All Forum Posts by: Marc C.

So, according to http://www.crefcoa.com/apartment-rates-main.html, apartment loan rates are up about .5% under D. Trump. Around 4.88% for what I'm looking for, up from 4.39%.  

What should that do to YOUR calculations, as far as overall rate of return? Here's an example: On a deal I'm underwriting, it takes about 1.1 percentage points off the average 5-year Cash on Cash return for the property (constant purchase price). From 11.4% to 10.3%. 

Here's where it gets interesting: If I want to preserve the 11.4% cash flow, all I have to do is get the seller to accept a 3% lower selling price than I'd originally bargained for. (That also keeps my investors' target IRR about 20% over a 5-year hold...my goal is for each investor to double his/her investment in that period.)

So, you can see what higher rates are going to do to prices: For every half-point increase in rates, we'll need to see a 3% drop in purchase price. (Says my spreadsheet. What does YOURS say?) 

If you're in contract on a deal you got under contract before Nov. 8, are you going to try to "retrade" the purchase price by 3% to account for the rise in rates? If the Seller voted for Mr. Trump, then I think he/she should share in the pain!

"First, I don't personally have the money to buy/ finance a property, so I'm going to need someone for the down payment and rehab money to make the deal work. "

So you need an equity partner. I take it someone who will be active in management of the asset and knows more about multifamily? Or a passive investor (in which case, you'll be selling a security). 

"Using the BRRRR strategy, my plan is to buy the property right, rehab, rent it, refinance it after a year or so and repeat."

This is BRRRR for multifamily? You will need a hard money lender then, as you will run up against steep prepayment penalties for most apartment financing. 5,4,3,2,1 (% for each year of loan remaining) is typical.

"I have been told by some investors not to worry about the money....... go and find the deal and the money will be easy to get."

In spite of my posting something similar previously ("find the deals and the money will come"), I have found it easier to find properties than funding.  

"I also wonder what is a typical partnership split when this kind of arrangement is put together?"

50/50 is typical for fix-n-flip deals. For buy-and-hold deals, a lot less split to the sponsor...like 20% and 80% to the investor. If you shop the real estate crowdfunding sites, you will find the typical deal for a passive investor is an 8% preferred return paid quarterly, plus 50-80% of the equity. But that is for experienced sponsors. For someone with no experience, I would want a much higher preferred return, perhaps after the first year. Most importantly, I'd want to see someone on your team who has done this before. 

How involved are you in managing the PM? Does your PM manage several buildings in the area, or just yours? Do they have a lot of multifamily experience? Do they OWN competing buildings?

Do you view their ads for your property? Where, BESIDES CRAIGS LIST, do they advertise? How are their photos of the property in their listings? Did they "stage" one of the renovated units with rented furniture for some photos?

What's their rating on Yelp and Google? How does it compare to their competitors?

When you call and act like a prospective tenant, how do they treat you...do they try to get you over to the property THAT DAY and hook you? Do they follow up with you a couple days later? Do they respond the same way they were contacted: If by text, then by text. If phone, a callback. If email, then an email? Do they have a web site for your property, with sample floor plans and tons of pictures? Updated Facebook page? Do they allow applicants to fill out applications online with a mobile device? Pay rent online with a mobile device?

Have you visited the competing properties? Do you review tenant applications? Do you set the tenant screening standards, and how do they compare with those for competing properties? Are your security deposits higher than your competitors?

Are they sending you regular photos of the common areas? Is there garbage blowing around? Is the landscaping kept up? Is the "curb appeal" at least as good as your competitors? Is your parking lot in good shape?

Do you keep close track of when each unit goes vacant and when it gets filled? How often are you on the phone with the PM, asking them, "Have you shown Unit 7 this week? Did they have the open house last weekend? Did the new water heater get put into Unit 9? I looked at Mrs. Johnson's application and it seems like she would be ideal for Unit 12. What happened with her?"

No, a PM will not like micromanaging. But "The squeaky wheel gets the grease." If most PMs were worth a darn, they wouldn't need micromanaging, but yours does.

Why not see if you can find a local, someone here on BP perhaps, to be your eyes and ears? Maybe you can find someone (Realtor, handyman) who, for a small fee, will help you with local aspects: Meet contractors at the property, inspect the contractor's work, take regular photos of all common areas (and contractor's work), note vacancies, note garbage/landscaping issues, etc. Even if that service cost you $250/mo., it beats air fare and hotel for going out there yourself.

You could also see if you could find a local partner who would buy into your deal and be an active owner while you shift into passive mode.

Finally: Why not consider selling? We're at the peak of the market. Maybe now is the time to get out of this one and try something closer to home, or in a stronger market, or perhaps a Class B neighborhood. Or perhaps diversify by investing in multiple buildings in different regions as a passive investor via the crowdfunding sites. You are not a passive investor now, but if you thought you were going to be one by owning 40 units a long ways from home and just turning your worries over to a PM, then, by now you've realized that isn't possible. Owning multifamily by yourself takes an ACTIVE owner. And it's riskier than owning little pieces of multiple properties around the country.

Lots of things to consider! But maybe for the next week or 10 days, put it on the back burner and concentrate on having a good holiday instead. There will be plenty of time to worry in 2017. 

Jonathan,

Something no one else mentioned is taking the full rehabs away from the PM and giving it to a General Contractor instead. Use an architect or someone to completely spec out what the rehab entails, down to the part numbers, with cost estimates. Then get bids from GC's, with the understanding that they will only get to do them as they become available. And  I'm willing to bet you dinner that the bids from GC's work out to be less than the PM is charging. Meanwhile, the PM can concentrate on fixing the small stuff and filling the vacant units. 

Jonathan, 

Sorry to hear that, man. That's no fun. 

$8000/unit doesn't shock me in total, but, does anyone else agree that, in the Midwest, for that, you should be getting new kitchen cabinets, new LED lights throughout, and new bathroom fixtures? Basically, an all-new unit? 

Is it all worth it? In one measure, you are doing alright by getting an extra $100/unit rent in the rehabbed units; 1.25% of value per mo. (More typical for a C-grade 'hood is that you don't get much extra rent because the neighborhood holds them down, but the unit rents faster and stays rented longer than its competitors.) 

Plus, as you said, that's another $1200/yr. in NOI and thus over $12,000 in additional value. Of course, until you refinance, you don't get that back.

But, on the other hand, it takes 80 months...6.66 years...to make it back (unless you do them all and then refinance it back out sooner.) I've never been in a business that could justify a 6+ year return of capital. More typical is 30-36 mos. for other industries. And to make it 6 years, there will be additional costs from turnover and repairs. After 6 years, you will have a 6-year old rehabbed apartment...it will no longer be able to command "premium" rents over its competitors. What a strange business we are in. I guess we should just cover our eyes to the payback period, go with the extra rent margin and extra value as the justifications, and hope to refi as soon as practical.  

Good luck to you! 

You might try to compare HUD Fair Market Rents for those counties in SE NM for 2014, 2015, 2016, and 2017 and see if they dropped.

https://www.huduser.gov/portal/datasets/fmr.html

If they are truly "fair market", they should have fallen in 2015 from 2014, and again in 2016 from 2015. The 2017 FMR's were recently posted.

Join us for breakfast to network with other multifamily investors and to learn from the best brokers, appraisers, and property managers in the Albuquerque, New Mexico area! We meet at a local restaurant every month on the 2nd Friday at 0800. We start by networking for 30 min., followed by a 30-min. presentation by a guest speaker, then another 30 min. or so to discuss our "Haves and Wants." These events are non-commercial; no "pitching" by commercial vendors, please (except in private). There is a $10 charge (plus your breakfast bill), which must be paid in advance here on Meetup. However, we donate all proceeds to the speakers' favorite charities.

Please join 10-15 of your fellow multifamily investors and wannabe investors for the first Apartment Investor Breakfast Club meeting of 2017! As always, we meet on the 2nd Friday of each month. You must RSVP and pay the $10 donation at https://www.meetup.com/Apartment-Investor-Breakfas...

Date: January 13, 2017

Time: 8:00am

Location: Weck’s Restaurant, 4500 Osuna Rd. NE, Albuquerque, NM. Google Maps: https://goo.gl/maps/UuAVKFcdnyw

Cost: $10.00 donation, re-donated to the speaker’s favorite charity (For just the final quarter of 2016, we gave over $300!)

RSVP: https://www.meetup.com/Apartment-Investor-Breakfas...

Topic: “Know The Law: Raising Money For Your New Mexico Deals”

Speaker: Marc Coan, partner, Multifamily Partners LLC

If you want to raise outside investor capital for equity in your real estate deals (“syndication”), you must be aware of state and federal securities laws and rules. (Yes, that’s true EVEN if you’re raising funds from “friends and family.”) At this month’s meeting, Marc will provide an overview of the laws and rules which pertain specifically to investments made in New Mexico companies. Want a primer, in advance of the meeting? Checkout the NM Securities Division’s “Small Offerings” brochure here:

http://www.rld.state.nm.us/uploads/files/New%20Small%20Offerings%20-%20Brochure%20include%20Reg%20A(1).pdf

Lots of ways to do it. But desirable location is KEY for corporate clients. They would want to be near the center of business in town. I personally have a plan to start with just one unit, rehab it to Class A standards, equip it with NICE rented furniture from a furniture rental place, and see how it goes. One podcast I heard recommended advertising it as an executive rental on Air B&B, not VRBO. Not sure that's the right way to go, but at least that's what they found worked for them. 

Yeah, I'm sure that trend will continue!

Amazing there are still folks who think NYC isn't way overpriced. The worm as turned on that one, folks. Get out of town, literally. 3.5% cap rates just aren't going to cash flow. AND CASH FLOW IS KING. 

Not sure I would want a PM as equity partner...too hard to fire. As for repairs eating up NOI, they are property managers: They should be able to build you a pretty decent budget for next year that shows what repairs will likely run, based on the other properties they operate.