Hello and Help

[Daniel Hsieh]

Hey BP members, this is Daniel from Houston, Texas.

I have been in "ninja mode" in BP for some time now and I think the time is ripe that I get more involved in the forum to grow and learn from greater interactions with you all. 

Short intro.

1. Finance professional for the past 9 years.

2. 2 kids and lovely wife

3. Love cooking and photography. But you wouldn't care. I think. 

Now the real gist.  

4. Own 2 rental properties (SF). Both we bought, lived in, moved out and leased out.  

I have always thought about growing my real estate portfolio and have massive passive income (thanks to Grant Cardone 10x and thanks to Brandon for bringing him to the podcast). After listening to the audio book, I started to get more active and have talked to several banks to get the financing ready before looking at properties. I know... I should have also spent more time looking at properties first but my finance background urges me to get the money lined up before I actually need it. 

Combining personal line of credit and home equity line of credit, I believe I may have enough of a downpayment for a B-class 15-20 units MF. My question though is besides private money, seller financing and other creative financing strategies Brandon talks about in his book, what are other proven strategies to keep buying more properties. One strategy came to my mind is capturing some equity when buying this 1st apartment and improve the NOI so when I can get the needed capital (buying 2nd apartment) out when I refi the first. Or perhaps I can talk to other lender (like B2R) who more focus on the bankability of the apartment instead of focusing much on my personal DTI as most traditional banks do. I know creative financing strategy exists to really serve my growth desire, but I am very interested to know how other people grow their portfolio using more "traditional" financing. Any inputs will help and be much appreciated.

Finally, it is nice to meet you all and will be great to meet up with other like-minded investors in Houston. 

[Sandra Gibson]

Have you checked out http://commercialrealestate.academy? Dave Anderson is the money guy and Alan Schner is the deal finder, together they have a blog, training videos and a live apartment investing mentorship program. With the non recourse loans available the apartment market is very competitive.

[Paul Timmins]

@Daniel Hsieh

The bank wants to see 1 person in the deal with good credit and high net worth. If that is not you you bring in a sponsor who does.

The bank will evaluate the cashflow. Speak with the local chamber of commerce president ask who they like in  the local banks get a name drop referral.

What you are talking about is using value play to enhance the profit. Common ones are raising rents, lowering expenses and highest and best use.

Paul

[Kevin Wood]

@Daniel Hsieh

Hi Daniel,

I'm a bit in the opposite boat. I'm currently in Mountain View and investing in Houston (my hometown). Welcome to BP. I have a Finance/Acct background as well and was always worried about lining up the money first. For multi-family at the size you are talking about I think you will need a commercial loan. I couldn't tell by your post, but it sounds like you want to just use traditional leverage and a commercial loan. As you point out without using other financing strategies you aren't going to grow as fast. 

Using only that financing strategy the best bet seems to be buying a property at it's current value, improving it (ie. getting higher rents, lower vacancy, reducing expenses, etc.), then either selling it or loaning against the new value of the property. I'm not a commercial expert or commercial lender so I don't know how aggressively you can get these re-finances. Good luck!

[Daniel Hsieh]

 @Sandra Gibson:

Thanks for pointing it out this wonderful resources. I will definitely look into it. Do you also have own apartment, Sandra? If so, how did you get your first deal?

[Daniel Hsieh]

@Paul Timmins:

Paul, thanks much. I happen to track my net worth on the daily basis and I think my credit is descent. With that, I plan to do this first MF deal on my own without business partner but definitely with a lot of advice from someone like you. Do you know, say 500-600k apartment, what kind of net worth they may be looking for at least in your local market.

Good call on the local chamber of commerce. I need to drop by and start making friends. Thanks much.

[Daniel Hsieh]

@Kevin Wood:

@Daniel Hsieh

 Kevin, why are you worried about lining up the money first. Is it because it starves the creativity? After sounding the market on my spare time, conventionally, lenders (2 local portfolio lenders) told me they are looking for 25% down on the deal. After that I immediately start gathering all my ammo to come up with that 25% down. I want to reserve my personal saving for raining day and decide to tap into line of credit (personal and home equity). Lucky, it seems like I may be able to tap into those for the 25%. Besides, if I can borrow everything (25% from line of credit and 75% from portfolio lender) for the MF, that is essentially "no money down" and my return in infinite. 

However, even though infinite return sounds good, it is not my end goal. Goal is to keep buying so hence my question then is how do I buy my 2nd MF when I dry up all the resources in the 1st one.  

My guess is that after my 1st, I can come up with the down payment for the 2nd by either personal saving or cashing out from the 1st during refi, provided I can improve the NOI. If I can't do neither of these, then my option is to find a partner who has the cash or private money who will lend me the 100% purchase price. Any suggestions?

[Waylon Themer]

@Daniel Hsieh It sounds like you are doing a great job getting your ducks in a row.  Speaking from experience on the other side of table (4 years as an underwriter; 3 years as a loan officer for a local commercial bank),  their are intangibles and "grey" areas involved when obtaining a small multifamily loan from a local bank.  Experience level is a big key with most banks.  If the principal doesn't have multifamily experience the looks for ways to mitigate with the most common method being more down payment.  Banks will also want to see cash reserves but there isn't a formula for how much.  Typically around 10% of your total borrowings.  Bringing on a partner for your first deal may be a wise strategic move.

[Sandra Gibson]

Originally posted by @Daniel Hsieh:

 @Sandra Gibson:

Thanks for pointing it out this wonderful resources. I will definitely look into it. Do you also have own apartment, Sandra? If so, how did you get your first deal?

 I bought my first deal from auction.com. I'm looking for my next deal specializing in universal design. 

I also have pocket casts on my android and listen to Bigger Pockets, Commercial Real Estate Show, Old Capital Podcast and several more. Will Crozier specializes in repositioning multi family assets in the Texas market. Check out his website. http://exponentialpropertygroup.com/about

[Kevin Wood]

Originally posted by @Daniel Hsieh:

@Kevin Wood:

@Daniel Hsieh

 Kevin, why are you worried about lining up the money first. Is it because it starves the creativity? After sounding the market on my spare time, conventionally, lenders (2 local portfolio lenders) told me they are looking for 25% down on the deal. After that I immediately start gathering all my ammo to come up with that 25% down. I want to reserve my personal saving for raining day and decide to tap into line of credit (personal and home equity). Lucky, it seems like I may be able to tap into those for the 25%. Besides, if I can borrow everything (25% from line of credit and 75% from portfolio lender) for the MF, that is essentially "no money down" and my return in infinite. 

However, even though infinite return sounds good, it is not my end goal. Goal is to keep buying so hence my question then is how do I buy my 2nd MF when I dry up all the resources in the 1st one.  

My guess is that after my 1st, I can come up with the down payment for the 2nd by either personal saving or cashing out from the 1st during refi, provided I can improve the NOI. If I can't do neither of these, then my option is to find a partner who has the cash or private money who will lend me the 100% purchase price. Any suggestions?

I think you have the right idea. If you are out of money your best bet is to look at private money to work with. I'm not an expert on these properties again, but what I have read is there is typically an acquisition fee 2-5% of the purchase price and sometimes a small amount of equity as well.  Hopefully someone with some more experience chimes in!