All Forum Posts by: Jason V.

Two questions: 

1. Why duplexes?

2. Why the area you've been hunting?

One of the things I really dislike about duplexes is that you're not only bidding against real investors, you're also stuck competing with owner-occupants. People who are buying a house to live in are willing to pay more for what they want, well past the point any investor worth the title would be willing to pay. You're essentially trying to buy a SFR (that's not quite) at retail prices as a decent investment. Not a good play in this market, in my opinion. Open your search to 3 and 4 unit deals - you might be surprised at what you find. Broaden your search area as well, because there will be fewer in this size range.

Good luck!

@Chris Schuler - Without a doubt, #152 with Ben Leybovich, Brian Burke, and Serge Shukhat.

P.S. You can only tag folks in posts if they have contributed to that post, or if you're connected with them on the BiggerPockets forums. 

 Realistically, I'm looking 12-18 months out right now, for a couple of reasons - and that's if I can find something actually worth buying! I'm not at all interested in buying a bad deal, just to get a deal - I'd rather buy more residential multifamily before I do that, and just wait for the market to calm down. 

Knowing that there is a lot of commercial debt coming due in the next 18 months gives me that much more patience. Out of curiosity, how'd you find that information? Mortgage broker clue you?

I'm comfortable enough right now that I'd pull the trigger on a real deal if I had one in front of me I could execute on, but I'm also a believer in "bullets, then cannonballs" - I wouldn't think twice about buying a 12-24 unit property, but I'd like to have one like that under my belt before stepping up to the 50 or 75+ unit deals. Being able to get a non-recourse loan would change those numbers a bit, but I don't think I'm at the experience level or investment level to get there yet. 

Thanks Gino!

 In the investing I do now, I've always been a believer in buying locally, for a lot of reasons - primarily because I have an advantage where I invest now that I wouldn't have in a new market. As my ideas about investing in commercial multifamily continue to mature, I think I going to keep looking locally for my first couple of deals, until I'm looking at a property that I would consider to be standalone (having full time management and staff, if I ever get to that level.)

I'm meeting with a local PM company on Friday for lunch, just as a relationship builder and fact-finding opportunity. I currently manage all my own properties, and will likely continue to do so, but if I buy something 8-12+ units (what I see as my logical next step, beyond what I currently do, and plan to continue with) I plan on using 3rd party property management. 

@Brian Burke - Thanks so much for taking the time to respond to this post! Among all the other great information, you walked me through a couple of points I've really been struggling with in considering the jump to commercial MF properties.

I would love to be able to get non-recourse loans, but from the research I've done (talking to some commercial mortgage brokers and listening to a couple of guests that are brokers on podcasts) it's likely I'll have to work my way up into that size property, which I really don't have a problem with. In my current situation, a $500,000 note isn't something that would terrify me to have to give a personal guarantee on, and would also give me some of the requisite experience to move up into the next, larger property, and so on. I believe my other option would be to partner on a deal with someone who does have the experience to do a deal large enough to get non-recourse loans, correct?

Buy Value-Add B & C in Growth Markets...sounds so simple when you put it like that :-) But seriously, I've been trying to figure out the market analysis piece for a while, and I still feel like I'm picking stocks (maybe not that bad, but still.) I know what I think are the key indicators, and I think I have reliable sources of information, but I'd love if you could share some of what you look for when identifying growth markets. 

I'm going to force myself to walk away from the computer now: I could easily burn up your whole day picking your brain if you let me, but I'll try to be respectful. Thanks again for your input Brian, I really appreciate it!

 I think this might be one of the biggest things I take away from this post: get 20, 25, or 30 year financing with no balloon and leave some room for rates to go up after the initial fixed period. One of the biggest concerns I had was having to refinance after the initial 5 or 7 year term, and as others have noted, this might be a really tough time in the market. That particular aspect of MF investing was what concerned me the most. 

It's also nice to be reminded that most/all commercial lenders are likely going to be conservative enough that if they lend to me, I'm probably in OK shape - I wasn't aware the crash was quite so isolated to SFRs from a foreclosure standpoint, but that's very reassuring. 

Thanks Mike!

 Great answer, thanks Marc!

Practical question: it's easy enough to figure out what cap rate the seller is using to determine their price (if they don't state it outright.) Do you justify your offers by giving them the cap rate you're figuring on and why? The MF market is just crazy hot right now, with a lot of properties selling for "perfection" and maybe I'm just trying to talk myself out of putting the work in because I know the odds are pretty long right now. In any event, yours is a simple solution I hadn't thought of - thanks!

 Jeff - you're saying that having 5 multifamily units in a building will have lower vacancy than 5 SFRs? From what I've seen, that opinion goes against the grain.

And if you buy multifamily you can just raise rents as much as you want whenever you want? I was under the impression the market drove rent prices, and in a potential down market like we're talking about, rents would be flat or go down. And of course the biggest factor in determining value of a MF property is cap rate, which is market driven as well. And if the Fed raises The Rate by half a percent, you can pretty much guarantee cap rates will rise significantly more than that, decreasing the value of properties drastically. 

But I was under the impression pretty much all loans for commercial multifamily properties were 5 to 7 year terms, with much longer amortization periods, so it's good to know there's at least a chance for 20-30 year fixed rate term loans for commercial stuff. Thanks!

@David Thompson - Thanks for your reply, that is some great information to have! 

I've been trying to get a handle on market selection, but for me to be able to do it well, as a part-time investor who has a day job (and then some) feels kind of like picking individual stocks to me. The biggest, best RE firms in the country can't agree on markets, and sometimes get it really, really wrong - how can a guy like me get it right? (That's an honest question, not a snarky response, I promise.) 

I'm definitely with you on the B/C properties, particularly value-add opportunities. The problem is, so is everyone else! I keep remembering what I heard a guest (Serge) say on a podcast: Multi-family is a very competitive sector, with very small profit margins. What makes you think you can do it better than the current experts in the field? Again, not being sarcastic - I have to find a way to be competitive with both local investors, and National level outfits. It's tough!

And my comment on interest rates has more to do with the total investment outlook than just the lending side. If interest rates go up, rates on bonds and CDs are likely to go up as well as the other 'traditional' investment returns. This is going to draw investors away from RE, REITs, syndicated deals, etc. and lessen the demand for MF, especially large MF, significantly. I think this might be the biggest driver of change in the market, besides increased interest rates. (That's one amateur's perspective anyway - I could be 100% wrong.) 

Maybe the best bet for me at this point is to try to work along side a syndicator, even though I have zero interest in syndicating a deal myself (just my personality) but the time is a tough commitment to me. 

But just having this conversation is very helpful to me as I try to plan the next 5-7 years. Thanks David!

1. It wouldn't be $1 Million, it would be the difference between the loan balance before refinance and 75% of the new value of the property (assuming a 75% LTV based on the new stabilized price.) In this case, it would probably be around $245,000 cash out, or about what I would have put down on the property in the first place. Typically, that money is taken and used as a down payment for the next property. If done correctly (not necessarily like this example, which just made for easy math) the investor typically gets substantially more cash out at refinance than they put in intially, in addition to continuing to control the asset. Hence the popularity of commercial MF investing, as well as the BRRRR strategy (which is just what commercial investors have always been doing, but applied to SFRs.)

2. Typically the loan is re-upped, often with the same lender, but not always. Many investors plan on refinancing on a somewhat regular schedule, based on the performance of the property, resetting the 20 or 25 year amortization period every time. The full term of the loan might never be reached in this case. You can get pretty deep on this topic, with some really intense math and theory about the optimal time to exit or refinance, that I can't even begin to follow. Some of the very smart people Bill S. mentioned could speak to these things, but I'm definitely not the person to ask.