All Forum Posts by: Allan C.

analysis paralysis is real and an investment killer, but it has nothing to do with robust underwriting. If you have a detailed tool it actually helps you make better informed decisions quicker. 

it's bad advice telling someone to wing underwriting if they're considering a buy and hold for an 8-unit. 

I suggest you define your end goal first and then work backwards. Do you plan on having 5 doors, 10, 20+?  Also what do you value more - higher risk/effort with potentially higher yield or lower risk/effort? How much capital do you plan to ultimately deploy?

higher returns is fundamentally a function of risk, efffort or barriers to entry. Since there is plenty of liquidity in the world, there is practically no more barrier to entry for residential real estate. Therefore returns are a function of risk and effort. Higher returns = higher risk/effort. Sure you can find a smooth patch for a few years with many asset classes, but if you hold for the long term you'll find the return vs risk/effort equation to be true. 

Your initial goal of targeting A/B asset classes suggests you are less risk adverse. If that is the case, don't compromise and target a lower quality asset just cuz those pencil out better - you'll likely regret it. Once you define your end goal, you can hone which markets fit you best. 

Suggest you really stay away from 5+ unit properties. Seems you're still on the learning curve for MF investing and 5+ has different lending, insurance and permitting requirements than 4 or under. 

I have similar background to you and my strategy is to focus on high quality assets in diversified markets. I have commercial and residential MF assets in Midwest and west coat. The west coast assets have high capital basis, thus strong depreciarion offsets any net earnings from Midwest markets, thus I don't pay taxes on net income. 

I'm levered up decently (but maintain high reserves), which is fine for now since I use W2 income for daily living. When the debt is paid down in 15 years, I can use future cash flows to offset W2 when I retire. Since I work a demanding W2, my goal is to minimize unit count while maximizing equity growth.

i get the appeal of looking at Midwest markets, but if you can acquire higher value assets then I recommend you do so. Returns are a function of risk, effort and barriers to entry. Cheap properties usually come with higher risk or higher effort, otherwise institutions will crowd out all the retail investors.  Sounds like you're focused on the long game, so think through how risk and effort factor into your strategy. 

Note OP that you'll have to wait 2 years between Sec 121 exclusion, assuming you don't have qualifying event to shorten timeline on the second sale (ie job relo). 

I only invest in markets with populations greater than 1M and have economic diversity. While these markets have greater risk of temporary over-supply, they have fundamental support to sustain a stable renters market over the decades. 

I also believe I can operate my rental business more effectively than the 90th percentile, so investment returns should meet my underwriting expectations. 

I know you didn't intend for this to be click-baity, but this is a click-bait thread. Your original statement premise is a very broad generalization that has basis flaws. 

I suspect this thread will get traction with blue vs red debates, but many opinions will miss fundamental drivers of asset growth and appreciation. 

You already have great responses above, but I'll put my vote to not get license. It'll be a distraction and I think it'll cost you more in the long run. 

If you get your license, you'll naturally want to be involved in all aspects of the deal, which ultimately prevents you from focusing on the most important parts of the deal. 

I invest in multiple markets and have strong relations with numerous realtors in each market. It's like with any business, vertical integration has is pros and cons, and you won't fully understand the tradeoffs until you are far down the line. Focus on taking ones step at a time and then make a decision when you are more informed. You aren't losing anything by deferring this decision. 

If this is your first deal you also need to realize that proforma seller P&L statements are always wrong. Expenses are always left off to juice the NOI for unsuspecting buyers. Spend some time to understand how to underwrite a deal. Look at numerous listings and see components of opex that different sellers include, and you'll start to get a better picture.

also don't forget to include a reasonable vacancy number, and also include capex!

I'd worry less about the loan and make sure you fully understand your insurance costs. Commercial insurance rates have increased significantly over the past few years, and 5-unit is the most inefficient asset type to buy. You get stuck with higher costs across the board and that 1 extra unit doesn't get you more scale than a quad. 

on the lending side I agree with others - DSCR is best option.