All Forum Posts by: Yaya Y.

Hi everyone,

I was looking at an investment property that returned a 5% cap rate after renovations. 

The cash on cash return is basically 1%

Can everyone give their two cents to what their cap rate is on your properties as well as the CoC return. What is the correlation?

I don't see how a 5 cap (which is a decent return for today) achieves such a low CoC.

Note: I am putting 35% down once the building is stabilized. 

@Donald S.

Thank you for your response.. great questions. Please refer below for the answers.

1)Yes - you're correct. The place will actually be worth around 1.2m all in after rehab costs which is already not a good sign. You always want to cash out refi after stabilization. maybe being 1.1m all in (breakeven) is where I should be instead.

2)I would be using a construction loan for the 350k. Then long term financing after(65% ltv)

3) the 25k expenses does not include vacancy. already accounted for that before

I know that investments are subjective and how risk/return play out. However I don't think that earning a 1.8% CoC is anything significant...better off investing it in bonds/stocks? What I have here is just a safe asset and that depends more on appreciation than cash flow as it seems....

looking at a 4 unit townhouse. up and coming(hipster) location. close to transportation. Not a lot of product in immediate area.

purchase price $820,000

renovation costs post purchase: around 350k

Total Monthly Rent: $7,000 (after renovation/ pro forma)
Annual Rent: 84,000

Vacancy: 5%

Total annual Expenses: 25,000

Annual Debt service: around 50k

cash down: 500k

all in costs: 1.2m

ANALYSIS:

My analysis is that I spend money and my time to achieve a 5 cap. I feel like I am buying a safe investment but not achieving a high yielding asset. If my math correct, my cash on cash is about 1.6%? Is that correct? cash flow is about 10k a year. Would you buy this asset and if yes, who so?

please let me know what other information I can provide. 

I would like to know everyone's opinions on the scenario below.

You want to get a mortgage for 650k,  one bank quotes you with an interest rate of x basis points over the FHLB 5 year rate, and the other bank's rate is the same spread over a 5 year LIBOR swap. Which option is preferable for the borrower? What are the pros and cons of LIBOR and FHLB and which rate is more susceptible to future increases?

Brian - this was exactly the answer I was looking for. Your expertise and experience is truly helpful. I now have a totally better understanding of what is needed and expected when starting a syndication. 

Again, thank you for your help! Looking forward to speaking soon. 

@Brian Burke Hi Brian. It's always great to hear from you. Thank you for your insightful knowledge as always.

Just to be clear, how I got to the 5-10k number is from an approximate 200k-400k raise. I would like to know if it's worth buying properties in the 1m dollar range to only make such an amount. In other words, what is the price range where people usually syndicate deals? As you said, 10k isn't enough to make annually and business costs will soak that quickly.

Regarding fees and promote, I believe I have a good understanding of that. In the scenario I ran. It was a pref return % + 70/30 split. Didn't get to much into the fees you had mentioned above. I know each syndication varies but I did not want to include too many fees.

And to your most important point which I would like clarification on, you first say that syndication isn't a wealth building strategy yet it may eventually translate to wealth. How so?

I know that once you start syndicating you serve a fiduciary role for your investors and I come second. But how do you make enough  money to keep the lights on? This is where i'm lost. How many syndication does one usually do or take home annually on average? Thank you.

@Caleb Heimsoth Hi Caleb. Thanks for your insight. You may be right on how 600k-1m syndication isn't so common. However, even on the larger deals, I'm curious to how one makes a lot of money. I believe I have a good understanding on the return split, which generally varies from deal to deal. Also, when you say 7% return, are you referring to an annual CoC return?

Hi everyone,

I am interested to know the reasons (pros/cons) for syndicating RE deals. I was running the numbers on a typical deal, and the GP usually makes anywhere between 5-10k depending on the Purchase price of 600k-1m. I understand that in these deals, the sponsor is only putting up 5-20% of the equity but how do you build wealth from syndicating? How do you make enough money each year to survive of a few deals which pocket you a few thousand dollars? Does the "real money" come through the sale or refinance? If so, what does the average syndicator make a year through syndicating each year after distributing the pref. return?

Also, if you source out the property management to a third party, besides oversight, what work does a GP do once the building is stabilized?   as in the day to day? Curious to hear everyone's answers who are seasoned syndicators! Thanks.