All Forum Posts by: Chris Grenzig

@DeDee Stump Turnkey's can be great as long as the company itself really has you're best interests at heart. It could be very easy for someone looking to maximize sale profits to push the sale price, and increase their underwriting to levels that you might not be comfortable with or that they can't produce. That is why you'll see a ton of people say to make sure you do you're homework on the company, get referrals from people who've used them, and also learn to do you're own underwriting!!

Just because someone says it'll make you 7% cash on cash a year doesn't mean that's whats going to happen. If they say it's accounting for a 3% vacancy, but the submarket has a 5% average, than maybe that 7% return is a bit off. Also, maybe you're not comfortable with a deal unless it accounts for a full month out of the year being vacant (1/12 = 8.3333%), so you should underwrite with a vacancy to 8.33% and see what the returns look like. Basically, trust but verify. 

Turnkey is great for people who truly want to be a passive investor and not have to deal with the headaches. However, you also have to expect a probability of a lower return than if you did the work yourself and found a deal, as well as being comfortable with the company and the underwriting. If all those boxes can get checked than its not a bad way to go by any stretch. 

@Jorge Mendez If you're thinking about Binghamton, I may have a mom and pop property manager I know someone was going to use in the area if you're interested. I can try and get their info and pass it on and you can see if you like them or not. I've personally had no experience with them and it sounds like you've been burned there, but let me know either way.

Yea the try-state area is tough, because the prices can get a bit ridiculous. A 6.8 cap doesn't sound terrible in todays market (obviously I don't know what the submarket average is), but if there's no upside it can be hard to justify the $150k per door price tag.

I would definitely try and network and find someone to partner with, just to see new perspective, and it's just better to be in this business with other people in my opinion.

@Robert Larue It all depends on how conservative you want to underwrite. You're more likely to find data on the price per door than the cap rate, because the cap rate can be quoted as subjective. If I say it was sold at an 8% cap, was that on T12 numbers? T6? T3? T1? Pro forma expectations? Also, was the financials they gave you the real numbers, or did they have lower recorded financials to boost their NOI and thus their sale price? Or did they go the other way and run a ton of extra expenses through the property to lower their NOI to decrease the taxable income?

However, the price per door can often times be a better measure because it should be similar from property to property (assuming same submarket, style, year built, etc.) and significantly easier to find/figure out.

We use both to try and find a happy medium where we can justify to ourselves and investors the reasoning for what we came up with. At the end of the day it's extremely difficult to predict where the cap rates will be in an area. If you want to be conservative, ADD 10 bps per year to you're exit cap rate. While obviously the goal is to sell it at a lower cap rate, if it has a decent return at a higher cap rate than it damn well will return great results if you do sell it at a lower cap rate.

At the end of the day it's what you're comfortable with and what you can justify it with. 

Ex. bought at an 8% cap, 5 year hold, exit cap rate would be an 8.5%.

@Steve DellaPelle Besides the ability to convert and the legality of it and the financing component, I would make sure it makes sense to actually do the conversion.

It might not be worth the extra rental income if it'll cost too much to do the rehab. You should divide the rent you would get per year by the cost of the rehab and see what ROI would be for the rehab. Any renovations we do, we usually look at least a 20% ROI for the portion of that rehab.

Also, the extra money you'd have to bring in equity may affect you're cash on cash returns and potential sales profits as well.

Just something to think about if you haven't already.

@Jessica Melendez best way I think, is to just network with as many people as you can and see who you think will work with you, be the best fit, and someone you can see yourself working and, more importantly, invest with. And then other factors would be their experience, knowledge, track record, etc. At the end of the day, you won't know who the best will be, you just have to go with your gut and comfort level with someone.

Jessica Melendez welcome to BP! Another option you could try to do is find a joint venture partner of someone who's knows what they're doing in the area and offer to contribute money, time, effort, grunt work, etc. and have them teach you while you guys do the deal. Just a thought but best of luck!

John Cushing still keep my eye open for a possibility to do a flip, but currently focusing almost entirely on multifamily in the southeast and Midwest. That being said we're always trying to find ways to do deals on Long Island because it'd be great to do some stuff in our backyard.

Jack K. I have no experience with Airbnb, but if you should happen to think about going out of state multifamily let me know, that's what we specialize in. I just moved to Bushwick a few weeks ago so we can meet up and have a chat if you want. If not best of luck with the duplex!!

@Drew Shirley the biggest challenge when syndicating deals is keeping investors interested while simultaneously trying to find deals. If you can do that well, than you will have a good foundation to start from. The best thing you can do with the investors is to set expectations slightly lower, and gather interest on a deal that can return you x percent. That way they know what to expect, that you may not have a deal for them right away, and that when it does come up they'll be more comfortable with what to expect from it. Also, if you can get the to "commit" to a dollar amount should that type of deal become available it will just make you're life easier in the future.

For example, if you tell them that you're looking for 100+ units, in these 5 (hypothetical) markets, that's 1980's built or newer, 3-5 year hold, an 8% preferred return with a 70%-30% split over that, and should return 6-12% COC and a 15%+ IRR to investors...than when you bring them that deal they're already mentally prepared to expect that.

However, if you just told them you're looking to invest in a 100-400 unit multifamily building soon and are they interested? Well, they might be thinking in their head they want at least a 20% IRR in 2-3 years only. That money you thought you had is now gone.

Also, something we learned the hard way, if you need to raise $1 mil, plan on raising $2 mil because ultimately when push comes to shove, some people that hypothetically said yes will say no, or invest less. And if they don't well, you're all good because you only needed the $1mil!

@Michael Arreola The idea of turnkey is great. However, the execution piece isn't always there and I also think that a lot of people expect a turnkey to be less of an investment and more of a guaranteed return. All turnkey really is, is just buying an investment with the rehab done and the systems already in place. That however does not guarantee that the systems in place are good and or going to work in the future.

Also, just because someone shows you some spreadsheets and some numbers on paper doesn't mean they are "right" or tailored to you're level of risk. Just by changing something like "market rent growth" from 1% a year to 3% a year will drastically change you're returns. You really have to go over the numbers, play with them yourself a little bit and ask questions if you're not sure of something.

All that being said there are some great companies out there that do a great job for people.