All Forum Posts by: Stuart Udis

@Dutch Mendenhall Your latest email was just released titled "4 X Your Investment". Contained within is a video of you interviewing someone on how to 4X revenues through ad spend. Is this really the correct allocation of your organizations resources at this time? 

Meanwhile your website lists 11 staff members with the following titles: CRM/Email manager (1); SEO Manager (1); Content Creator (3); Director of Advertising (1);  Digital Advertising Specialist (1); Event Logistic Specialist (1); Chief Creative Officer (1); Social Media Manager (1); Senior Social Media Engagement (1)

How is this overhead optimizing your real estate portfolio so you can return to making distributions? Perhaps you should be refocusing your organizations resources at this time?

Syndications are simple.... Assemble a team of individuals who can split following responsibilities: contribute the earnest deposit money, guarantee the loan, find the deal/conduct the diligence, raise the capital and manage the building. Oh and find a bunch of people who are willing to write you $50,000+ checks despite having no track record or experience. Now if you can find a deal for another GP or help them raise their capital or perform any of the other tasks noted above you can market yourself as a CO-GP and put the property on your website and represent yourself as the GP in your marketing materials to bolster your credibility and raise capital for your own deals. That seems to be the playbook many are paying thousands of dollars in education fees for. Can I send you an invoice :)

@Kenji Tominaga congrats on the accepted offer. To answer your question, it depends on the property and your plans.  You will need to insure the building improvements and you will want general liability coverage. If you are renovating the building you will also need builders risk insurance coverage which can be removed once the renovations are completed. If the property is tenant occupied, you should require your tenants to have renters policies and lastly and just as important as the insurance you obtain is knowing all vendors you rely upon to perform work at the property and on your behalf are properly insured. Since you appear to live in Brooklyn I assume you will rely on a 3rd party property manager. It’s important the company has progressional liability and commercial general liability coverage and any sub contract relationship the PM relied upon carries adequate insurance coverage. Always best practice to be listed as additional insured as the property owner as well. 

There’s plenty of insurance brokers who can help you originate the necessary policies. 

My advice is to limit your use of credit cards to front costs that are reimbursable with a bank draw in a loan that you have originated. For illustration purposes, the windows are a 4 week lead time so you put the window order on your card and once they are installed, your lender releases the funds and you pay down the cards.

I see too many “Gurus” teaching new investors how to use credit cards to cover down payments and they teach this because it creates the false perception that anyone can buy real estate with or without savings. If they don’t spread this messaging they won’t have a captured audience of  paying students.

Now what happens when you use credit card debt to buy real estate and you can’t sell the home or you can’t refinance or you can refinance but you can’t pull out the credit card debt? Before you know it you are making high interest loans on a property that’s over levered.

@Collin Hays Helpful post for many on these forums to read. Most fail to appreciate insurance coverage typically only covers negligence and any act that exceeds negligence is treated as an exclusion. In fact, in some instances even negligence will only lead to a carrier covering legal representation under their reservation of rights and will not cover any settlement or jury award. It is very fact pattern and venue specific.  Usually a plaintiffs attorney recognizes this and will seek out a negligence claim as opposed to a gross negligence claim (even if the fact pattern supports such a claim). Ultimately the defendant's insurance carrier's cooperation is how the plaintiff and the attorney will be compensated as a judgment or settlement without insurance proceeds is usually worth as much as the paper its drafted on. This is why it is important to make sure your day to day operations are run properly and every vendor who performs work at your property and /or on behalf of you is properly insured and you are added as additional insured under their policy (not merely a certificate holder). 

There are two other insurance points that real estate investors should be mindful of:

1. It is also important to understand the standard of care that vendors owe you in indemnification clauses. This could mean a vendor to owner relationship or a sub contractor to vendor  relationship. This was widely discussed on these forums recently and the example that was shared represented that the Property Manager would indemnify the owner only in the event of gross negligence. Well, that effectively means there will never be an action on behalf of the property manager that will result in their insurance coverage protecting the owner. Therefore the appropriate standard of care should have been negligence. 

2. It is equally as important to know what your vendors insurance does and does not cover. Many fail to realize vendors will carry commercial general liability coverage and workers compensation (if they have employees), but many do not carry professional liability/E&O coverage. CGL coverage will cover property damage, personal injury and bodily injury but not many other issues that often arise, particularly during construction.

I appreciate the context but still can't say I agree with your process, particularly unwillingness to buy on the MLS. Plenty of value add opportunities on the MLS where you can create tremendous value with good cash flow. Cash flow is necessary to make the financing work, but the more meaningful realization events occur when the properties appreciate or value is created through development. Here's a case study that would be dismissed based on your criterion:

-Asset: Mix Use 11 Unit Building

-Contract Price: $1.73M

-Existing Rent Roll $15,800

*Currently 1 vacant commercial space market rent $5,500 & 9 apartments all leased below market value (60 day termination provisions for each residential lease). 

-$650,000 Renovation Budget

-Stabilized Rent Roll $25,400

-"As Complete and Stabilized Value": $3.45M

That's a recent MLS deal in a B+ Philadelphia location with a credit tenant that's been there for 20 years in the occupied commercial space. Deals like this would be dismissed with your underwriting because they don't cash flow.

@Jarrod Acres Bank originated construction debt is fairly commoditized on rate. You are typically going to see WSJ Prime + .5-1 point adjustable with a floor. The best lenders will capitalize interest reserve and finance closing costs. It will lead to less cash out of pocket even if their LTV's might appear lower than lenders who do not capitalize the interest reserve or finance settlement costs or origination fees. Expect to pay a few points higher from alternative lenders and less frequently will those loans be adjustable where you can benefit from the fed cutting rates. Lastly, if there is imputed equity, some lenders will give you credit for this but usually requires a story, and not merely being purchased well. The usual fact patterns where this applies are long ownership history where the parcel appreciated or value was created through entitlements. Hope this helps.

@Moira McKee  What are you looking to build and is this a by-right subdivision in the RSA5 district? If not, you will need a variance which means showing hardship. There are circumstantial opportunities to obtain variances without presenting a hardship case but it can be a lot of time and effort. Also, its very difficult to make ground up development pencil in an area like Port Richmond, even if you were to self perform due to construction costs and current cost of financing.  Keep in mind, if the subdivision is not by-right and your investment group wants to seek a variance, you are able to do so as the equitable owner meaning you don't have to purchase the property before submitting your zoning application, receiving your refusal and appealing to the ZBA. This would alleviate the need for seller financing, at least until you settle on the property.

If you are qualifying deals based on whether they are "wholesale" or even "off market", you are going to miss out on opportunities. In the past 6 months I purchased two properties on the MLS that appraised at time of settlement for at least $300,000 more than the contract price. I probably receive 100 emails a week from wholesalers and not one has sent me an opportunity that compares.

@George Voutsinos I would have to disagree with your approach :) The cash flow leaves as soon as the tenant moves out. The cash flow is also eaten up by cap ex events (which are absorbed far easier in the higher barrier/more expensive locations where cash flow may not appear as strong). You can theoretically cash flow better if the stars align with a section 8 rental in North Philadelphia compared to a better situated property. But what is reflected in a pro-forma rarely comes true in the lower barrier neighborhoods. I will take the better situated real estate where there are barriers over cash flow all day. If you are playing the long game, which you should with rental real estate you will come out ahead.