is the reward/return great enough to risk losing your entire principal? 

For example - What is the exit strategy? How many buyers are there for tour/airbnb/rental boats? 

Illinois w/ higher taxes and tenant friendly laws vs. Indiana with lower taxes and landlord friendly laws  -

Indiana has a number of great markets for cash flow investing, if cash flow is what you looking for vs. appreciation. I'm not incredibly familiar with the Illinois market (because of before mentioned reasons!) but unless the returns are significantly better in Illinois relative to your investment goals after taxes and extra legal costs, to me it's a pretty simple decision. 

That being said Indiana is a relatively diverse market - Northern Indiana/ South Chicago is completely different from the majority of the state.

Like from a wholesaler? That's essentially all a wholesaler does. 

@Johnny Chen I think it's worth spending a small amount of time up front talking with a few syndicators to find one who shares your investment strategy. Otherwise you're simply dealing with a middle man who you should at least do the same amount of due diligence on than you would a syndicator or any investment. I don't see any advantages for the investor in a crowd funding platform. I do think it's a great tool for operators/syndicators to raise money from investors who don't ask many questions.

@Ivan Barratt is the real deal, and Indiana/Midwest is an incredible market if you are seeking healthy cash-flow while building equity (having tenants paying off the mortgage). I would take him up on the free education.