All Forum Posts by: Ben Firstenberg

I highly recommend Atlanta! We have great growth potential and prices are high, but not nearly as high as other markets. I think it's great, especially for BRRRRs where you're relying on the appraisal after the renovations. 

I think markets with uneven growth are your best bet. You want there to be support for your ARV, so you want nice homes in the area, but you also want to get your property at a discount and have the opportunity to add value... so they can't all be nice homes.

In this case, you could maybe set it up where you get an "asset management fee" every month and a small % of the deal, like maybe 10-25% and your friends get the rest of the equity and any excess cash flow?

I would think about it more like this: these people want to be purely passive investors. Passive investments in other asset classes typically average between 5-8% and stocks will do 8-12%. So I would target a return for them (call it 12-20+%, whatever you think) and then figure out the best way to get there. Maybe that means you give them 50% of the deal, maybe it means you give them 80%. 

Institutional investors also set up their investments with a "waterfall" structure, where the better the deal performs, the higher % of the profits goes to the "operator" and the passive investors get more total money, but less total %. It can get extremely complicated very quickly, so I don't know if I would recommend it, but depending on your situation it might be worth looking in to.  

When your interest rate is higher than your cap rate, they call it "negative leverage" in the commercial lending space. There are ways to make money, but it's hard.

When this happens, commercial players aim to deleverage their assets. So when they'd normally borrow at 75% LTV, they're now borrowing at 60% or even 55%. This is the only way to make commercial loans work at these interest rates. Commercial lenders will be looking for at least a 1.25x DSCR and when you're negatively leveraged you're not going to hit that unless your leverage is low. People are doing cash-IN refinances just to lower their leverage and hold on to their properties.

You can think about it like this: The cap rate applies to the entire value of the property, but the interest rate only applies to the debt. So if your value is $1M, cap rate is 5% and interest rate is 6.5%, you're making 50k in NOI and your interest payment at 60% leverage would be 39k ($600k*6.5%).

To answer your other question, no it's not sustainable. Cap rates will HAVE to move up OR interest rates will have to come down. Experienced institutional investors right now are doing everything they can to just ride out the storm. They're looking for maximum flexibility. 

The commercial space is very frozen right now. Nobody really wants to buy or sell. Once the volatility with interest rates stops, people are expecting the market to open back up. 

I don't have first hand experience, but a colleague was using padsplit and ran into problems because the neighbors were upset about so many people coming and going. He ended up getting into a legal battle with one of them and being forced to revert to a standard rental. 

I think he has also had very good experiences with the program. So I'm not saying you shouldn't do it, I'm just saying it's something to be aware of. 

This probably isn't what you're looking to hear, but Atlanta is a tough city to just pick a zip code. There are places where you've got million dollar homes next door to broken down ranch houses. Gentrification and development have happened very unevenly in a lot of places throughout the city. 

Mark, don't panic! The market is certainly tough right now and the worst MAY be yet to come, but the markets will bounce back. We've had recessions for centuries and the stock markets have always rebounded to all time highs. It just might take some time. Part of being an investor is riding the highs and the lows. I still struggle with it sometimes.

The urge to sell when things aren't going well won't go away if you buy real estate. It'll just change what causes your urge to sell. Maybe it's a major repair, or an eviction or a lower than expected appraisal. So I don't know if selling and buying real estate will solve your problem, so much as transfer it to something else. 

Hey Andres, I've also been looking for a house hack and it's tough these days isn't it? I'm optimistic the market will improve in the next few months. Don't feel bad if you're not finding anything, the rest of us are having trouble too. 

Not sure your age, but you could check out the Atlanta Young Real Estate Professionals. They tend to lean more commercial real estate, but I've met some great people there. 

Thanks, Matt! I'm studying aerospace engineering. I've also started taking finance and real estate classes on the side.