All Forum Posts by: Armando Payano

If its a long term hold, the benefits are worth it. 

@Mark Doty Be mindful that if you intend to bundle the funds needed to add the additional units into a conventional mortgage loan lenders may require you to have building plans, detailed budgets and permits etc. It may be easier to close the property and then apply for a construction loan.

Good luck. 

@Weina Shi Great question, but I dont think there is a straight forward answer. For example, how long do you own it? What is the extent of your capital improvements? 

How many units are you considering the cost seg for?

Point blank. Unless you have experience in transacting real estate its a bad idea that will at minimum cost you a lot of time. Hire a professional, you will thank yourself later.

Omar is correct. 

1. Find out what the subject properties zoning designation is. 

2. Go to the local county property appraisers website and navigate to zoning descriptions.

There you will find what is allowable.

Good luck

Cap rates fluctuate based on market and product. You would need to first have a target market. My market, Tampa, a value add with a PM cap rates are in the 4-6 range

@Lauryn Meadows Many lenders will require you to commission a market analysis by an independent 3rd party before they will fund the construction. I am in the early stages of developing an 84 unit and I am having the report done now. We anticipate breaking ground in 16-24 months. They typically cost between $2k - $5k. 

I have to agree with Omar. Developing a large multi is a lengthy, expensive and risky project. I develop town homes, my largest to date is 10, and have discovered that once you go over 15-20 units the process changes drastically. Most lenders will also require a high level of experience. One lender I spoke with wanted every HUD, Ive been on for the past 3 years, cost projection budgets vs actuals and detailed schedules. I have records but had I known I would have kept better records. But seriously SCHEDUELS!?!

Great insight. This reminds me that on my next purchase to stipulate the property must be delivered with a specific occupancy %  and if not then X will happen. Ie; price is discounted by the cost of turning/rehabbing the unit. 

Probably best to get an addendum added to the contract early in the negotiations for this one.

What is your time frame and goal? Is it to slowly build cash flow? Or is it to boost the NOI to get to a refi ASAP.

Whats worked for me is to test the local market first.

Example: I am on the process of re-positioning one of our multifamily properties. A 30 unit value add.

What I did was on the first unit, which was vacant when we closed, was I did the minimal rehab. 

For this unit it was cabinets, light fixtures, paint and bathroom vanity. This unit was renting for $625. When we marketed the unit for $675 + $25 for water it quickly rented in 3 weeks. To me this was a sign that, for the area and product it offered value to tenants.

Second rehab I did all the same but added new floors and appliances for an additional $2.7k. That unit rented for $750 + $25 for water!

Since my strategy going in was to first maximize the NOI to improve my cash out refi amount, I decided that option 2 was the way to go. Because I planned to refi within 12-16 months it shortened the time to reach my target ROI via refi.

I have renovated 13 units thus far and have found that $725-$775 is the sweet spot, which hopefully keeps turnover down. We'll see. 

Had my strategy been to solely improve cash flow I may not have taken the more expensive route. 

So many variable to consider, hope this adds some value to you. 

Agree with Lane if your first investment is out of state try to make it close to you. Within driving range preferably. Otherwise you will miss out on invaluable lessons learned. 

re 

imo, once you assign the responsibility to someone (property manager) you surrender the most valuable part on the road to FF. Which is, of course, the journey.