Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
Hi Everyone,
Trying to create a Multifamily Masterclass to help brokers, investors, newbies break into multifamily investing. I want to structure the class based on five or six most recurring answers. Can you answer this question:
What is your #1 question or pain point in multifamily?
Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
9y
Having sellers expecting to benefit from the added value, that you, the buyer will have to perform. I was just given a deal in LA where the broker was promoting the fact that rents could be raised $100 with very little work to the units. Based on the market cap and the the projected NOI we saw that this was the sellers asking price. The seller was going to get the benifit of the added value we would have to add. Needless to say, we were pretty upset with the broker that we had just started a relationship with us.
Rental Property Investor · Atlanta, GA · Member since 2014 · 29 posts · 29 votes
9y
As a new investor, it has been the classic catch 22. Most brokers are reluctant to work with someone who hasn't done any deals but getting deals without brokers, especially in a hot market, is extremely difficult.
@Gino Barbaro I just finished your book a couple days ago. I really enjoyed. it.
You can bill back tenants for utilities in certain markets using a RUBS (ratio utility billing). Go onto NWP website for more info.
As far as septics, I lived in NY and had a septic. You need to have room to expand the fields if and when they fail. If owners are pumping out tanks monthly, big sign they aren't working. Do your due diligence on the front end to make sure they are working properly and budget cap ex for any future repairs
Thanks!!! You need to start looking for a potential partner who has money and or experience. You are 100% accurate that you need the broker relationship in any market. You need to create a credibility book outlining your business plan and how you plan to make money for your investors. We are called Jake & Gino, and I attribute much of my success to having a terrific partner
China, ME · Member since 2014 · 3k+ posts · 4k+ votes
9y
@Scott Runyan I'll work with almost any investor - and in fact am submitting an offer on an REO / gut rehab right now.
The only exception are those who want me to submit silly lowball offers.
For example, in a market where houses in a similar condition, location and price are selling at 99% - 105% of asking price, and an investor wants to offer 75% of asking price. That's just a waste of my most precious resource - my time.
Specialist · Plainville, CT · Member since 2015 · 478 posts · 389 votes
9y
@Scott Runyan- Hey Scott... My team just closed on a 36 unit/144 bed student housing deal in Georgia and I see you're from there. Call me. I'll help you combat that issue you are describing.
Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
9y
Having sellers expecting to benefit from the added value, that you, the buyer will have to perform. I was just given a deal in LA where the broker was promoting the fact that rents could be raised $100 with very little work to the units. Based on the market cap and the the projected NOI we saw that this was the sellers asking price. The seller was going to get the benifit of the added value we would have to add. Needless to say, we were pretty upset with the broker that we had just started a relationship with us.
Investor · Melville, NY · Member since 2017 · 29 posts · 9 votes
9y
Jeff Greenberg
Couldn't agree with you more. Majority of the deals out there are based on unrealistic projections of value add & based on theory current rents are too low. Well, sometimes rents are too low but it takes work & turnover to take it to next level & that benefit must go to the buyer without paying any premium.
Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
9y
I don't get the seller's mentality . It's like paying after repair value and then getting to take all of the risk and doing all of the work to create the value you already paid for.
Investor · United States · Member since 2015 · 415 posts · 487 votes
9y
I don't own any MF, but my biggest perceived pain point is higher turnover and lower quality tenants compared to the tenants I get in single family homes.
Long Beach, CA · Member since 2016 · 44 posts · 21 votes
9y
@Jeff Greenberg total newbie here but just looked at a commercial proforma in LA with a much more experienced investor who pointed out exactly what you're describing. And the lessons continue haha!
You know it's a hot market when sellers and brokers are pricing on pro forma & getting their ask. DOn't worry, in 2 years when I/O is up, these properties are going to be hitting the market again. Stick to your parameters and continue to buy based on actuals.
this one bothers me the most, and has happened more in the past year. Once the market cools off a bit, you will see this start to go away. I always tell the seller that I will buy at their price if they perform the work, and the conversation usually stops there. I hope they see the folly in their request.
Depends on where you buy your SFH, many areas where turn keys are offered the quality of tenants are marginal, and the better SFH don't cash flow, so why buy especially since the market has elevated the past couple of years in that space. We are in the C space, and the tenants are blue collar. You need to provide a quality product and service, and that will get them to stay longer. Most of our tenants will not purchase a home, so treating them right is the key
Investor · New York, NY · Member since 2016 · 224 posts · 333 votes
9y
@Gino Barbaro I listed a few top questions and barriers preventing progress below based on personal experience and discussions with other multifamily investors. I think any of these topics would trigger rich discussion in a mastermind. I'd be very interested in participating.
1. How do I develop relationships with brokers in new markets when I have limited experience? How do I convince them that I am a serious buyer?
2. How do I perform a market analysis to determine if rents are below market? What are credible sources of comparable market rent data?
3. How do I create robust deal flow? What are the 2-3 most effective methods for identifying quality deals? Where should investors focus their time for maximum impact?
4. What are the key metrics to analyze when identifying markets in which to invest?
5. What are the rules of thumb for estimating operating expenses, cap ex reserves and other key considerations when developing a pro-forma and/or calculating an offer price?
6. What are the common red flags in a deal that should cause investors to flee? What, if any, are possible remedies to these red flags?
7. What if I don't have enough liquid capital, don't meet the net worth requirements, or don't have key principal experience? How do I approach others who can help me meet the capital/experience requirements to qualify for a commercial loan?
8. Once I close on a multifamily property, what are the key operational tools needed for bookkeeping, rent collection, tentant screening, maintenance scheduling, etc., that I need in place in order to "keep the lights on"?
9. What are the top 3 tricks that brokers/owners use to trick unsophisticated buyers into paying too much for a multifamily property? What can investors do to see through the nonsense and respond with offers that are taken seriously?
10. How do I approach a conversation with an owner after I have discovered material items during due diligence? How do I proceed in a way that will allow me to avoid developing a reputation as a re-trader?
Each property has its particularities, and each of them have things that needs to be worked on. But it all boils down to your residents. They are the ones who pays our bills, and you are spot on, we must treat them right.
However, how would you deal with a long time resident, who is a great resident, and they hear about your special for that month. Now suddenly they are feeling unappreciated because they didn't have a special when they moved in. Where do you draw the line to appreciate your residents, and not violate fair housing laws?
Rental Property Investor · Scottsdale, AZ · Member since 2016 · 296 posts · 243 votes
9y
@Gino Barbaro - first of all, your book is great. read it many times, really want to break into mid-sized MFH (10-30 doors). My biggest hurdle at the moment is financing deals. I am in a super tight market (scottsdale AZ) and getting funding has been tough. I have 11 doors right now (small commercial and some condos) and am looking at riding along for a year or two and then exchanging everything into a larger complex.
The tough part is that in our market, there is a ton of money chasing deals and without having funding lined up already, you'll never land a thing. Anything under $3MM in purchase is gone within days at 5-caps....and I just don't want to go out of state.
NY was a similar market for me. I ultimately tried Rochester, NY first and then met Jake and we invested in Knoxville where Jake lived. You may have to seek out another market where you can partner with someone if you have to scale.
the problem rears its ugly head with Verizon. They seems to offer the 2 year deal only to new customers. It really pisses me off too, but I understand they are trying to drum up new customers. You can remind your tenants that you have been taking care of them hopefully with great customer service. You can also give them a gift certificate as a token of appreciation. Ask them to refer a friend/family member and you will give them a bonus. Just let them know you are trying to cover your current overhead by filling up the units
Rental Property Investor · Scottsdale, AZ · Member since 2016 · 296 posts · 243 votes
9y
@Gino Barbaro - thank you for the response! Yes, 5-caps....we have a lot of high-net-worth individuals here that purchase for tax reasons only, so they don't care as much about cap rates. a 120-door asset traded here recently for a 5.2 cap, right in my neighborhood. C/D class is going for 8-caps with lots of deferred maintenance.
Do you track specific demographic or other information to explore other markets? Employment centers? Manufacturing trends? Ease of transportation? (cheap flights when something goes wrong...?)
I very much agree with your strategy of well-run blue-collar apartments, and providing value, however it seems that everywhere in the american west is replete with "investors".
Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
9y
We have certain metrics we look at, job growth, population and household growth, # major employers, tax friendly and business friendly markets, favorable landlord laws, are just a few.
The trend will stop when rates rise and or money decides to rotate into another sector. Look at oil at 150 and gold. Guys buying on I/O are going to get burned and tons of CMBS debt is coming due
Financial Advisor · Cascais, Lisboa · Member since 2015 · 199 posts · 83 votes
9y
@Gino Barbaro Going a bit to the right here Gino, but it would be of value to have a checklist of the fiscal/legal stuff to know when underwriting a deal. I've been trying to get people on the podcast to get some more answers.