All Forum Posts by: Trevor Richardson

It is very very common to do this. The problem is agents, buyers etc… focus on one cash flow scenario. In reality cap rates and cash flow should be calculated to 3 or more scenarios. Your 7% cap is focusing on the highest possible return, when you find out that it’s actually a 5% cap on actuals you are let down. This is an industry problem that honestly can be solved by organized analytics and communication. 

We have developed a way where we look at all multifamily properties with three different cash flow scenarios. Actual, market and proforma rents. We present all three on the brokerage listing side and buyer side so they can see each scenario clearly. 

Any owner with under market rents is going to want their agent to sell the property based on what the cash flow “could be” not what it is. We set correct expectations with everyone from the beginning. 

To me interest rates, inflation, jobs are all distractions from the underlying issue. The country does not have enough housing supply to stabilize the market. I’d consider Denver a mountain west market, we are seeing the slowness of 2022 already evaporating here in Reno like overnight. 3-4 months ago it was doom, no buyers as the western markets started to correct, now it’s right back to multiple offers, rising prices. Builders are pulling incentives because they are getting back to waiting lists. Whiplash. We don’t have enough housing.

The housing supply/demand curve imbalance does not give a rip about interest rates when people still have equity. 

I don’t think market rate tenants have a lot of needs for a granny unit. It’s unique so may take longer to rent. 

Quote from @Aaron Steinfeld:

@Trevor Richardson Thanks for your reply. My goals are to to get market rent on all the units through rehabbing them, and turning them over ASAP in a understanding and considerate way, All the tenants are on M2M is is still necessary to do C4KS or should I just give one group of tenants a option to renew or a 30 day non renewal?

It’s really up to you. It depends on the “motivation” you have to stabilize the property. Some landlords have no issue notifying the tenants day one then move to evict if they they don’t agree in 45 days. Some need to strategize with turns and timing. 

C4K isn't necessary at all, but I think it puts you in a “helping” position and will get you moving faster. It won’t work for all the tenants but you need to phase out turns anyways. 

In a year when you are still turning it over you can always say you offered to pay to move and they didn’t take it. 

If you have any emotions I’d offer C4K even if it’s a smaller amount. I know it’s not investor savvy to have emotions, but I’ve seen it so many times that when the rubber meets the road, even seasoned investors squirm at moving elderly fixed income folks out onto the street. I promote helping them by throwing them a bone. Then I’d bump rents on the next phase and transition. Then you are left with holdouts on the third phase. Maybe you do all theee as a goal in 12-18 months?

Without knowing your short or long term goals. 

I have seen investors struggle with this heavily. I can tell you the longer you wait the more weird and difficult it gets. And you will lose cash flow. 

If 30 units are under by $200, you are under GRI of $36,000 in the first 6 months. We have had investors offer cash for keys, an incentive for them to move for maybe $900 each. Here is how it looks. "Dear tenant, this property is going in a new direction from ownership and we are offering $900 to assist with your moving costs if you agree to move within the first 30 days." Something like that.

I think you will have takers on that. For those units you will break even or increase income in the first 6 months. You helped them, and got the unit back and cash flow closer to your goals. 

From that initial offering of C4Ks you will find out who is going to be easy to transition and who is not. Bottom line, I would not wait on this. I've seen a lot of owners get deer in the headlights with the tenant moving thing. It's not the most glamorous part of this business but if done correctly everyone can benefit. 

It’s pretty simple. Off-market deals favor the investor (buyer). It’s a game out there, they are trying to provide a quick and easy deal. Which they can, at a discounted price. 

A off-market pitch is hoping that you will agree that fees from agents are too high and their single offer is the best. Ah don’t go through that pesky listing process. 

Listing on the other hand always puts the owner in a power position. Make the agent do their homework so they make the process easy and hassle free for you. If done right you should clear whatever off-market offers are pitching you, even after commissions. 

Lastly, you are renovating? For sure finish that and grab a real estate agent. Clean inventory on the market is a great commodity! If that investor is truly interested in your property have the agent provide them the listing before it hits the market.  

Quote from @Greg Scott:

Most apartments don't have a list price.  Typically they have a "whisper number" which is a price the broker will tell you.  However, whatever they say should have little bearing on your offer.  Some brokers like to put out a relatively low whisper number hoping to create a feeding frenzy. Other brokers give out a high whisper number, hoping someone overpays. 

What is critical is that you know how to run the numbers so you can decide what YOU can pay to hit your financial objectives.

You are exactly right for off-market properties, or listed without a price. I've been around those deals, how dumb is the wisper price thing? Seeing you describe it just makes it look silly. 

The number that matters is what number you come up with from underwriting, not worrying about the wisper price, or this guy or that guy couldn't make it work at X number. Underwrite the subject and make an offer. Repeat. 

Our small success - My partner and I have done more small multifamily transactions (2-10 units) than any other agents in the Reno market for several years. Imagine if your agent ran every available listing on the market through the Bigger Pockets calculator, everyday, and simply sent you the results. That how we did it. 

Another way we did this is by not using advanced analysis to buy the deals ourselves, instead we do all the analysis for our clients, buyers or sellers. They know when we identify a great deal, we have no interest in purchasing it, we just want to help them succeed. We put our clients and true brokerage first, focusing only on residential investments, we don't do anything else. For instance we can easily answer what's the best duplex investment out of 14 duplex listings everyday. Nobody in the market cares about small multifamily but we love it.

How do you find and analyze the right single-family investment? Did you hand-pick from hundreds of listings or did your agent help narrow down your options? Did you just prioritize finding just the lowest $/SF?

Please share your experience and insights on the (search and analyze) process of finding and analyzing the right single-family investment property.