All Forum Posts by: Zach Bollman

Thanks! I’m looking forward to finally being able to let my feet rest and unpack my suitcase after years of being a bit of a nomad. I’m actually curious about two things if you have time. 

First, do you have any experience in investing in the US from AUS? When I was at the bank a few years ago, we used to do financing for Australians, but they were extremely high-networth individuals buying nice properties in Aspen at 70% LTV so we were happy to hold those loans. Getting financing in the US while living in AUS seems as though it could be a hurdle, although I haven't reached out to any banks to inquire given my timeline.

Second, what’s the story with property investing in AUS given the astronomical purchase price compared to rents and the newly restricted lending policies at the major banks? If I were to buy a duplex in St. Louis, it would be $150k or so and rent for $2,000+ per month between the two units. Comparatively, a duplex anywhere near Sydney is around $1,000,000 and rents for around $4,000 per month — no possible way to cash flow so you’d be gambling on appreciation. Curious as to your thoughts. 

Cheers,

Zach

Hello all,

Thought I would come over here and introduce myself. A little background: I'm originally from the St. Louis, Missouri, area having grown up to the west of the City, although I now live in Cambridge, UK pursuing a masters degree. Following the degree, I'll relocate to Sydney, Australia which I'll call home for the foreseeable future. 

Prior to my current endeavor, I have worked as a bank officer and real estate attorney. As a bank officer, I underwrote residential and commercial mortgages. As an attorney, I represented developers, REITs, multi-national corporations, and local governments in all aspects of real estate including asset acquisition, development, leasing, and disposition. As a result, I understand the financial and legal aspects of real estate but cannot say I know the first thing about actually being a real estate investor. However, I'm looking to change that.

Due to my location, I've been following discussions, podcasts, etc. on long-distance investing and am quite excited by the prospect of not being geographically bound to a certain market. If I had stayed in St. Louis, I would probably have limited my focus to that market.

Due to my current studies and lack of income, I'm currently helping my father get started as a real estate investor (the blind leading the blind so to speak) rather than pursuing deals for myself. Together, we've been searching for single-family and 2-4 unit properties in the St. Louis area (he prefers them to be local).

I hope to be able to contribute to the forums as an attorney and prior banker, and ultimately as a real estate investor. Thank you all for this wonderful community -- I cannot wait to be a part of it. 

Best,

Zach

@Shaun Peterson I haven't run into bank financing issues, nor have my clients. There is a big caveat to that though, which is that (1) I haven't entered into any LPs myself, and (2) the clients I work with are large real estate investors not using conventional bank financing.

However, I did make loans to LPs as a bank officer prior to practicing law. Based on that experience, I would go out on a limb to guess that most of the concern is a result of either the bank being uncomfortable with lending to an LP if they aren't well-versed in it and thus cannot confidently assess the risk, or (2) banks want personal guarantees from limited or general partners as the investment vehicle is generally single-purpose and would be hard to recover against. The first is a tricky one as it stems from inexperience and you're going to have to assuage those fears. The latter is a bit easier as the general partner could give a personal guarantee and then set up an agreement allowing the general partner to draw capital from the limited partners. Most limited partners won't be happy with that arrangement as they effectively lose their limited partner status from a risk perspective but maintain it from a governance perspective. However, such an arrangement is one of many possible ways to keep the bank happy and comfortable in the loan. There are many ways to resolve the second concern, but they will result from personal guarantees or the internal governance of the LP and should be handled by an attorney familiar with LP investment vehicles and potential securities laws issues. 

Zach

This post is intended to convey general information only and not to provide legal advice or opinions. The contents of this post should not be relied upon for legal or tax advice in any particular circumstance or fact situation. The contents of this post do not establish an attorney-client relationship.

If you're doing buy and hold with multiple partners, you'll want to make sure that you have a business structure that allows for the resolution of disputes and general management of the investment. An example would be to utilize a limited partnership to restrict the control that the financiers (limited partners) have. The last thing you want is to get four years in and have your relationship with one partner go south in a deal where you and the other partner don't want out. Establishing an investment vehicle can hedge against this and set out an enforceable legal structure to govern the investment and its management.

Zach

This post is intended to convey general information only and not to provide legal advice or opinions. The contents of this post should not be relied upon for legal or tax advice in any particular circumstance or fact situation. The contents of this post do not establish an attorney-client relationship.

@Michael Le Great point that I hadn't considered. I will definitely keep that in mind going forward. Thank you. 

@Will Gaston Thank you for the link. I'll check it out!

@Aaron Linden The property is in the midwest, and I am from the area. I'm temporarily in the U.K.

As for insurance and taxes, the insurance is an estimate based on what I found digging around online since to insurance expense was included in the 2017 expenses for the property. Taxes have been confirmed to be accurate.

$495 seems low for a single-bedroom rental? I believed that to be normal, but I guess I'll have to take a look at comps for the area to see whether it's below market or just in a terrible area as @Nick B. mentioned.

Thanks for the reply!

Edit: Checked comps for the area and $495 for a one-bedroom unit is pretty much on par with the market for the area around the university.

@Nick B. I'm not sure I would consider $495/month rent for a single bedroom apartment in a college town to be low-quality area/tenants. That's actually more than I paid for a nice apartment in college in a very nice area. But again, we're not talking about a complex in Denver, Chicago, or any other major market that has significantly higher rents. However, I may define low-quality area/tenants differently...

Property management isn't included in the above numbers but has been included in the actual model. The above numbers are based on self-managing. Including a 10% gross rents property management expense, the cash on cash drops to 4%. In hindsight, assuming self-managing is probably a terrible idea as it hamstrings the ability to focus on other properties or investments should opportunities arise.

The apartments were recently renovated, so my plan was to divert cash flow into a capital reserve over the first two-three years. There's enough personal liquid capital floating around to cover any costs and reimburse from cash-flow if necessary. Additionally, the maintenance/repair includes a partial remodel of four units. As a result, I didn't include a separate CapEx expenditure as my belief is the $4,673 maintenance/repair item would act as a method of capturing CapEx, capital reserve building going forward, and turnover costs. However, based on your response I'm thinking that's a pretty poor idea.

Based on your experience, how would you factor additional CapEx, capital reserves, and turnover?

Again, I'm completely new to this game so any and all advice, commentary, criticism, etc. is greatly appreciated. The above numbers are for a rough calculation to see whether this property is even worth pursuing (investigating the actual expenses constituting the $4,673, etc.). Overall, the property seems heavily overpriced. Thank you for your time.

Zach

Hello all,

I am currently modeling returns on an 8-unit apartment building. The property has been recently renovated and is for student rentals as they're single bedroom units.

I've yet to find a property worth pursuing based on my investment profile and have spent a lot of time learning about real estate investing from an investor's perspective. However, I'd like to get input on the numbers I've come out with and what everyone's general thoughts. The basic information is below and comes from owner-supplied rent roll and 2017 figures:

Listed Price: $339,000

Gross Rent: $47,520 ($495/month per unit)

Taxes: $1,506

Trash: $666

Utilities: $6,406

Cable: $1,982

Maintenance/Repair: $4,673

Insurance was not listed in the numbers given, so I estimated insurance to be around $1,617 based on 0.003% of property value plus $75 per door. I also applied a vacancy rate of 12%, which I believe to be somewhat conservative given this is student housing near a university which provides for a stable cycle of tenants. The below numbers will give my calculations, and for debt service, I'm assuming 80% LTV, 5% interest, and 30-year amortization (I understand these terms are possible to find even for multifamily).

Gross Rents: $47,520

Less 12% Vacancy: -$5,702

Net Rent: $41,818

Less Op. Exp.: -$13,727

Less Taxes: -$1,506

Less Insurance: -$1,617

NOI: $24,968

Less Debt Service: - $17,470

Cash Flow: $7,497

Now, based on these numbers and 20% down, I'm calculating around an 11% cash on cash and a 7.4 cap rate. Overall, this seems like a significantly overpriced property, one which I would likely need to bring the purchase price down to closer to $280,000 for this property to make sense with a 19% cash on cash and 8.9 cap rate. 

Would love to hear general thoughts on the numbers, modeled returns, and my general aim for a cash on cash return above 15% in a multifamily property. Thank you for your time.

Zach