All Forum Posts by: Tim Soto

I would just make sure not to put myself in a position of having to sell. Get fixed terms for your mortgage vs adjustable. If the mortgage terms are fixed, principle balance and payments will continue as they have been. If the property is cash flowing, then it shouldn't matter when the market takes a dip because then my payments aren't fluctuating and I don't have to sell. I can ride out the storm. Hope this helps. Good luck!

Hi Theodore,

Just looking at the numbers, there's not much upside from the current 8.5% cap rate to the pro forma cap rate of 10%. The 8.5 cap with the current NOI, they're asking about $386k?

I would try to bring that price down a lot. Then you can see what kind of mortgage you can get and with what down payment. 

If the seller is motivated and there's rapport between you two, I would ask if they can be the bank for only a couple of years. You can explain that this would allow you to season the loan (pay your mortgage to seller) and refinance after 12 months to cash him out. You would be getting the loan as an owner instead of a buyer. But most importantly, if the numbers don't work, no lender is going to refi it. It's got to cash flow. Hope this helps.

Tim

Hello BP, I just wanted to share a recent success story that’s been long over-due. This success story is a follow-up to a success story I posted about a self-storage investment property I acquired using a private lender. Here’s the thread for background information on the acquisitions https://www.biggerpockets.com/forums/223/topics/241832-successful-self-storage-closing-thanks-to-private-lenders.

Here's a quick summary: This self-storage property was an Bank REO in California. I was familiar with the area and knew that this was a great value-add opportunity. The property consisted of 100 units on 3.5 acres and was built in 2006. It was under-performing at 65% occupancy prior to possession, and had an NOI of $35k.I was willing to pay a 10% cap rate, so at $35,000 NOI, I would have paid up to $350k. I ended up closing at $325k because I was able to pay cash and close quick, using the private, and only $20,000 out of pocket costs (my deposit).

The property also had enough acreage for an additional 300 units, and I was able to recover those plans that had been previously submitted to the city, but expired. My plan was to eventually develop additional units on the property, since there was a lot of demand for the location, so I wasn’t really planning on selling the property, also because I acquired it at a good price and had stabilized it up to 85%-90% range within six months.

During that time, I kept in contact with the listing broker, who also represented me for this transaction. We discussed that if there was ever a motivated buyer out there, who was interested in this property, then I would consider selling for the right price. So, after a year later the broker approached me with an offer from a motivated buyer.

I ended up selling it for $620k. Not bad for a property I held for only 18 months. I did a 1031 exchange into a larger self-storage property and an under-performing 8-unit multifamily property in Phoenix, AZ at a great price, which I’ll discuss in my next success story.

This story is a great example of how important relationships are in this industry. I would’ve never been able to acquire the property for the price that I did, without the relationship I had with my private lender. I never would have sold the property for the price and speed, had I not kept a dialogue going with the broker. Most importantly, this helps my track record, being the first self-storage property that I’ve acquired, stabilized, and traded up on. Thanks for the opportunity to let me get my story out. I hope I was able to inspire some of you out there to continue to push through. Please feel free to leave some feedback. Thanks!

Thanks everyone for your immediate replies. 

To paint a clearer picture of the situation, the damage has already been done here also. The property and its operation has been substantially neglected, but it's in the path of progress, and with the under-market rents, there's a huge upside.  This was a hands-off mom & pop operation with all tenants being long-term and on month to month. I was only able to obtain copies of rental agreements from 5 of the 8 units from the seller.  While doing my due diligence, I noticed that there was one dog, but as soon as I took possession, a neighboring tenant notified me about the rest of the dogs and that the tenant lets them out unsupervised, and in some cases, there's dog feces left on the other tenants' yard. From the leases that I was able to obtain, there's no indication or record of any dogs or pets residing in any of the units. It also states that liability insurance is required if there are any pets. I'm definitely going to enforce that clause.  I'm also thinking about enforcing a pet deposit $200 per pet, or is that unreasonable? Based on the new information, how would any of you handle it? 

Thanks,

Tim

Hello All, I have a question about how you would approach the transitioning of tenants on a new acquisition. I just acquired a multifamily property, and was notified that a tenant has about four or five dogs living with them. The previous owner was hands off and had mismanaged the property, which is why there's no tenant accountability. I prefer not to allow pets, let alone more than one. Seeing as this is the first time I've been in this particular situation, I was wondering if anyone has experienced a tenant having more than the allowable number of pets, and if so, how you dealt with it. I would love to hear and appreciate your feedback and insights on this situation. Thanks!

Tim

Yes, Yardi has specific property management software for all asset class.   

In regards to refinancing, underwriters look at the business' cash flow, the borrower's personal financial statement, credibility (experience), and credit. This is based on my experience. It helps to show on paper that you took an under-performing property, stabilized it, and are managing it efficiently. Hope this answers your question. Good luck! 

I'm using Sitelink Web Edition. This property management software is specific to self-storage and allows me to manage remotely. I went through a demo to make sure it met my needs before I committed. 

Any Ticor Title company can do these closings. PM me for a point of contact.

Great point @Jay Hinrichs in mentioning different asset classes. I'm currently trading up to a larger self-storage and a multifamily property, and both are located in a different states. Besides having boots on the ground to minimize my risk, I make sure to have the right Property Management system that allows me to log-in remotely and run my own reports. I also make sure to have a security camera system at the self-storage facilities that are linked to an app that I can view remotely or on my phone. You can also research and interview 3rd party property management companies if necessary. For me, based on my experience, I start with the listing broker and asking a lot of questions about the referring parties. The title/escrow company is most likely local to that particular property and can be a great source of referrals as well. Hope this was helpful.