All Forum Posts by: Troy Whitney

Anyone have any experience with modular construction for ground-up multifamily projects?  If so I'd love to hear from you.

Thanks,

Troy

Hey Greg, thanks a bunch for your thoughtful reply.  I'll be printing out your thoughts here to re-read them when I'm not tired.

From what I can tell there are a couple of options for this property. I've already got tentative financing arranged based on one strategy, although the other would probably be easier and faster to get through permitting. I've run some numbers and the higher value add looks like a home run (I used Michael Blank's deal analysis software and changed a few things to evaluate it assuming a multi-year development timeline from acquisition to full tenancy). One other option (townhomes) may work as well, but due to smaller loan size may be a little trickier, though still probably doable, especially if I get a backer with a strong balance sheet. I've already spoken with a planner and may bring him on board. I've also got a friend/builder/investor that's already done builds like this before. He's also got a couple of investors that he wants to talk to. If I can get the property owner on board, based on the analysis I've done so far, it looks like a decent shot this will come together. Of course though, time will tell. After posting this above, I decided to write up an LOI and have an experienced investor friend (who happened to go to law school) take a look at it. I'll send that over and then meet with the property owner next week. My plan is to then work up an LLC with all necessary contingencies to give myself enough time to work out some details. I've also got a developer friend who may be interested in the build, and he'll be speaking with a potential investor or two to see if they might want in on some level. I plan to meet with the property owner on site this coming week, hopefully with a plan in place to sufficient to get things started. The biggest thing after that will be the environmental review process. The property is already zoned for the intended uses. The trick after all that is doing this without writing a big check. If I can pull it off using other people's money it'll feel like a miracle, but that's what I'm trying to do. I've got some funds to work with, but I've also got two other remodels underway now and a flip I'm starting soon and need to conserve capital. I'm just tired of small deals and want to do something bigger. Maybe this is the time. Seriously appreciate your thoughts. If you don't mind I may reach out some time with a question or two some time. Just curious, where have you done projects?

Thanks,

Troy

I'm looking for thoughts from anyone experienced in larger developments.  I'm in talks with a property owner who wants help developing a parcel.  It's currently zoned commercial, but there's a significant review and approval process you have to get through before you can develop anything in the Seattle area.   I want to spearhead the development process and get the project to the permit stage and am willing to put up some money, but I don't want to invest a significant amount unless I have assurances that I won't be cut out of a deal he decides to make with someone else down the road.  The fact that this review process can take a year or longer is what makes me nervous.  I've considered some sort of lease option, but my guess is the owner would want more than I'm willing to pay for the option.  My preference here is to partner with the owner, and he has suggested that he's willing to do so under the right terms.    So, if you have any thoughts on a way to structure such a partnership and protect my interests I'd love any feedback - thanks.

I know I'm late to this thread but don't forget the certificate of occupancy...I think this is for anything bigger than a single family or any commercial building, which can be difficult to get and take a long time.  If you need it and don't have it, if there's a fire, the insurer will probably deny the claim. 

I have both bought and sold properties using and/or assigns. In fact I'm making an offer right now on an apartment building using this language because my partner and I are going to assign the deal to an LLC that we are creating specific to this deal, but want to get an offer in quickly. The listing agent actually wrote that into the language because he knows this. I am also selling a property through a wholesaler and I wrote the contract for him, and I put that language in the contract for him because I knew he was wholesaling it. The title companies in both cases have raised no issues with this. I think all of these generalizations aren't very helpful. Every deal is different.

This is a tough question to answer because there are so many factors.  There are many neighborhoods in America where you can do much better than an 8 or even a 10 cap on multifamily deals, but the question is - would you be willing to venture into those areas?   A high cap rate is great if you have low vacancies and low expenses, and tenants aren't worried about having their units broken into or getting assaulted when they walk around their neighborhood.  I personally like to find a balance between current cap rate and demographic/r.e. development trends happening in that area.  I have properties that I would buy 100 more of if I could, and  a couple others that I would love to hit the rewind button on but am doing what I can to make them profitable going forward.  Now as my partner and I move into the realm of raising more capital for deals, we are looking for value-add deals offering strong near-mid-term cash flow and even higher upside based on improvements to those deals.  I'm happy to discuss this in more detail if you send me a message.

Kelly - I live in the Seattle, WA area where $600k houses rent for maybe $2,500/month, which obviously doesn't pencil out at all.  I got frustrated with this market and in 2014 started looking elsewhere.    I bought some smaller deals in Philly and am now branching out to multi's elsewhere.  In general, I look for 8 caps or better.  Definitely doable in some markets.  In others this is impossible. With mf deals you can and will likely want to hire a property manager.  With singles, it's often tough to make the numbers work, as you end up giving almost all of your profit (or more sometimes) to the manager.

Happy to discuss more if you like, just drop me a message.

Ajaya - you're in one of the worst markets in the country if you are looking for cash flow.  I'm in the Seattle suburbs in a similar boat and got frustrated, so I started shopping in Philadelphia and now Chicago.  Since 2014 I've purchased 10 properties in Philly and just bought an 8 unit that we will convert to 12 in Chicago.  I'm happy to talk more with you about how I evaluate properties but I would strongly recommend looking in other markets.   Send me a message if you want to talk. 

Michael - I would recommend you try to do a deal with a parent or trusted family member.  See if someone that knows, loves and cares about you is interested in partnering up with you.  Start attending investor meetings with them.  Read library books about real estate, and save as much money as you can so you can eventually do a deal.  And I personally wouldn't start with wholesaling.  I know that the whole - no money down theme sounds great, but maybe  just try to find a way to buy a property.  Mow lawns, pick weeds, etc. and save everything you can.  I knew a kid in high school who made $18,000 in a summer with his landscaping business, and that was in the late 1980's.  Of course - he had a truck and equipment, but the best thing you can do now honestly is save up money and learn all that you can.  And did you say you want to invest in Idaho?  Maybe i missed something, but when you are ready - maybe check out a market closer to home.  I live in the Seattle, Washington area but buy in Philly and now Chicago, both pretty good markets where you can find cash-flowing properties.  Maybe if you partner up with someone, you can be in charge of tenant relations.   Eventually you'll want to learn about building up a system, but for now - just try to find a way into the game.  If you own are a part-owner of an investment property by the time you are 17 or 18, you'll be way ahead of a lot of people that are much older. 

To be clear - Sherman Bridge is a hard money lender.  These types of loans should be a loan of last resort.  I just closed out my loan with them and their horrible loan servicing company FCI.   My initial loan with SB was 12%.  Since I had to extend the time period for a few months, the originally were going to charge  me an additional 3% to renew my loan, and then they jacked my rate up from 12%-15%!!!.  To add insult to injury, FCI  (their servicer) charged me $30 each month to do an ACH withdrawal because I had my loan set up on autopay.   I have done four hard money  loans and this was the last one I will ever do.  If you have a flip, hard money may seem like it makes sense, but my guess is the terms are so severe that the hard money lender will suck most of the profit out of these types of deals, unless it truly is a home run.  I originally had a $150,000 loan with Sherman bridge. Half was for the purchase and half for draws.  These lenders will charge you every time you take a draw, and they won't give you draw money until after you complete a given phase of the project, and it's like pulling teeth to get them to sign off on each phase.  So in reality in my experience, by the time they are willing to unlock their purse strings and pay out a draw, I was almost completely done with the project.  I ended up paying off the draw portion of the SB loan after a couple of months into the remodel as I realized it just wasn't worth it paying all that interest on money that they would be forcing me to wait so long to get.  Between closing fees, other fees, interest, etc  My guess is that I ended up paying close to 20% annualized for each of my hard money loans, maybe more.  I'll let the accountant figure it  out, but it's almost too depressing to want to walk through it myself.    These hard money lenders are absolutely ruthless. When they ratcheted up my rate from 12-15% it felt like they almost wanted to foreclose on me.   Be very careful before you take on one of these loans.   You would almost be better off putting a portion of the project on a high-limit credit card. 

If conventional lenders aren't going to work for 1-4 unit deals, I've been reasonably happy with Finance of America.  Their rates are higher than a bank, but they won't run you through the mill for 3-4 months like conventional lenders do now.   If you are willing to pay points, they can get you down between 5-7% right now.