Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
Hi BP community,
I wanted to share our most recent purchase, a 146 unit mom and pop in Knoxville, TN that we bought in house. For all of you investors out there who say the market is overpriced, you are right. And for those investors out there who say there are deals out there, you are also right.
Henry Ford said it best "If you think you can or can't do a thing, you are right".
The reason for me sharing this purchase is to let everyone out there know that they have the ability to create their own future. This deal took over eight months to close, and we had to negotiate a repair credit that the seller said no to at first. The deal also has an owner financing component to it. The more problems you can solve, the better the deal you are going to get.
We are in this deal at $26,000 per unit, with 33 2 beds, and the remaining one beds. Rents are going to $600 per month for the one beds, with RUBS being added as well.
It is going to take 12-18 months to reposition, a lot of work, and the goal is to refinance it to agency.
In this part of the cycle, please be careful where you are buying, and try to limit your downside risk. We had to look through many deals before we found this one through a referral from a team member.
No deal is better than a bad deal, and continue to network and underwrite deals. When the market does correct, you will be one of the lucky ones to be at the right place at the right time, like Jake & I were back in 2013 with our first purchase.
I wish you all a Happy New Year, and continue to grow as a person!
Developer · Houston, TX · Member since 2017 · 161 posts · 134 votes
7y
@Kevin Dean for our current deal under contract, we looked at 80 properties and finished in top 3 on 4 of them. It’s tough out there and you need a very sharp pencil. Right now you need to be focusing on debt and long term hedging to protect your exit on deals.
Rental Property Investor · Chantilly, VA · Member since 2017 · 104 posts · 149 votes
7y
@Joseph Bramante okay, thanks for the information. When you say look, how many of these did you actually go see in person? And how many of these did you submit offers on?
You mentioned focusing on debt and long term hedging, what specifically are you doing in order to account for that? Are you bringing in more equity? What LTV are you typically underwriting to, and are you raising any extra equity for reserves? Would love some details on that comment.
Developer · Houston, TX · Member since 2017 · 161 posts · 134 votes
7y
@Kevin Dean saw about 20 in person, submitted offers on 7, made final cut on 3.
Rates are going up so we are switching to floating rate loans w 4 years of rate cap insurance. On our current deal that equates to about $200k additional cost at closing but the deal cashflows better and should rates drop (due to a recession?) you win big time. The primary provider is Chatham but sometimes the bank offers it as well and can sweeten the deal for them if you buy it through them in exchange for better treatment elsewhere. I was able to negotiate our current loan to 250bps over LIBOR by buying the rate cap through the bank.
Yes bringing in more equity. 75% LTV. 2 months of debt service and taxes for reserve.
See my ad in the market place (link on my profile) for our current deal. Our underwritting is laid out for you to see.
Great questions for Joseph. In our experience we look at less deals because we have good relationships with brokers and they only send us deals that fit our parameters.
We only visit properties that actually make sense from a numbers perspective
On this deal we came in with 20% down
On our syndication in November we put down 30% which did affect our returns.
We also raised An additional $200,000 for any unforeseen cap ex. That was one of our biggest mistakes when we first started buying for ourselves. We never had enough reserves.
Rental Property Investor · Chantilly, VA · Member since 2017 · 104 posts · 149 votes
7y
@Joseph Bramante that still seems a bit pricey for an interest rate cap on a loan at what I am guessing will shake out around $8.25M ($11M x 75%). What was the spread over LIBOR for the cap? If it is super tight, than that makes complete sense.
Also, not sure if you are aware of what is going on with LIBOR but major institutions will be issuing new floating liabilities in SOFR rather than LIBOR in the near future. Probably won't affect you much on this deal but still very interesting and worth reading into! If you search "Is LIBOR going away?" or "LIBOR vs. SOFR" you will get some results to start your research if you haven't already..
Congrats on putting that property under contract, that's a really big deal to find something that will workout with the returns you mentioned in your post considering the current state of the market. Best of luck getting to closing!
Rental Property Investor · Chantilly, VA · Member since 2017 · 104 posts · 149 votes
7y
@Gino Barbaro that makes a lot of sense, can't be spending time looking at every deal in person. Great to have developed those types of relationships with Brokers.
I like the strategy of bringing more equity to the deal, especially with the uncertainty in the market going forward. Additionally, with the lower leverage, I'm sure you had the option to get longer interest only and boost cash on cash, if that was something your investors were hoping for.
From an investors perspective, I would be more than willing to give up some return on the exit in exchange for a far safer deal and consistent mailbox money earlier on in the deal!.
Developer · Houston, TX · Member since 2017 · 161 posts · 134 votes
7y
@Kevin Dean its like @Gino Barbaro stated in his post, you have to get creative in how you find the value and really negotiate the heck out of the deal. Most of our value comes from being a better operator, owning the property next door, and knowing how to maximize the water revenue.
I previously stated what our spread over LIBOR was. The LTV is 77% since we negotiated the bank loan and purchase price outside of the contract. We ended up getting the pice $300k lower than the price the bank originally saw and they are honoring the proceeds of 8.5M.
Rental Property Investor · Chantilly, VA · Member since 2017 · 104 posts · 149 votes
7y
@Joseph Bramante. I saw in your post that you mentioned that the spread on the floating note for the property is 250 bps over LIBOR. My question was, what's the spread over LIBOR for the interest rate cap specifically? Meaning, what protection did you buy?
@Joseph Bramante. I saw in your post that you mentioned that the spread on the floating note for the property is 250 bps over LIBOR. My question was, what's the spread over LIBOR for the interest rate cap specifically? Meaning, what protection did you buy?
Sorry if I wasn't clear on that!
I bought 250, 250, 300 and 350 for years 1-4 and feft year 5 open since i can always cap it later or just sell early if things go crazy. Though from what I am reading, it looks like the rate will be going back down some.
We created a syndication company to focus on syndications. We have a head of investor relations, plus two other partners.
We bought this deal internally. There were a total of four of us on the acquisition. Now the work begins. We have in house property management with around 30 employees
thanks for the kind words. There are a ton of successful and knowledgeable people on this site. Make sure you don't give up. It may be hard at first, but it will be well worth it.
We took over about two weeks ago, letters went out to the tenants. There is a a lot of work ahead of us.
We are going to start with the exteriors, common areas, landscaping, and transition to any down units at the same time.
Have to establish who is paying, who isn't, evict non payers and begin to rebrand the property with signage. We have to hire 2 cap ex people just for this project, and hoping to have stabilized within six months.
Rental Property Investor · Chicago, IL · Member since 2018 · 16 posts · 1 vote
7y
@Gino Barbaro congrats! We financed a similar deal in Memphis locked in at a great rate with cash out at each milestone in stabilization thus saving the borrower the hassle of refinancing. It was a $30 million dollar deal. There are deals to be found but it takes being creative to make them happen.