Murfreesboro, TN · Member since 2017 · 18 posts · 10 votes
Hello BP family!
I have two new investors who want to partner with me on fourplex and multi-family commercial deals. None of us have experience in commercial investing, but we are aggressively attacking the knowledge base in order to close the gap on our learning curve.
Our goals are to purchase these properties to build enough of a passive income for everyone to walk away from their jobs.
There are now a few fourplexes that we are considering and looking to make a purchase early 2018.
My questions are the whole scope:
1) What are our finance options? / How do we finance deals with 3 people dividing equity?
2) How do we analyze the property?
3) Not being a capital investor how do I continuously provide value?
4) What due diligence needs to be done to insure we are buying good deals?
5) Does anyone have a process they follow from A-Z that they would be willing to share?
Houston, TX · Member since 2017 · 20 posts · 8 votes
8y
Im currently learning about multifamily investing myself. I can mention a few books for you to check out if you have a few days to study. It may be difficult to find someone come in here to answer every question directly.
Multifamily Millions by David Lindahl would answer 2 or 3 of these questions for you.
I’m also reading Crushing It by David Murray which is a good read so far.
Houston, TX · Member since 2017 · 20 posts · 8 votes
8y
Im currently learning about multifamily investing myself. I can mention a few books for you to check out if you have a few days to study. It may be difficult to find someone come in here to answer every question directly.
Multifamily Millions by David Lindahl would answer 2 or 3 of these questions for you.
I’m also reading Crushing It by David Murray which is a good read so far.
Professional · Lowell, MA · Member since 2014 · 232 posts · 223 votes
8y
1) Insist upon an LLC. in that document you can define the goals and % interest of the parties. The LLC should be the borrower.
a) some lenders don't like this-- especially if you insist on a non-recourse loan. if you have decent assets or have done multiple deals-- even in Residential SFRs-- then you should already be aware of this tidbit-- if not, it's a fight for your first one.
2) Not an easy question. I see you have an offer in the thread for PM- take (someone) up on that. Maybe it's someone here, maybe it's someone from a local REIA, but get someone's take on your numbers. There are many ways to skin this cat-- the trick as a borrower is to show the lender the value they need to see so they don't artificially depress your values. Remember: the bank has one goal-- to mitigate its risk.
3) your LLC doc mentioned in (1) should describe your % share, and what you're bringing to the table to justify this share. Sometimes it's capital, sometimes it's experience, sometimes it's hound-dogging. agree on the tenets of this question in (1) and everyione should sign and agree to your operating agreements. In many cases, the lender will want to see those docs too-- don't be surprised. in some jurisdictions you can push back and say no... but they can also say 'no' to your loan.
4) Hire a lawyer. Let them worry about title, Enviro, and Zoning matters. Hire an accountant, and especially when you're new to the asset class-- HIRE A BUILDING INSPECTOR who is used to working in this class of properties. Too many investors go without the inspection-- short term money for long term liability. an inspection gives you an objective third-party benchmark about the condition of the property from which you can re-negotiate your purchase price. Lots of sellers will tell you to buzz off-- those are exactly the ones you need to watch out for. At the very least, have a Construction Supervisor or GC on your team.
Also this: a trip to the Town or County office to inspect Zoning, Building Inspection, and Planning records should ABSOLUTELY be part of your DD prior to your offer. This is three different departments or boards in most jurisdictions. If you see a new kitchen and no permits... well, now you know. Again, it gives you some leverage to negotiate from. Furthermore, it's a much higher risk that something will be wrong with multi families-- there are stories every month of someone buying a (4-family) and then a month after the purchase learning it's only legal for (2 families.) NOTHING will turn your math upside down like a reduction in total legal units. Search "Illegal apartment" or "only X units allowed" in the forums here, and soak in the wisdom on those threads.
5) Not really-- every property is different. Some need zoning relief, for example, and some don't. Some have pools, some have basements, some have electrical issues. There are lots of base-level checklists out there, but they won't cover everything.
Murfreesboro, TN · Member since 2017 · 18 posts · 10 votes
8y
@Joseph Roussel as a lender what would you want to see in order to loan on a commercial property?
@Forrest Holt thank you for the book suggestions! Which book do you believe would be most beneficial to read first? ....Also, good look on your investing. Houston is a hopeful target market for me in the future!
Murfreesboro, TN · Member since 2017 · 18 posts · 10 votes
8y
@Isiah C. will do! Looking forward to connecting. Pen and pad ready!
@Steve McGovern wow! very informative. Thank you so much for taking the time to share your knowledge and for the forum suggestions.
Question:
1) In setting up the LLC, how much different is this applying for a loan?
Do lenders lend towards based on business partners assets, work history, credit scores, etc... or is it solely a lend towards the business?
I hadn't considered speaking with city planning at all so thanks for that suggestion. I can see how finding out that a "four-plex" is truly a duplex can be very detrimental.
Houston, TX · Member since 2017 · 20 posts · 8 votes
8y
Lindahl will give you a step by guide to purchasing your first multifamily. However, I’m enjoying Murray’s book a bit more.
You can pick up both for around $40. They’re worth there weight in gold. James English
Professional · Lowell, MA · Member since 2014 · 232 posts · 223 votes
8y
James English I’m not sure I understand your first question— how will the lender treat you as an LLC? Is that what you mean?
— Or is your question about how to set one up?
I’ll assume the former— unfortunately, it depends on the lender and your situation. Some lenders will say that they won’t lend to you as an LLC, others may have no problem at all, and still others will allow your LLC, but will also insist on personal liability or recourse of each of the partners (members/managers, to be precise, in the case of your LLC.) it really depends. For those who say no, it’s usually more about the borrowers’ individual profiles than it is an obstinate denial of all corporate borrowers using LLCs.
Same answer for your second question— in most cases, and especially for newer investors, they’ll still seek the credit history of each member/manager, but you can find some others that are happy to lend based on an under-leveraged asset and overly-oppressive default language. Unfortunately, in many Southern states (which I’ll assume you’re investing in based on your personal locations) it’s easy for a lender to take advantage of borrowers. The good news in these climates is that it’s also easier to negotiate your terms— but you should definitely hire an attorney to represent your interests In speaking with that lender.
Again, I alluded to this before: they can always say ‘no’ to your loan... but that fact shouldn’t stop you from doing the best you can in those docs.
I have two new investors who want to partner with me on fourplex and multi-family commercial deals. None of us have experience in commercial investing, but we are aggressively attacking the knowledge base in order to close the gap on our learning curve.
Our goals are to purchase these properties to build enough of a passive income for everyone to walk away from their jobs.
There are now a few fourplexes that we are considering and looking to make a purchase early 2018.
My questions are the whole scope:
1) What are our finance options? / How do we finance deals with 3 people dividing equity?
2) How do we analyze the property?
3) Not being a capital investor how do I continuously provide value?
4) What due diligence needs to be done to insure we are buying good deals?
5) Does anyone have a process they follow from A-Z that they would be willing to share?
Thanks,
James
PM me James and let’s talk. I recently closed on a 42 unit apartment complex, my first, and had similar questions going into it.