All Forum Posts by: William Hochstedler

I'll take a stab at this one.

Cap rates are a representation of how bullish investors are on the future of a given market sector.  If all the fundamentals look good and risk is low, cap rates will be low.  Low cap rates are like Blue Chip stocks meaning that investors will take lower returns because the assets have a good, low-risk, long-term outlook.

Cap rates in multi-family have been driven down to absurd levels long before interest rates started to go up.  On a Marcus & Millichap multi-family market call a few years ago, they were already joking that 3% is the new 4% in this sector.  These cap rates have been below interest rates even when you could get commercial loans at 4%.

That means that, in the past few years, a ton of cash has moved into this asset class.  Cash doesn't have exposure to interest rates.  From personal experience, I know a bunch of investors who ramped up in the early 2010's and needed to scale from flipping and buying small rentals by 2018.  Because they already understood tenants and toilets, multi-family was a logical step into the world of commercial RE.  Likewise, most people understand housing and might participate in syndications and other vehicles when alternative investments appear less attractive.  Or they just want a piece of the real estate appreciation train.

Another reason that we are still seeing activity in multifamily is the cyclical nature of real estate and the associated lag time.  There are lots of projects that were earmarked (and underwritten) before interest rates started climbing.  It makes more financial sense to be somewhat upside down on them than to abandon them altogether and lose the sunk costs.  Most of these developers have good balance sheets and can wait out the current cycle.  Remember that the developer's exposure is not market value of the project, but only their cost.  So if they go into a project with 50% financing with 25% cash and 25% profit, the performance may be pretty manageable even with higher debt service.

All the metrics show that we are still short on housing.  So there has been a massive flight to multifamily projects pushing cap rates down to a point where it doesn't really make much sense.  But remember that rents and residential property values have basically doubled over the last 5 years.  If this trend continues, buying at a 3-4% cap rate now and betting that a 5 year loan reset will be back into the 5-6% interest rate range, you'll be right side up with leverage again.

But that's very speculative and very bullish...which is the short answer to your question.

Utah just passed a law prohibiting foreign governments or their agents buying land in the state.

Most brokerages will have policies on how they want to approach property management.  A broker can only manage 6 (yes 6) units before having to go through an entirely separate licensing procedure to register a property management company.

This means that if you plan on managing 7 or more units, you need to convince a broker to open a newly licensed entity with a separate trust account from their normal operations.

So there are really only two paths that you should consider.  1) Getting your own broker's license so you can control the administrative load 2) Affiliating with a brokerage with an existing property management division.

In Cache Valley, the brokerages that I'm aware of that have property management are:

--Achievement Realty

--Century 21 / Preferred Property Management

--Coldwell Banker / Catalyst Property Management

--Connect / Reeder Property Management

--Dwell / Reside

--Equity Real Estate / Equity Property Management

There are smaller shops which only have a few doors or are management pure-plays, but these are the more established ones up here.

I'd talk to all of them before taking on more than a handful of clients.

In other words, when acting on your own behalf, you are prohibited to act the same way that you would be required by law to act if you were representing someone else?

Do you have any case history on this one because it seems pretty squishy (wholesaling or otherwise)?

A few things:

-The foreclosure process and timeline will be state dependent

-The bank will not begin until at least 3 payments are missed.

-The bank does not have to initiate foreclosure if they have an expectation that you are working with them and the loan is performing.

So you're not going to get defaulted until February 2024.  I don't know what would happen if you continue making regular payments after the balloon date.  You need to refer to the fine print on your loan to see what happens.

The bottom line: talk to the bank (even if you are not the original borrower).

Just pull a new list every time before you plan to go knocking with a date range back to the last time you pulled it.  Make sure you are also pulling the cancellations of default.

The problem with defaults is most people are able to cure them.  Only a fraction make it to sale.

So the answer to your question depends on your state foreclosure process and timelines, how often you go knocking, and what you're trying to accomplish.

For example, if you are trying to buy these houses, you might need to visit them two or three times before you have any rapport.  If you have a 90 day default period, you should be getting to them monthly.  

I wouldn't spend the time or gas to go knock a record that's over a week old.

Also, remember these are public records.  You might be able to get a title company to send you a list every week.  They are also available at your recorder's office.

Good luck!

If you are currently renting, why don't you house hack on the purchase of your second property?  

Note: Although America First offers a non-occupant HELOC, this is not a good loan for investors as there is a substantial principal repayment requirement. Goldenwest offers a non-occ HELOC that is interest only which is much more useful for the BRRR method.

Keep interviewing brokerages.  There is no requirement in Utah that, when acting as a principal in another state, you need to run transactions through your Utah brokerage.

However, your wholesaling and other marketing activities may be prohibited or require a license in other states.  There's an outside possibility that you get some sort of sanction in one of those states that you would have to report here.  I don't see how that's very much exposure to a broker though.

Bottom line is you need a broker who you can be transparent with who supports what you are trying to do or can point to the statute or provision of why it's prohibited.

You know what they say....

Like @Doug Smith mentioned, there might be other liens.  Sometimes you see these small opening bids, but they are second position loans behind much bigger senior loans that won't be extinguished at foreclosure.

So you might pick up a $200K property for $10K with a $250K first position loan on it.  No longer too good to be true.

There are a lot of pitfalls when buying foreclosures.