I've spoken w/countless investors about investing in my deals and running into the same issue. What's your experience? How do I safeguard my investments? I feel like the deals that I've analyzed are never enough to get investors excited enough to move beyond the focus on experience. My target markets are NYC, Hampton Roads, VA and the Palm Beach areas of Florida. Here are a few recent deals I've analyzed in Brooklyn, NY and West Palm Beach, FL. Please critique these deals and give me some feedback. If you have advice on how to get over the lack of experience component that would be greatly appreciated. And finally, if either (or both) of the attached deals fit your investment strategies and you'd like to know more about the properties please let me know what time works best for you to hop on a call to see if we could get the deal done. Thanks in advance. Heyward
Real Estate Agent · Merritt Island, FL · Member since 2017 · 974 posts · 1k+ votes
7y
@Heyward Lovett - your experience (or lack thereof) matters. There are a lot of things in rehabbing that you simply don't know; that said, don't let it deter you. We all start somewhere. Here's my input on each project:
Crooklyn: that's home for you and your knowledge of the area is a tremendous asset.
1. Is $2m fair market for that home, given that it needs to be gutted? A good friend owns a similar home on Ellery(?) and the going value of homes is in the $1.5-$1.7m range. I don't know the location of this home, be sure you're not overpaying.
2. I realize that in NYC, people squeeze into small places so this next comment might not ring as true: I would avoid a multi-unit that has 3 1BRs and 3 efficiencies. A 1BR limits the size family living there so if a couple decides to have kids, they'll move before long. Any family with kids will not consider your place. Is that the best use of the house or are you cutting it up in bits in an attempt to maximize income?
3. Though not a tremendous concern, your closing costs will be closer to $20,000. Not $3500.
WPB: much more palatable rehab, but you're in NY.
1. How do you know the purchase price is competitive?
2. Do you intend to move down to Florida to oversee the rehab?
3. You mention "triplex" and allude to a main house + 2 units (this makes sense). However, your numbers have income from a main house ($1600) and 3 units ($550+$550+$700). Is this a "quad" or is income $2850/mo?
4. Your other numbers need massaging too. Closing costs will be closer to $8000 or $9000; ARV cannot be $179.9k, otherwise drop this deal immediately. You should be able to find management for 8%.
Although it would be nice to work on a place in your town, I don't like that deal one bit. You're relying on appreciation of the property and hoping all goes well so as to cover the monthly payment(s). Some investors go with that strategy, I don't. Many old school don't either.
The WPB deal is smaller and the property will easily provide positive cash flow. Not only that, I do not believe the rehab will cost $30k. You'll probably get it done for $18-20k. Here's the catch: you need to move down while the work is going on to keep an eye on it. If you're not willing to do that, you might want to skip this. I do have experience in South Florida including WPB....efficiency increases dramatically under the gaze of an owner's eyes.
Real Estate Agent · Chattanooga, TN · Member since 2018 · 258 posts · 136 votes
7y
@Heyward Lovett
What excites you about Hampton Roads? I am from New York as well and currently live in Suffolk, VA (part of Hampton Roads). If you give me an idea of what you're looking for I can keep an eye out for something that may meet your criteria.
Investor · New York City, NY · Member since 2018 · 81 posts · 19 votes
7y
@David Nacco I have family in Hampton, Newport News, Portsmouth and Richmond, VA. I have carpenters and a property management team in place their as well. I'm looking to invest in multi unit properties.
Real Estate Agent · Chattanooga, TN · Member since 2018 · 258 posts · 136 votes
7y
@Heyward Lovett That’s great. I have a friend who is currently in the process of putting together some multifamily deals. If you would like to get in touch with him message me your contact info and I can have him get in touch with you.
Real Estate Agent · Merritt Island, FL · Member since 2017 · 974 posts · 1k+ votes
7y
@Heyward Lovett - your experience (or lack thereof) matters. There are a lot of things in rehabbing that you simply don't know; that said, don't let it deter you. We all start somewhere. Here's my input on each project:
Crooklyn: that's home for you and your knowledge of the area is a tremendous asset.
1. Is $2m fair market for that home, given that it needs to be gutted? A good friend owns a similar home on Ellery(?) and the going value of homes is in the $1.5-$1.7m range. I don't know the location of this home, be sure you're not overpaying.
2. I realize that in NYC, people squeeze into small places so this next comment might not ring as true: I would avoid a multi-unit that has 3 1BRs and 3 efficiencies. A 1BR limits the size family living there so if a couple decides to have kids, they'll move before long. Any family with kids will not consider your place. Is that the best use of the house or are you cutting it up in bits in an attempt to maximize income?
3. Though not a tremendous concern, your closing costs will be closer to $20,000. Not $3500.
WPB: much more palatable rehab, but you're in NY.
1. How do you know the purchase price is competitive?
2. Do you intend to move down to Florida to oversee the rehab?
3. You mention "triplex" and allude to a main house + 2 units (this makes sense). However, your numbers have income from a main house ($1600) and 3 units ($550+$550+$700). Is this a "quad" or is income $2850/mo?
4. Your other numbers need massaging too. Closing costs will be closer to $8000 or $9000; ARV cannot be $179.9k, otherwise drop this deal immediately. You should be able to find management for 8%.
Although it would be nice to work on a place in your town, I don't like that deal one bit. You're relying on appreciation of the property and hoping all goes well so as to cover the monthly payment(s). Some investors go with that strategy, I don't. Many old school don't either.
The WPB deal is smaller and the property will easily provide positive cash flow. Not only that, I do not believe the rehab will cost $30k. You'll probably get it done for $18-20k. Here's the catch: you need to move down while the work is going on to keep an eye on it. If you're not willing to do that, you might want to skip this. I do have experience in South Florida including WPB....efficiency increases dramatically under the gaze of an owner's eyes.
Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
7y
Heyward,
You need to look for experienced operators and partner with them on a couple of deals. Investors are looking for track record, which is understandable. Apartment investing is not easy and I am glad I did not raise money when I started. I lost everything and I lost my money and learned on my dime, not on someone else's.
Read this post I wrote about raising capital with Chinese investors:
1. It is a bit overpriced relative to the comps in the area. So there's room to negotiate down.
2. You are right my friend. New Yorkers love to squeeze into these tiny, overpriced units and so obviously there will be 1-2yr turn around on new tenants. This I'm ok with.
3. I went ahead and adjusted the closing cost per your advice.
The WPB property:
1. How do you know the purchase price is competitive? I don't. I just found this property last night. I reached out to the listing agent and got majority of info during the call.
2. Do you intend to move down to Florida to oversee the rehab? No. My brother lives in PBG so I'd have reliable eyes and ears in the area to make daily checkins to make certain that all goes according to plan.
3. You mention "triplex" and allude to a main house + 2 units (this makes sense). However, your numbers have income from a main house ($1600) and 3 units ($550+$550+$700). Is this a "quad" or is income $2850/mo? It's listed as a triplex but the info given covers four units.
4. Your other numbers need massaging too. Closing costs will be closer to $8000 or $9000; ARV cannot be $179.9k, otherwise drop this deal immediately. You should be able to find management for 8%. Why are the closing prices that you're quoting so high? Everything that I've read expresses a different cost. How do I go about finding out these numbers and making them real? The ARV I left at the asking price because there are still unfinished work on the property that I don't have that information for. A quality management team would be nice. All referrals are welcome.
Although it would be nice to work on a place in your town, I don't like that deal one bit. You're relying on appreciation of the property and hoping all goes well so as to cover the monthly payment(s). Some investors go with that strategy, I don't. Many old school don't either. GREAT ADVICE! Thank you.
The WPB deal is smaller and the property will easily provide positive cash flow. Not only that, I do not believe the rehab will cost $30k. You'll probably get it done for $18-20k. Here's the catch: you need to move down while the work is going on to keep an eye on it. If you're not willing to do that, you might want to skip this. I do have experience in South Florida including WPB....efficiency increases dramatically under the gaze of an owner's eyes.
Investor · Stratford, CT · Member since 2015 · 258 posts · 230 votes
7y
I have both active and passive MF investments. When evaluating passive deals I look at sponsor first, deal second. An inexperienced sponsor is a no go for me, regardless of deal quality. The answer to question 1 is to become experienced. Either partner with an experienced investor to build a track record as part of a GP team, or start small with our own money and grow your business and experience to a point where you can raise funds.
Real Estate Agent · Merritt Island, FL · Member since 2017 · 974 posts · 1k+ votes
7y
@Heyward Lovett - you asked, "Why are the closing prices that you're quoting so high?"
They aren't high, they're accurate. I was a loan officer for over a decade and have also purchased at least 20 properties in FL.
"Everything that I've read expresses a different cost" Are you reading numbers from lender sites?
Two very common issues when comparing/reading closing costs:
1. Every lender wants your business so they purposely quote low. Sometimes they're even absurdly low.
2. There are hard closing costs as well as prepaids/escrows. While we can break them down, it's important to know that while an escrow isn't a hard cost, it still needs to be paid into up front.
Let's estimate your WPB closing. How much will your lender charge? Processing fee, underwriting fee and a few small items....are we at $1500? Let's assume there aren't any points being charged. An appraisal for that structure will likely run $600. Settlement company will charge you a fee...maybe $700. Title insurance will be $1000, then you have govt fees (stamps). You will pay based on the purchase price and on the mortgage. Without doing the proper calculations, let's say $1300. We're already at $5100 and haven't added prepaids or escrows. You see how easy it is to go past $8000?
Specialist · Tampa, FL · Member since 2012 · 933 posts · 492 votes
7y
@Heyward Lovett the best thing to do is leverage someone else's experience that you don't have. Do you have property managers on board that have extensive repositioning experience? Can you potentially team up with other operators that have more experience than you, by bringing them a deal? Then bring your investors in at that point. This is a team sport. Don't get down if you're lacking the resources or experience. Get out there and network with other operators.
Investor · West Palm Beach, FL · Member since 2017 · 94 posts · 32 votes
7y
@Heyward Lovett
I think I read somewhere on there the property in WPb might be a B area..not true. Very few places they have properties like this in west palm and where they are it isn’t a B area..Good news is the rents are currently very low for anywhere around here...there are ALOt of investors in Palm Beach county that don’t let good deals stay on the market long. Tread lightly my friend. Feel free to PM if you have more specific questions.
Hamilton, NJ · Member since 2019 · 78 posts · 15 votes
7y
You need to find a partner to joint venture with. I have one investor that requires this to gain access to his money. Once you get the first deal out the way you will gain more access to money
Multi-Family Syndicator · Abington, MA · Member since 2017 · 603 posts · 347 votes
7y
Speak from a team mindset. If you frame it from an individual (my, I) mindset you will be asked the questions directly. If you focus on your team and leverage them in your conversations, you will most likely experience less of those direct push back questions. Also, what kind of value would you bring to the deal with your partners?