Investor · Midland, TX · Member since 2016 · 49 posts · 11 votes
I live in West Texas and I'm looking to purchase my first cash flowing multifamily property in Midland/Ector county within the next few months. I have identified and I'm working on putting a contract on an 80 unit property. I am looking to network with local investors in order to raise capital. Any suggestions and insight would be greatly appreciated.
I currently attend our local REIA meetings, I also host a monthly meet up to play the cashflow board game by Robert Kiyosaki.
I'd like to hear how others are meeting people that are interested in this type of investments.
Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
9y
@Sam Amir has some great ideas but I would caution throwing your deal out in the BP marketplace until you know exactly how you will structure your money raise. If you're doing a 506(b) syndication then you can not publicly advertise the deal because it's supposed to only be offered to people you've had previous substantive relationships with.
Property Manager · Chicago, IL · Member since 2016 · 69 posts · 51 votes
9y
Hey Mike,
Nice work on hosting a monthly meet up. That's a great way.
My thoughts:
1. Use BP of course! - You have a Pro membership, go ahead and throw out your deal to the marketplace part of the forum and see who is interested. Besides that, offer value and befriend people who are doing what you want to do. They don't have to be local of course. You'll find that most people on BP are like-minded and understand that relationships are essential. Produce a win-win situation always.
2. The MLS - I've not done this yet as I'm working on getting my brokers' license, but basically find out what properties have been bought with cash in your area. The investors who bought that property may have more capital to invest. Get their information from public tax records and try some direct mail marketing campaign/ good ole' door knockin'.
3. Get to know commercial brokers in your area, prove that you're not a tire kicker, and attend their parties. There'll be investors at these parties and hopefully after a few beers, you may find a new partner.
4. Lastly, whenever I host events or network, I make sure to put aside my agenda and try to fulfill the person in front of me's agenda first. Whether that's trying to find them a referral for something they need or giving them an opinion on a deal, whatever. Being genuine and authentic is what I think strikes you apart from allllll the other people trying to do the same.
Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
9y
@Sam Amir has some great ideas but I would caution throwing your deal out in the BP marketplace until you know exactly how you will structure your money raise. If you're doing a 506(b) syndication then you can not publicly advertise the deal because it's supposed to only be offered to people you've had previous substantive relationships with.
Lender · Morrisville, NC · Member since 2015 · 610 posts · 131 votes
9y
@Mike Evans - The first step is to figure out how much capital you need to raise and how. What is the total deal sizes? What do you have on hand an what can your partners bring to the table?
Investor · Midland, TX · Member since 2016 · 49 posts · 11 votes
9y
@Sam Amir Thank you. It was a little scary at first but I have meet some great people through that meet up. I do like your idea of using BP but as @Michael Le stated I would have to be very careful since I don't have a prior relationship established with some of these other people. Is there another way to put it out there with out "Advertising"? If I understood my attorney correctly, he said I could syndicate up to 35 non accredited and unlimited accredited under rule 506 of Reg D (Maybe some of you more experienced guys can correct me if I am wrong). I will certainly look more into properties bought with cash. Perhaps it could be a win-win for others looking to buy up more properties. I love what you said in #4, I believe in Tony Robbins saying "the secret to living is giving" adding value to other people gives you a sense of fulfillment in itself.
@Nathan Click I have a good idea how much I need to raise although I haven't visited with a commercial lender yet to see weather or not I need 20, 25 or 30%. I do have about $100,000 to put down on this deal and I have verbal commitments from others. I also plan on doing all the work. The total purchase price is about $3.5mm. I believe this to be a really good value add since the property is only about 60-70% occupied. If bought right the property could be a great opportunity for cashflow and equity. Im not super positive I can raise all the money needed for the down payment. That is why I wanted to reach out to BP to see how other people are meeting like-minded people.
Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
9y
@Mike Evans, your attorney is talking specifically about the 506(b) exemption if you are to have 35 non-accredited (by they need to be sophisticated) investors in your syndication. Regardless, you will need to have a prior relationship with all of those 35 sophisticated investors and all of the accredited ones too.
Lender · Morrisville, NC · Member since 2015 · 610 posts · 131 votes
9y
@Mike Evans - For a deal like that you will need 25% down plus incidental costs. Probably a $960K equity raise, all in. But that inst the only issue here. Your capital stack will consist of equity and dept providers. You'll have a problem with 60% occupancy unless the as is CAP rate is unusually high. Probably will need about 6.5% - 7% at a minimum otherwise the deal does't debt service and the lender will back out.
Professional · Murrieta, CA · Member since 2013 · 405 posts · 458 votes
9y
@Mike Evans - please be careful on throwing it out to the BP forums like @Michael Le said. Make sure you are not making an offer. You can raise money from up to 35 sophisticated investors and unlimited accredited investors. A sophisticated investor is someone who "not only can bear the risks associated with investing (financially), but also understands those risks." However, you must abstain from general solicitation like saying on a BP forum "I am offering 8% preferred return if you invest in my deal" or something like that. Finally, a "pre-existing relationship" is clearly defined. There is a lot of misinformation out there. For example, the three touch rule is not a real law, it's just a good idea. A "pre-existing relationship" is an "intimate awareness of one's financial ability to invest." You can accomplish this awareness with an "investor qualification form." Ask you attorney for one. They should have this as part of the PPM they are putting together for you. Best of luck!
You might consider the 506(c) private placement rather than a 506(b). With a 506(c) you are restricted to accredited investors only, but you are allowed to generally solicit. And the 506(c) gives you more flexibility regarding your paperwork and disclosures.
Investor · Midland, TX · Member since 2016 · 49 posts · 11 votes
9y
@Michael Le That makes sense. Thanks for the information!
@Nathan Click I know they are working on getting the occupancy above 90% but doesn't it need to be above a certain percentage for at least 90 days? Im hearing the term 90 & 90...above 90% for at least 90 days. What exactly is an acceptable debt coverage ratio? Higher than 1.25? I am sure the higher the better but I would be shooting for 1.60 give or take.
That is very good advice @Jillian Sidoti...Thank you. I don't look good in Orange lol. I want to stay compliant for sure but I would also like to start getting it out there so people know what I am doing and like @Sam Amir mentioned, don't see a tire kicker. I am an action taker and want to very much succeed in real estate because I love it so much. Thanks for the advice, I will certainly get more information on the investor qualification form and see if he plans on putting it in the PPM.
@Jon Pitcher My attorney asked me a few questions when we spoke about raising the money. I came to the conclusion that I'd be raising money through unaccredited investors mainly because I didn't want to be limited to accredited and wasn't sure exactly how to find accredited investors. But it does seem like the easier (easier is probably a bad word choice, I mean it would keep me out of hot water) route being as they are sophisticated.
Attorney · Los Angeles, CA · Member since 2016 · 284 posts · 314 votes
9y
@Mike Evans What the SEC giveth, the SEC also taketh away. With each of the regulations (506b v 506c) there are pros and cons to the strategy of using regulation, based on your short and long term goals, your network today, and basically from who and how you want to take money.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
Are you looking for a lender to do the 70-80% loan? Or a group to come up with the 20-30% (in which case who gets the loan?) or are you looking for a group to all pitch in and buy it outright?
IMO York best bet is to try to find lenders to get you your downpayment (assuming you don't have it) and take this beast down solo.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
"90 for 90" is Freddie. Most banks want 80+. Most want DCR of 1.25.
I've put properties under contract then leased them up quickly myself to qualify the deal. As in I just did that and am closing on it Thurs. it was 65% occupied when we went under contract. It's 84 now.
Real Estate Agent · San Diego, CA · Member since 2015 · 293 posts · 109 votes
9y
Cody L. How do you go about decreasing vacancy before you have actually closed on the property? I don't know much about multi family, but am learning as much as I can as this is where I want to end up. I didn't know leasing before closing was an option.
@Cody L. I am more looking for the 20-30% raise, mainly because the seller is considering creative financing instead of one lump sum but still wants at least 20% according to the Broker. I wouldn't be opposed to finding a group for the entire purchase then Refi in 2 to 5 years. I would love to take it down solo but I don't have the down payment. I would like to discuss that with you further maybe there are options I am not thinking of.
Okay 90 for 90 is Freddie. I knew I had heard it just wasn't sure if it was most commercial lenders. Nice work on your next closing! Its really nice to chat with people who are doing it. I appreciate all the comments.
Investor · Midland, TX · Member since 2016 · 49 posts · 11 votes
9y
@Evan Bell I meant to ask @Cody L. but forgot to. Did you use the Master Lease option to purchase this apartment building you are closing on Thursday? If so, I would like to know how you structured that deal, if you wouldn't mind sharing.
Lender · Morrisville, NC · Member since 2015 · 610 posts · 131 votes
9y
@Mike Evans - You'll need no less than 1.25 DSCR at the time of acquisition for a debt provider. As far as occupancy seasoning it really depends. Some lenders will be more worried about the length of the current leases than past performance.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
9y
If you go Fannie or Freddie, don't overlook the net worth requirement. Since Freddie was mentioned, their program has a for the principals in the transaction.
It's interesting to me the seller would consider an installment sale. That seems to be the path of least resistance. If I were in your shoes, I'd ask for seller to subordinate and approach my commercial lender and throw other collateral at the deal and see where it goes. But... I'm assuming that the numbers show this is really an opportunity worth pursuing at $43,750 per unit. The above, though, fits my goals of not doing syndication and not bringing in a bunch of equity partners.
@Evan Bell I meant to ask @Cody L. but forgot to. Did you use the Master Lease option to purchase this apartment building you are closing on Thursday? If so, I would like to know how you structured that deal, if you wouldn't mind sharing.
Nope. I'm a simple man. I told the guy I needed keys to some units, and that I was going to start leasing them out. So I leased his building the same way I would if I were a real estate agent leasing for a commission (though I didn't charge him as they're soon to be my tenants)
The nice thing was I wasn't under pressure to find people that wanted to move in ASAP. They've been finding people that want to move in 2, 3, 4 weeks out. Which is nice since once I close, I'll have this stream of tenants I already know will be moving in. And when lender asks for leases, I have them (even though they're for future dates). And those units don't hit my vacant unit report anymore (even though some are empty, there is a lease scheduled)
Cody L. How do you go about decreasing vacancy before you have actually closed on the property? I don't know much about multi family, but am learning as much as I can as this is where I want to end up. I didn't know leasing before closing was an option.
Easy. Post an ad on craigslist. "Apartment for rent". They call you, you show the unit in the apartment you'll be buying. They like it. You sign a lease. Give their rent+deposit to the current owner of course. move them in.
Cody L. Awesome, much simpler than I imagined. I'm sure you don't get any kind of pushback from the current owner either, which is good.
No, but I did have to talk to him about it as I needed his buyoff. I needed keys to access units. I had to be the one to qualify tenants and put them in my lease (so he was worried about that). I made him feel safe by telling him I'm not going to put someone in there I wouldn't' want since I'm going to inherit them soon.
Real Estate Agent · San Diego, CA · Member since 2015 · 293 posts · 109 votes
9y
Cody L. Perhaps 'simpler' was the wrong word.....
Seems that there is always a way to be creative in every step of a transaction, which is good to know for us newbies. Thanks for sharing.