All Forum Posts by: Whit Ewen

I saw a syndication deal recently where they have 5 (100+ unit) complexes already, and a lot of track record. They have their own property management company and a good team with quite a bit of experience and certifications. They are not doing a pref, but charging 20% off the top plus management fee, acquisition fee. I found it to be too much risk for the investor, given the low cap rate environment that we're in (given that if cap rates float up, the asset values will obviously drop).  I heard somewhere that in that model, 10% might be a place to start for someone who has good mentorship and education in the space and is looking at their first deal.  Good luck.

Please post your experience when you get further along. I assume this is for SFR or smaller (1-4 type) properties?

I'd say if you're not considering Austin because of the rules, look at another hot tourist area (i.e. not Pflugerville or Round Rock). I had one for a while and location is critical to success. You might be able to do this if you have a small fourplex zoned multifamily. I cannot remember what zoning this applies to but if I recall, it includes anything single family so SF1 - SF6. 

My property manager uses Yardi. I've never used it myself. They also do a good lease abstract with all the pertinent details to make administration more streamlined. 

our city transportation department does studies of which areas have parking shortages and which don't (on-street) and overall inventory - might be good to see if you have anything of that sort you can look at. 

Of course it depends on demands nearby and how easy they are to get in and out of. And things like day rate vs monthly rate business and how easy that is to do.  I'd probably not go for this because you'd have to learn a whole new very niche business but that's just me. 

Brainstorming here: I had to look at a map, but I wonder if you could reach out to some Atlanta industrial brokers to see if any of their clients would need distribution in between Atlanta and some other destinations? Also some coastal companies might want some back up site in case of a storm, etc.  

Great question to ask. I've been in that dilemma a lot myself. I most relate to @Joel Owens answer, and I'd add these points: 

What are your objectives? If it's to sell, you might go for more TI and higher rents, after considering everything else

In any case, I concur with the remarks emphasizing tenant credit quality. 

- How much of the expense will create additional rental dollars with a different tenant in the future? E.g. putting in two bathrooms, a grease trap, a vent hood and so forth in an area with a short supply of second generation restaurants could result in higher rents with another tenant than you'd otherwise forecast

- How much skin are they putting in?  If they're doing a 250k finish out, and they're proposing I pay for all of it, that's a tall order (but might do for a national corporate lease). If they are putting in 175k and I'm putting in 40k, and a lot of both of those amounts go to improving the building under the point above, that makes more sense to me

- To the extent that the costs do *not* add additional rent dollars in your pocket as I mention above, then you've got to evaluate your risk.  I generally start my forecast assuming that 90% + restaurants will fail within a few years. 

- Generally, this is just me, but  because I'm not planning to sell my retail investments soon, if I think it is a great local tenant who is making some solid marketable improvements to the space eg. ADA bathrooms, killer outdoor seating areas, I could see abating rent in lieu of their TI allowance as someone mentioned. but am very careful in how I do that so that it is conditioned on their well defined improvements. I use a good lawyer to draft lease provisions on that. 

I'd hope that in most markets, there are some landlord rep firms that are very active in networking, e.g. go to (and hit hard at) all the local and national ICSC conferences, other associations, etc..  I'd say if you can get a hungry/motivated and in-the-network landlord rep, that can help. Not just someone who slaps a big sign up. Also, if the firm has a lot of signs up on competitors all over town and the region, they're going to get a lot of collateral call volume that can spill-over your way on deals that don't work for your competitors. Plus your LL rep for a monthly meeting to report on all their tenant and/or tenant rep outreach efforts and ask them to bcc you on all tenant communications. However, obviously you've got to push them hard to get you project leased up. 

@Josh Tonnesen, I'd endorse at least doing the minimum to get the full match available, as this is easily one of the best investments ever, plus what I'd suggest is that every time you get a raise, have 100% of the raise go towards your IRA contribution, until you reach the max. I did this on 401k and a couple of years into my corporate career was at the 15% max for the 401k at the time. Getting an early start on investing is a critical part of setting yourself up for financial security, as you apparently know. That sets you apart already that you're thinking ahead. Good luck! I'd seek out some books or podcasts on using your self-directed IRA, you can learn more, however I'd use caution with investing it. I started out just self-directing about 10% of my IRA and when that went well, I invested another 10% and so on.

I concur with the advice about envisioning foreclosure and liens. What is the least value at the worst moment in the deal, relative to how much you've loaned?  If you're new, you'll want to be conservative there.  Hopefully the property is valued at $215k as-is, and you get very good hazard and title insurance where you are specifically insured. I've had attorneys charge $500-750 for docs in Texas. Perhaps term can be 4 months or a bit more after which it defaults to a higher rate.