All Forum Posts by: Chris Grenzig

@John Acklen I think a key difference when looking at the vacancy vs turnover costs that @Joe Splitrock and @Thomas S. are talking about, is what is the business plan?

If someone is going to hold a property 10+ years than I think it may make sense to actually keep a higher occupancy and lower turnover. Like Joe referred to, the cost to turn the unit could be much higher than the increase in rent.

However, if the business plan is shorter and more IRR driven than I think the "healthy vacancy" and pushing rents fully to market makes more sense. An extra $100 a month at a cost of even $4,000 is $1,200 a year in additional income a year, but worth between $12,000 and $24,000 (10 & 5 cap) on sale which is a great return on your investment.

So I think the deciding factor is what is your business plan and what is your cost associated with both options.

I also agree with @Theo Hicks to always pad the market vacancy for your underwriting a couple of BPS.

@Toben B. $620 *24 *12 = $178, 560 if you take the $158,00 gross income that vacancy of just over 11%, not terrible, but need to talk with lender to make sure this isn't going to be an issue.

Expenses are definitely low if you're going to have management, but ultimately it doesn't matter, not really.

Ask your manager to put together a proforma and see what your income and expenses are and how much upfront capital you're going to need to hit those. Also, ask to see what they think would happen to income/expenses if you put in more capital or less capital. 

Plug in those numbers and see what your returns are, if they work than buy it, if not offer what makes sense. If there's a big discrepancy on it, talk it through with the broker and explain what you're seeing and why it doesn't make sense. Perhaps theres something you're not accounting for and he knows about and then discuss it with your manager.

Maybe he knows its overpriced and he's testing your feasibility a bit, if you can explain why you're not interested at that price, he may know not to bring you overpriced deals anymore.

Also, make sure you know how taxes are being reassessed for commercial properties, might be different than duplexes. 

Quick maths $158k / 2 = $79,000, I'm going to overshoot and go for a 7% cap rate assuming it's in Tulsa area (I know 45 mins away) where you are from and I get a value of $1,128,571.43. This is roughly $47k a door which is good, we always like to see price per door less than or equal to avg rent x 100.

TLDR: Find a good manager and ask for their help

@James Canoy If this deal is not a listed deal than I think you look for an experienced partner and bring it to them and say I want x% of the ownership side for finding the deal. What that percent is I have no idea, it comes down to so many different factors. But, I think if it's a real deal they will know, they can use their resources and see if it can work.

We've partnered with others who have found deals for us in the past and so far they've worked out well, but we've basically ran the show once the deal was found and brought them in as a minority partner on the ownership side. That way our investors feel comfortable investing because we're running the deal, and the minority partner who found the deal gets a learning experience, credibility, and some profit as well.

I also think being a passive investor first can give some experience, depending upon what you do with it. We have investors who learn a lot and others who don't take advantage. 

@Cassidy Burns I think the 7 unit could be an interesting option if you can verify any deferred maintenance items and you are close enough that you can mitigate any future expense issues by doing some or a lot of the work yourself. If not, then I would avoid.

As far as comparing that vs the duplex, duplexes are treated very similar on valuation as SFR in that it's based on sale comps, not necessarily cap rates. I would say go with the duplex if you feel you can add value and increase rents and you're at a discount to the current market for duplexes. Otherwise I don't think it's a great option.

@Nick Williams I agree with a lot of points made here, just wanted to reiterate or 2nd them.

We've thought there's been a decline/correction/recession for a couple of years, but hasn't happened yet. It's going to be impossible to know, so you just have to take steps to mitigate your risk.

Go long term fixed debt that has a higher DSCR. Also, look at what you breakeven occupancy is so you know how long your income can drop before you have to start coming out of pocket to cover the loan, if you even have a loan!

Buy in areas that are growing in population, wage growth, and where the supply does not meet the demand. While it could slow in the future, or decline in a downturn, it's probably a better bet than a stagnating market.

@Eric Menjivar I went to Hofstra I'll tell you where the main streets are. 

West of Hofstra: no further west than Cameron Ave along Hempstead Turnpike. No further south than Front St (maybe just on the opposite side of the street), no further north than Wetsbury Blvd.

South of Hofstra: Anything north of Front Street from Cameron Ave to manor Pkwy (can potentially go on the other side of Front st but maybe only halfway down the block)

East of Hofstra: South of Hempstead Tpke/Glen Curtiss Blvd. Over to the corner of Manor Pkwy/Front Street, and Cunningham/Hempstead Tpke (the streets run at a slant so take those two points and draw a line straight North/South). I sometimes see houses over by Arcadia Ave, but not nearly as many and I wouldn't have rented there unless it was a good deal cheaper.

Graduated in 2014, most students wanted to walk to campus because parking during the day sucked.

@Tyler Lough we get low ball offers all the time, and don't take offense. If you don't submit you'll never get it for that price. You never know someones motivations and who knows, if you put in a low offer today, they might not get the price they want for the next several months and eventually sell to you if you stay in touch periodically.

@Hakeem Valles Live in Brooklyn and work in Jericho, NY on Long Island. We buy primarily Multifamily value-add in the southeast and midwest. Would love to connect sometime if you're interested!

@Michael Bocian Long Island native as well, actually work in Jericho NY. I'd be happy to connect and jump on a call or grab coffee. We also have a free monthly meetup on real estate, mostly multifamily focused, that might be of interest. Let me know and shoot me a PM if you want to connect! Best of luck

@Shiloh Lundahl I think @Bill F. makes some very good points in his post just above mine. To expand on that, I think the next 6-24 months in the RE cycle, and especially multifamily where I'm focused, is going to be about 2 important factors: buying right, and conservative leverage.

The bridge debt world exploded about 12-18 months ago and have been offering very aggressive terms on value-add properties that I could see coming back to bite people in the *** in a few years times if cap rates have any substantial movement. Th reason being, cash flow is so low or even negative sometimes that if the sale isn't hit, the loan usually starts amortizing in year 4, and it's only a 5 year loan, and if the value isn't there then it makes even refinancing hard in 5 years without needing to come out of pocket for extra money! This is why we're seriously considering bridge debt but at lower leverage points, so it makes a potential refinance more conservative in 3-5 years.

Also, the preferred equity space has exploded in the last 6-12 months, which is really just a hybrid between common equity and mezz debt, just labeled as "equity". They're also derived from back end numbers on top of bridge debt, and you're essentially levering the deal even more.

With the inversion of the 2 and 5 year treasury, the 10 year treasury not being far off, and another rate hike imminent, it just seems more and more likely that a flattening, correction or recession is on the horizon.

Back to the question and my long winded point, I think RE is still very attractive, if you can buy correctly and plan for some downside in the near future. I think anyone saying they're moving fully out of real estate and into something else is unnecessary.