All Forum Posts by: Spencer Gray

Looking for partners on that Fiji development?

"Coast" investors are going anywhere and everywhere chasing yield it seems. Cap rates have compressed so much on the coasts they are venturing out into markets that in the past haven't been worth looking into.

We are seeing the same thing in the Midwest, low vacancy rates, low unemployment, new jobs, etc. Buyers are coming in from California, New York, etc making offers 50-100 bps below previous market cap rates for MF deals, forcing more compression on local cap rates. 

2% / year just for guaranteeing the note seems salty to me.

How is the deal structured with the LPs/GPs? More specifically how are you being paid to put the deal together? Do LPs get a preferred return and then a split after the pref hurdle of like 70/30?

Why not give him 10-15% of the fee you charge your LPs to put the deal together and 10-15% of the carried interest? Have the fee be converted to equity at close so he gets a piece in exchange for guaranteeing the note.

That way he gets compensated when the deal makes money but it won't drag down the overall performance of the deal. He'll get distributions and a piece when you sell.

@Ivan Barratt 

Work with someone local, like Ivan. I have done multiple deals with his company, BAM. I Can only say great things about his team. Indy is a great market, but it helps to actually know it, boots on the ground, etc. 

Unless you go HUD 223 route where you can put down as low as 15% I believe but the financing costs, reserves and ongoing inspections make it a little more complicated. It is also possible to finance a good portion of the renovation via 223.

Hope this isn't too late... I live in Butler Tarkington off of 44th st and have witnesses block by block appreciation/gentrification over the past few years. South of 42nd street still has a way to go but more and more young families are moving into the neighborhood, the streets get a little nicer and nicer and are appreciating. 

The city has also been investing in the area with the Tarkington Park upgrades (new cafe, dog park, small outdoor amphitheater) and are in general pushing to renovate the 38th and meridian area.

SFH and doubles aren't really my niche but I can't help but looking at some worn down properties that would be prime for some BRRR in BT.

As others have mentioned Indy is very block by block, I would be happy to let you know what I think of a specific cross street or address if you wana PM me. 

Rules of thumb are OK for eliminating multiple prospects, but at some point you have to look at trailing financials and use them to make your future assumptions.

After you have looked at a few deals you will begin to get an average of certain costs, not their $ amount but their ratio of gross operating income. From there you can refine your prospecting by using some of those assumptions on properties you don't have the full picture on.

For example, as a baseline I use 8-15% of all gross income as my fixed expenses, 10-15% for capital improvements/reserves, 5-10% for vacancy and 1-5% for loss to market. If you have a property management fee include your 3.5-10% off the gross. These numbers obviously don't include debt service. I also feel like I'm forgetting something, but you get the idea.

Then I use 2-3% for inflation across the board unless the market dictates otherwise.

These are still "rules of thumb" and if anything can be used as guides or as a quick replacement for a lack of information. Always input real numbers when you have them, and then ask yourself "How good of a manager is the seller? Can you improve on those numbers? Or if this is your first time or two is it possible you make a few mistakes? If so add some cushion in your numbers, use 15% instead of 10% for variable expenses.

You can always just charge the CC fee to the tenant. You can even round the 3.5% up to 4% for the convenience and increase revenue while encouraging whichever method of payment you prefer. 

I've used Intuits GoPay system for another buisness and I think it only has a fee of under 2%. We take CC info over the phone all the time and enter it in, deposits directly to our account.

Use whatever syncs up with your current systems.

I use an estimate that includes any forced appreciation from the onset of possession and then a rate of appreciation (1-4%/yr depending on location, market, market cycle, etc) over the targeted hold time. Then you can look at your 5, 7, 10, 15 year exits.

Are you using leverage or cash? You can buy at a 7% cap and be making a cash on cash of 9% and an IRR of 18%. It all depends on your criteria, quality of asset, financing, the value add, and exit strategy.

In my local market of Indianapolis cap rates for SFR are in the 6-9% range, doubles and triples 8-12%, larger multi families 6-7%. I like the larger multi families, even though the cap rates are lower (they're low because there's a lot of money chasing them right now). There are obviously outliers in any market and I know little about San Deigo outside of it being a market to play the appreciation game. Focus on your IRR rather than cash flow. You might want to look out of state if you are more cash flow focused.