All Forum Posts by: Tyler Kastelberg

Despite the recent sell off in medium to long term interest rates, multifamily cap rates continue to compress along most of the east cost. My California investors like to invest out-of-state in medium to large multifamily properties ($1 million to $10 million acquisitions). In what Tier 2 sub-markets can a 7%+ capitalization rate still be achieved?

@Ray Hernandez

@Chris Grenzig

Chris - Great advice for Ray. I underwrite deals for syndicators and developers who at times want to assume an exit cap rate at or below their acquisition cap rate. "Word on the street" is that developers in tier 1 markets are starting to feel the impact of their aggressive cap rate assumptions on returns.

@Ken D.

Ken: I love this thread. You're getting some great advice from folks.

One thing that I tell all of my investment partners ... a break even investment is not a good investment. If rent is only covering your mortgage and expenses, your investment is not performing better than an S&P index fund (which is more liquid and more diversified). 

If I were in your shoes, I'd sell the building and roll the funds into a multifamily asset (5+ units) that cash flows in considerable excess of your mortgage and expenses. You'll spread your tenant risk amongst a number of people while increasing your debt service coverage (less risk).

Best of luck - let me know if you have any questions.

@David Michael

David: Richmond's multifamily market is hot, and the SFR market is even hotter!

"Up and coming" areas include Northside and Hull St. (near Manchester). Expect multiple offers. Very few sellers will entertain creative financing. 

I encourage you to get involved in the local investor meetings. I spend 50% of my year in Richmond and regularly meet wholesalers with good deals in transitioning locations. 

Best of luck to you! I'm happy to recommend a realtor or introduce you to a few folks who might be able to help with your off-market search. Let me know!

@Eric H.

Eric:

I'm not going to directly answer your question, because that is a personal decision. However, I don't buy units that lease for under $600/door, and I like a 150% debt service coverage ratio.

Hope this helps frame your search!

@Jason Allen

Jason: My "rule of thumb" is to budget 3-4% of the acquisition price for closing costs. This is applicable in most states.

Best of luck!

The best realtor in Jacksonville, FL is Jon Brooks (http://www.jonbrooksgroup.com/).

DM me for his cell - BP won't allow me to post it to forums

Tell him that I sent you.

Best of luck in your search!

@Josh Cohen

Josh: When I run "back of the envelope" numbers, I use various operating expense ratios (operating expenses/effective gross income) to calculate NOI. See below:

Multifamily

Class A: 35%

Class B: 40%

Class C: 45%

Class D: 50-55%

These should prove to be good enough when submitting offers. Make sure to include a feasibility period in your offer, and ask for historic financials to determine the "real" operating expenses.

DM me if this created more questions than answers!

@Douglas R.

Douglas: You hit a gold mine - congratulations!

You're wise to highlight "reliable" income as a goal. I'd recommend a cash purchase of a Class B/B+ office or multifamily asset. I can't speak for Oregon, but on the east coast, you should be able to achieve a 7% to 8% cap rate, which would net you significantly above $500k on an $8 million to $9 million investment. 

Find a trusted asset manager to monitor your properties, and enjoy the passive income that is generated.

Best of luck! DM me if you have any further questions.

@Shelly Cavin

Shelly: "Good" is quite relative in this situation. Can you pull comparable sales in the area to see the cap rate at which other buildings sell? If the cap rate is 10% on most other sales, you'll have a good argument for the seller to reduce their price.

Best of luck!