All Forum Posts by: Account Closed

1200 sqft is plenty of room but the key is a great design that feels open. my only advise is don't shrink the closets. Most people can live with smaller spaces but when you reduce the closets then the living space becomes cluttered and then the house feels much smaller.

I have been very intrigued about Tiny homes but have really failed to understand those that are set on wheels. For me there is little or no difference   between a tiny house on wheels and a mobile home/camper. I have been actively searching for a site that we could develop and put 800 to 1200 sq. ft homes. I realize that these do not truly tiny homes  but its hard to get permitting for much smaller. the  issue of cost is that plumbing and electrical infrastructure co the same regardless of the size home so that the  difference between >400 sqft. and  800sqft. is not that much proportionally. We have been quoted $50K for 400sqft while an 800sqft house would end up around $75K. for the $25K difference. I think most people would pay for the extra sqft. Additionally, the financing for the larger home is easier also. 

$75K per unit might be your hard cost but factor in interest carry during construction and till you stabilize, your engineering, arch, permitting, leasing cost, operations till you stabilize etc, and you will be over $100K per unit.

We just completed three different projects. one in Colorado, and two in Texas. the Colorado property was only 20 units so it has slightly different economics but with garages and difficult entitlement issues our all in cost was around $130,000 per unit. Our Texas projects were 150 units and 400 units. Both were similar three story designs and priced $109,000 and $104,000 per unit respectfully.

Fortunately all our projects came in on budget and rents ended up over 10% higher than proforma. I am sure you can build for maybe a little less but our investor model requires us to do things a little different and we spend a lot more money in the planning stages. I would be happy to show you our template so you can compare cost to your region. Additionally you can use Means and Marshal and Swift databases to see what construction cost are for projects in your area.

Good thread so far, We have had many request for funding for various MJ related facilities and the biggest issue we can not get around is the Federal min. sentencing rules. Most agree that as a landlord or lender you may be limited to seizure and fines but the Federal Law still considers MJ illegal and the Federal Laws are still in full force. So, while highly unlikely, there might be scenarios where the landlord and or lender could be subject to the full extent of the law which includes JAIL TIME. I would highly recommend that you use a good atty. to set up the lease and maybe set aside some of those payments to hire a good criminal atty. should you need one latter.

ps. John - I used to be an appraiser and I believe that if you are appraising this property for a Federally insured institution or one regulated by a  Federal agency, you cannot value the property based on illegal activity since the appraisal needs to conform to federal standards.

Eric - The old adage is "Trust but Verify". The truth is that private real estate deals are just that - Private. References and background are a good start but the best source is to do your home work. The less you know the more questions to ask. Somewhere in that process something that doesn't sound right will emerge and then you need to ask more questions. 

Keep in mind that previous failure is not an indication of future failure and like Anthony stated above, past success does not mean that they can't make a mistake. 

I think most BP members would agree that there are too many investors pursuing too few deals - so that the likelihood that there will be a larger number of failures in the future is high.

Carlo

Our company does this type of funding. Give me a call, and I can give you a better idea of what we can do.

Carl

I am a Certified LIHTC consultant and I can tell you that the cap rate is not an applicable way to look at these deals. Most have unique financing elements not found in market rate deals ranging from favorable bond financing to property tax exceptions.

First thing is that while you may be out of the 15 year tax compliance period, the LURA may continue significantly longer.

Secondly, since rental is tied to Area Median Income and not market or indexed to inflation, the usual fate of LIHTC deals is that they get run into the ground in later years when expenses reduce NOI and when income levels are stagnate as has been the case over he past few years.

Lastly, many LIHTC deals have "Hope" type financing attached which means that  long as the project maintains the LURA the outstanding loans may be forgiven but should the LURA be removed, then the loans become due and these could throw the deal upside down.

Buying LIHTC deals should always be with an eye to the future in terms of repositioning and/or taking advantages of program issues that provide returns on equity.

FYI - LURA - Land Use Restriction

My 2 cents -

1. The smaller the property the less you should depend on percentages and the more you need to count every penny. For example, a 4 unit MF would be impossible to have a 5% vacancy for the year if each unit turned once a year and the turn around time was  one month for each. Your vacancy would be 9.1%.

2. Capex and recurring maintenance cost are not the same. Don't let the idea that replacing carpet and repainting a unit are Capex, you will do it far more often than the IRS definition. you need to budget these cost on an annual basis and set aside reserves so that while you may not actually spend that each year, over the long term they add up.

Ok, I have said this before so I'll be brief. Cap Rates are unique to each individual investor.  WHY?

1. Your calculation of NOI may be totally different than mine.

2. Your cost of Capital/Debt may be different than mine.
3.Your desired return on your equity may be different than mine.

4. Quality, location, and exit strategy may be different.

Cap rates are important in evaluating overall market value. As noted in the posts included here, many may think that the market is overpriced because the indicated Cap Rates are to low. The problem is that determining real NOIs is difficult when getting comp data. The other problem is that "Published" Cap Rates are usually obtained from institutional quality properties which have very different dynamics than small balance sheet type investments.

For example; I recently saw a $40M project close with an 80%ltv loan at 3.10% 30yr loan. A reverse engineering of the numbers indicate a Cap Rate of 4%. Most investors on BP would run away from the deal based on the Cap Rate. The investor return however was 8%. (very attractive for an institutional investor). A comparable Cap Rate for someone who could only borrow at 70% ltv and at 6% rate would be a cap rate of 5.8%. If your equity return rate was 12% then the cap rate would be closer to 6.6%

For Cap Rate analysis to have value, determine your cost of capital, your desired equity return, and the quality of property investment you want. That will give you a baseline Cap Rate that you can then compare prospective investments. Since your NOI analysis methodology will most likely be the same for each property, properties that have a Cap Rate above your baseline would be worth exploring. Those below should be quickly ruled out.

Moral of the story, buy on your investment plan objectives. If no properties meet that objective, look harder.

So much for being brief, If you need help developing your Cap Rate Baseline Google "Band Of Investment" cap rate development.

Nathan, congrats on your decision to venture into the property management world. We formalized our management division into a separate company last year and are now taking on new assignments for projects as a third party fee manager. I think the real key is to connect with owners on an investment level. Most managers can collect rent and lease out units but I believe that the real value a manager brings to an asset is being always aware of cost and the impact it has to the owners.

That's not to say that you cut corners but rather that dollars spent should always be focused on creating value both in quality and rental income.

As for advice, there's bad real estate and bad real estate deals. Deals can be fixed and you can really shine when that happens. Bad real estate sometime exceeds ones capacity and no amount of money can fix the problem. Be cautious not to over commit on management. Many owners changing management are doing so because they fault previous management for the property's short coming.

Lastly, you did not say if you were doing just single family or multifamily. To be successful in single family you need to develop a very good maintenance team that is both reliable and efficient. We focus primarily on multifamily properties and add value though economies of scale which allow us to lower cost and improve revenue thru market awareness, buying power,  and position.

Bet of Luck in 2017