Questions for experienced MF investors out there

3 Replies

So I've been doing my homework and learning as much as possible about MF investing. I've recently started using a program to analyze properties and have begun to practice on a few places I've found on Loopnet. Some of the issues I'm having so far...

1. It seems that common knowledge is that anything on Loopnet is a bad deal and that's why it's there. I've been told it's a good place however to fish for brokers to send you the good deals. Any other ideas on finding stuff?

2. How to find prevailing cap rates for specific areas. Call PM's? I asked a few brokers and they just said make an offer and we'll see what happens. I read about using CBRE website to find free market research but have been unable to find any of that info on their site. Anyone know where that is?

3. I'm working on securing investors for capital but heard someone with a large MFRE holding company say that he would rather pay 10% to a hard money lender than have an investor own 30% of his business. Is that total nonsense? Is hard money a good idea to at least get into an asset until you can reposition it? Will a bank even look at you if you are leveraged that way or do they not care where the down payment comes from. And obviously the deal would have to be stellar to even consider personally taking on 100% financing.

4. Finally, since my market (FL) is so competitive I'm concerned that by my conservative underwriting guidelines I'll never win a bid because so many entities are out there throwing money around and paying full asking price. I've heard of a strategy of overpaying for the property to be competetive if there is owner financing available. I'm looking at a 32 unit asking $1M. By my numbers it looks more like an $850-900,000 deal. However the broker says there is a lot of interest in the property. The owners will consider financing with a large down payment. This property has been on Loopnet for a while. Any thoughts?

@Mark Neiger

1. Deals on Loopnet if negotiated properly, still could be good deals. If you want any broker to send you deals, you will have to develop that relationship first. They will want to know that if they gave you their pocket listing, you will be able to close or at lease your ability to close is high.

2. You will be able to find out a ballpark cap rate figure from IRR's website (get their reports). Then from there, you need to talk to brokers, financiers and property managers in a specific market in order to find out about the cap rate there. 

3. The financing part of MF is tricky. In my opinion, as long as you have a good DSCR (In my mind 1.25+), I don't care if I have to give up 30% of the business or pay 10% to a hard money lender.

At the end of the day, you still need to be able to pay the bills. So when you are repositioning a property, if the cash flow makes sense for you to go solo and borrow from a HML, then you should consider it.

4. Overpaying for a property works only when the owner is willing to finance 100% of the deal. The moment that you get banks involve, the deal is dead. So for that deal you are looking at, you can overpay for it, as long as the term works for you and fit your underwriting guidelines. Never bend your guidelines for a deal!

Hopefully that helps you out a bit. These are just my personal opinion from my owne experience. Doesn't mean they are correct.

Vince K.

@Vi K. Thanks for the feedback. I'll check out IRR. Still not sure how to have a relationship with a broker if I've never bought anything from them. They won't show me good deals and I can't buy what I can't see. Real catch 22!

Here is where the networking comes in.  More than likely you are going to need some help to take down the deal.  Through networking you need to find more experienced MF investors that will team up with you if you find a deal that fits their criteria. 

Now back to the broker.  The broker doesn't want waste time on tire kickers.  You need to have a solid handle on valuing MF properties.  You need to talk to a broker like you know what you are doing.  You can legitimately say that you are working with a group of investors to acquire properties.  If you are not very convincing he may ask you for proof of funds.  That's not insurmountable either.

The key here is to get educated and practice on the loopnet brokers.  As you get better they may start showing you better stuff.

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