All Forum Posts by: Tony Guarino

Quote from @Russell Brazil:

Youve entered into one of the biggest logical fallacies that exist in real estate. You assume because you need financing, that others do as well. You know what has happened in my market since interest rates rose? Did prices soften? Nope not at all. But the share of all cash transactions went from 20% of sales to 35% of sales. So the interest rate being higher than the cap rate are irrelevant if the buyers dont borrow. 

Yeah, there was a lot of liquidity in the market, 1031 exchanges with all the equity that was built up, and a lot of buyers needing to park their cash somewhere for tax purposes - but I don't see that lasting forever. Great observation, but any solutions?

Hey Everyone, my business partner and I have recently taken on the challenge of raising some capital and investing in MF properties. I come from a finance/economics & underwriting background. So while he is wheeling and dealing, networking, and putting deals in the pipeline, I am underwriting them. However, all I am getting are on-market with +/- 5% Cap rates. Obviously, with interest rates being above 5%, this creates a negative leverage environment where there really is no deal. Caps rates have to soften at some point, but I think this negative environment could last for at least a little longer.

So with this in mind, I have a few questions for anyone in this space currently doing deals. 

1. Is there anyway to negotiate on market deals with brokers who think the Holy Grail is hidden at the property? Some how convincing them to sell at a 6.5% cap instead of a 5% cap? Maybe target deals that are just sitting on the market?

2. Where is the sweet spot for finding off-market deals where we could negotiate some creative seller financing? My guess is 10-50 units, make friends with wholesalers, etc. 

3. I am thinking that targeting some markets, which are not SUPER HOT, might give some more room for margins due to less competition. Does this pencil out - any comments? 

Any thought provoking thoughts, advice, or critics, are welcomed! Thanks in advance. 

Ok, with a bit more detail, I see the issue here. I'm sure you've already pitched some type of creative solution to the seller....

Honestly, if your initial investment is only $40k + Rehab & Transaction Cost, you could easily find someone to fund the whole thing. You've already done a few, so you have a track record. Create a little pitch deck of you, your past deals, and business plan. Pitch somewhere around 30/70 split, with an investor ROI north of 25%, and you should be able to find some investors.

I'll also mention that I do consulting work and would be happy to help you put something together and raise private money. 

Quote from @Nathan Harden:

Quote from @Tony Guarino:

If you are buying turn key models, I don't think hard money is your best option here. 

I'm fairly certain you can get an appraisal that will include market rents to get a DSCR loan. Any (or most) investors are going to want to have a piece of the equity for giving you the rest of the funds. Depending on your relationship with them, you can propose a preferred rate of (X%) and then a (Y%) equity split after they are paid.

The problem is that you will have no skin in the game and not a lot of people/lenders/investors can get comfortable with that. 

Getting a DSCR loan right off the bat is a great option but say they give me 80% LTV of the property and I put down the other 20%, if I'm not doing a cash out refinance since it's turn key, then how will I ever be able to get my 20% DP back so that I can repeat the process?

With what you just said, I think you need to change your buying criteria from turn key, to value add. Then hard money will be a solution. You can get 90% of purchase price and 100% of rehab. Then refi just your costs or pull some cash out depending on the deal. 

To answer your questions directly, you just have to raise more funds. With a waterfall structure you can build in 'rewards' for the property beating expected returns (A little more complex than my original suggestion). 

WHAT MARKET IS THIS? HOLY SMOKES 

A purchase price of $100k and $2,700 in gross rent? I will sell the house, kids, and car to move there and invest! Hahaha. 

Ditto on what everyone else is saying in regards to finding financing. Local banks you have relationships with. Have a professional spreadsheet you can send them for bonus points. 

If you are buying turn key models, I don't think hard money is your best option here. 

I'm fairly certain you can get an appraisal that will include market rents to get a DSCR loan. Any (or most) investors are going to want to have a piece of the equity for giving you the rest of the funds. Depending on your relationship with them, you can propose a preferred rate of (X%) and then a (Y%) equity split after they are paid.

The problem is that you will have no skin in the game and not a lot of people/lenders/investors can get comfortable with that. 

I can help you understand a few key metrics investors look at. Lets connect and hop on the phone! 

Just to provide some value to this forum, you will first need to find NOI, which is a properties operating income. Then you will subtract any capital improvements (Think renovations), to come up with more of an actual cash flow figure (This is called unlevered cashflow). Then you will make some assumptions on your debt financing, subtract that and you will come up with "Levered cashflow"

Income

-Expenses

=NOI

-Capital Expenditures (renovations)

- Acquisition Fee's

= Unlevered Cash Flow 

- Cost of Debt

= Levered Cash Flow

The levered cash flow is the number you will want to use to calculate any returns you are able to pay investors. Then you will want to calculate an annual ROI and projected IRR. (In this example, if your IRR is greater than 8%-12%, you will profit after paying them) This is a bit in depth, and depending on your investors, they will want to see all of this. At the $40k mark, you can get away with something a lot less sophisticated.

Hey @Arthur Cook, congrats! 

Margins are slim right now for multifamily. Depending on your financial position, or partners financial position, it might be awhile for you all to realize any returns. 

In addition, I do see cap rates increasing because the cost of debt increased. Therefore your exit cap will be more than your purchase cap, which can decrease expected returns. 

This all can be mitigated by seller financing. If you can secure debt at 4% ish, you can pay a 6 cap and be alright for a long term hold. 

To answer your question directly, if you are flush with cash, take down the property. If you are not flush with cash, wholesale the property, and do it again and again until you can take one down yourself! 

I'd be happy to help you underwrite the property, negotiate seller financing, put it all in a financial model, and raise capital for a JV. Shoot me a connection!

Hey Cathy, 

I see a few people here mentioned credit cards. I have financed several renovations and capital projects on interest free credit cards (One for 12 months, one for 18 Months). I went to the bank who I set up a personal account with and asked if they had any promotional offers. 

I always paid them down during the interest free period, but definitely something to ask your local banker. 

Best of luck! 

I don't think @Alex Talcott is too far off, @Tim Bee. (With the exception that I think he means with a mortgage) Depending on your market, Real estate is extremely competitive and there are investors who will accept those small returns to take advantage of the depreciation. 

In most cases, you can expect your Net Operating Income (your income before financing) to be anywhere from 50-80% of your Gross Income. In a SFH scenario, all you have is Taxes and Insurance if you self manage -so you are closer to that 80% mark. The more units you have, and amenities you offer, you start to see a lower margin.