All Forum Posts by: Trevor Richardson

Hello investors, BP community and investment property nerds.

I was just interested in finding out what one term you use most for single family investment properties. Thank you so much for contributing. 

What's your slang?

"rentals"

"rental property"

"rental home"

"rental house"

"investment"

"investment property"

"real estate investment"

"home investment"

"single family investment"

"other..."

Pull and clean housing rental data and sell it to brokers/investors. 

Quote from @Benjamin Aaker:

Like a few on here have said, the cap rate one way to help you value the property. If you are concerned with what the 'going' cap rate is in your area, then you are making your decision based on what others are doing, not on what you can do yourself. It doesn't matter what others are paying (i.e. what the cap rate is) if the underwriting works for your situation. That's not to say the cap rate is useless; it's just one tool in your box. When I underwrite I have multiple lines for different cap rates and look at each.

I do the same thing, we underwrite every property 3 times (actual rent, market, pro forma). And then we underwrite every property and see where they all come out.

I view cap rates as helpful and one of the metrics. But it doesn’t answer, what are my goals or what am I going to achieve? I think net income (monthly) including debt is the best metric. 

But everyone is always so focused on cap rate all the time. 

Are you trying to back-calculate the deal to find the max purchase price?

Quote from @Travis Hampton:

Quote from @Trevor Richardson:

Just curious. Why wouldn't you want to put the property on MLS?

 Because I have tenants in place until the end of May and I don't want people driving by the home or disturbing the tenants.

What if your agent didn’t put a lockbox on the property. And in the MLS comments put Investment Property, Looking for Investor or something, do not disturb tenants. The agent also did a full analysis of the existing cash flow (again to attract investors) to present it as an investment property instead of owner occ. And withhold showings unless there is an accepted offer. The tenants will find out at some point, but they may be cool if they know you are trying to sell to an investor so they can hopefully stay. That way you are respectful to them (and your cash flow in the meantime) while looking for an investor who can assume the tenants. 

Just curious. Why wouldn't you want to put the property on MLS?

Many in the industry refer to those as single room occupancy (SRO) inventory. It’s a highly specialized part of multifamily. They are really difficult properties due to tenants sharing space. 

To me they are similar to STR which is all the rage, where the business model and plan revolves all around property management. Like STR there is high turnover and vacancy. Marketing to find tenants has to be highly specialized because that tenant will be trading space and privacy for less rent. STR also has specific marketing to people looking for short term space.

When investors ask us about these type of properties I recommend building a business plan around what you are going to offer, and figure out how it works. Single fam rentals and apartments are understood and adopted by the marketplace and have mass consumption. Consumers know to expect, annual leases, privacy, they are responsible for some utilities, I get an apartment space, I get a home space, etc…. SRO is marketed to a completely different consumer.

The only way, IMO, to get partners locally would be to put a plan together, analyse some deals and show them what returns they could get. Doing a residential loan is pretty straight forward. The lenders that help you do a home loan will finance up to 4 units. Just reach out to them. 

For your private equity partners, show them the process of finding the deal, acquiring the deal, and managing the asset. They, as a partner get $xxx per month in income as a 1/3 or 1/4 owner in the deal or whatever portion. I can’t see any other way you could attract private money, to give you money, with out that. So I would start there.

You are right about it seeming easy on paper and tough in reality. That is 100% true. It feels like 1/10 real estate investors we help actually do a deal at some point and several of them have hundreds of thousands of dollars sitting around. The market, complexity, and risk are just a insurmountable mountain for the majority. 

Ok that should be good enough to hit the required 1.25% DCR. I'm looking at my most recent rate sheet from the commercial lending broker we use. There is nothing (Freddie/Fannie) under 5.5% for estimated interest rates.

I’m sure there is always creative financing options out there but for the standard Agency loans, I’d consider 4% a good deal. 

4% is a pretty good deal. I doubt you are going to get a better rate than that from a conventional commercial lender right now. What is the estimated cap rate?