All Forum Posts by: Chris Grenzig

Derek Okahashi if they sold and walked away with $300k and invested in something that returned them 8% that would be $24k a year or $2k a month in cash flow. Maybe they're undercharging in rent and can improve their $200 a month cash flow but I can't imagine them getting to $2k! I would sell all day, 100% and reinvest it in a new property that they can manage or find someone else's deal and now it's $2k a month totally passive with no work.

@Juan Turner so I wasn't clear if you plan on using cash flow to renovate or if you plan on bringing extra capital upon closing to do all the renovations even if it's as tenants leave. I'm going to assume up front because that's just how we do most of our deals.

First of quick rule of thumb if you take monthly total rent times 100 can give you a rough estimate on the price. 3290 x 100 = $329,000. However if you have to raise an additional $84,000 in CapEx ($18,000 per down unit and $8,000 for each additional unit, I always assume the worst) that gives you an all in cost of $358,500 or $44,812.50 per door. Not sure if you have any past sales comps to compare, but I would look to see what they sold for on a per door basis to try and get an idea how this compares.

I like quick and dirty math. 

$650 x 8 x 12 = $62,400 x .9 (occupancy) = $56,160 gross income.

$17,000 roughly in expenses (minus your CapEx because I'm including that as upfront capital and using you're numbers)

$39,160 in NOI.

If you're mortgage numbers are right than it's $16,668 in Debt Service a year

$39,160 - $16,668 = $22,492

Now let's figure out rough equity needed

Figure 30% of purchase (70% LTV): $274,500 x 0.3 = $82,350

$82,350 + $84,000 (CapEx) = $166,350 in equity needed

Cash on Cash Return: $22,492 / $166,350 = 13.52% a year

Rough Sale Price: 

$39,160 / .10 (10% Cap Rate) = $391,600

$39,160 / .08 = $489,500

$39,160 / .06  = $652.666.66

So what do I take away from all this. It looks like a pretty sweet deal. My reservation is do you have the equity to be able to do it this way? Is the mortgage amount correct and will you possibly have to raise additional capital to cover any payments while renovating and pushing rents for the first 1-2 years? How correct are you're expenses and how much could it affect you're NOI? All that being aid it looks like you have a decent amount of wiggle room in you're returns and could potentially be a very nice deal.

Hope that helps in some way and best of luck!

@Mary White I know it's already been said, but I'll reiterate hopefully to put your mind at more ease, window replacements should be avoided if at all possible because they bring in no additional money/value.

Every upgrade should be looked at in an ROI stand point. For example, if I put in brand new 6 panel doors I think I can charge $15 dollars extra per month. If the doors for 1 unit cost $2000 (pulling number out of a hat) you ROI for new doors would be as follows:

$15 x 12 months = $180 / $2000 = 0.09 or 9%. Your ROI for buying the doors is 9% per year. If you're unsure whether to add or not add something I would try to look at it from that angle and see what real value it would add to your place.

Obviously some things HAVE to be done like the roof so the ROI is irrelevant, but when looking at quality of flooring, counters, cabinets, appliances, etc it can really help you choose which one to use. Hope that helps and best of luck!

@Johnny Chen A lot of the information here so far has been good. We actually just raised money for our latest deal through CrowdStreet and run our back office through them. The reason we used them was they handled a lot of the organizing of the webinar, verifying accredited investors, the paperwork, the set up, etc. I can't speak to any fees they charge investors but we do pay for their service on our end. They seem to be a good company and could be another one to add to your list.

As to finding a longer term deal, most loans balloon after 10-12 years at the latest, but most syndicators make their money when they do well upon sale. Therefore, they don't do many longer term deals and want to do 3-7 year deals and whatever makes sense. You have to talk them and let them know what you are looking for. There are some that may do longer term deals if they know that's what their investors are looking for, or they may not. You would just have to have that conversation and see what they say.

I would also advise not posting how much you to invest in the future because it'll be like sharks smelling blood in the water. Hope that helps and best of luck!

@Pete Edmonson while I agree that you should base your purchase on cap rate for the area, as well as sales comps at a price per door level, at the end of the day it's all about the return you wan to make on you're money. If he's going to stiff arm you $2.8 million purchase or slightly lower, but in your analysis it shows you making 12% Cash on Cash every year (hypothetical situation) well it might not be the worst thing in the world to overpay a bit (and overpay is in the eyes of the beholder). You have to know what you're situation is and what return you are willing to accept and go from there. Maybe you haven't been able to find a good deal at your price point in an area you like and while maybe you'd rather pay less, you have money just sitting there so this would be a good investment at this point in time, even if it's not a great investment. There's an endless amount of situations that it could be.

A lot of people will say only buy on cap rate and while that is probably true most of the time, there's plenty of deals where you CANNOT buy based on cap rate and actually expect to win the deal. Where as if you would have overpayed you might have won the deal and still made a good return on your money. Like I said it's all dependent upon your situation.

Kenneth A. Hodges welcome to BP! You're definitely in a good spot and I can't recommend enough listening to the BP podcast, as well as some of the other popular ones on ITunes. I can't speak to the education tab myself but a lot of people seem to rate it really highly. I work in the multifamily space, if there's anything I can do to help let me know. Best of luck!

@Rama K. I can't speak too much to 5+ units, but general areas we like are Raleigh, Durham, Charlotte, Cary, Greensboro, Asheville. Obviously each area will have its good and bad (less desirable) areas, but those are good jumping off areas that we look in.

Jared Carpenter you can have a 1. CPA, 2. financial advisor registered with FINRA, 3. I believe a certain type of lawyer 4.and there is one more that I am forgetting They can sign a document that is valid for 90 days that signifies you meet the requirements for an accredited investor. Many of the crowdfunding platforms require you to do this in order to be able to invest with them. I also believe syndications that file a 506(c) need this verification as well but don't quote me on that.

@Abe Molern I think your first step is zeroing in on a target acquisition. If you start too broad you'll never get a deal done in the beginning because you'll be in over your head probably. Decide what type of property you want, then you have to start finding which markets you want to look for, and then start evaluating properties. We own about 1200 units and we focus solely on 70's-90's built multifamily properties that are 100+ units in several markets. However, that started at around 3-5 markets and we just now have the ability to expand our search. So basically pick one asset type, start learning about it and if you decide you don't like that one, move onto the next. Everyone you ask will have different opinions about different types of properties, you have to decide what is right for you.

If you have any other questions or just want to chat feel free to reach out and we can message or jump on a call. Either way best of luck!

@Adam Allard It's definitely easier than ever to invest in areas not close to here you live. I currently don't have any within several hundred miles near me (the cost barrier in New York is staggering). I would definitely search the forums for other people that are or were in a similar situation as yourself and see if they got any good advice or directions. I would also search the past podcasts because I'm sure there are dozens that cover investing out of state in some capacity or another. I'm involved mostly in the multifamily space, if I can help in any way let me know; even if its just messaging or even jumping on a call. Either way best of luck!