All Forum Posts by: Brian Burke

Rob, to answer your question as to how opening bids are set at the courthouse steps: write a variety of opining bids down on several small pieces of paper. Place them in a hat. Stir. Draw one. Seriously though, there is no predictable way to figure out in advance what the opening bid will be. Think of it like Christmas morning...when you get up on auction day, you unwrap the opening bid, and you will either get a great gift, or a lump of coal. Be prepared to go, and be prepared to watch for it to go REO.

Matthew Philipchuk, on houses, I'm seeing around 7% to 9% net yield (we've been buying as high as 14% net yield but cap rate compression is underway), and on a levered basis we're in the high teens. Nothing to knock your socks off, but the properties I started buying 18 months ago are up 10% to 15% in value, not even counting that they were bought 20% to 30% under their current value at the time. I expect that total IRR after a 5 year hold will yield in the twenties.

As for apartments, I'm not taking as aggressive of a strategy as your partners in Dallas. I'm buying complexes in B or C neighborhoods where I can add value with moderate renovations and upgrades, and/or management improvements. The "kick 'em all out" strategy carries more risk that I'd prefer to undertake (and is usually a strategy in a D neighborhood which I'd rather stay away from). I did a deal in Austin recently that came close to that, it was a major rehab of a C- deal, but instead of kicking everyone out, I did the interior upgrades on turnover, and rent increases accellerated the turnover to some degree, allowing me to complete all 54 units in about 12 months. The difference was, I was collecting income which allowed a positive NOI during the renovation.

My investors are typically staying in the deal, not refinancing out, but it can be done in a perfect world. Trouble is, the real world is less than perfect.

Jerry Jones, I think I addressed your question about short-term financing in another thread where you asked about financing. If that didn't clear it up a little, let me know.

I haven't applied for the FNMA product yet, they weren't lending where I was buying...but that has changed so I'm sure I'll be going down that road in the next few months. Appraisals for larger multifamily properties start around the $4,000 range and go up from there. The 3rd party costs on my most recent loan were around $25,000. That included appraisal, property condition report, survey, legal, applicaton fees, etc. This depends somewhat on how large you are going. If you are looking at a 4-plex, it's much different than 100 units.

Bought 5 properties to fix & flip, and 4 rental houses. Sold 8 completed flips for $1,982,976 that were bought for $1,352,300. That doesn't include costs obviously so profits were much less than the difference between the two numbers. Got a bunch more houses in contract to close in December. Should be another busy month.

John, Brandon is right. It is possible to make a living. I know because I've made my living this way for over 10 years.

The average rehabber makes next to nothing, or even loses money. My advice: don't be average!

@Rob Condy, @Rob K. Is right that the seller is failing to perform on the contract. You basically have 3 options. 1. Walk away and go spend your time and energy finding another deal. 2. Sue for specific performance and record a Lis Pendens so that they can't sell to anyone else. 3. Increase your offer by $6K (if the deal still pencils).

2 might sound like the right approach, but it will cost you thousands in attorney's fees. At the end of the day, you are just as we'll off taking option 3, no matter how much you hate to do it just on the principle of it all, unless the deal is too skinny...in which case option 1 will be your best bet.

Jerry, the commercial lenders like shorter term loans because it reduces their interest rate risk. Multifamily borrowers can usually live with it because in many cases they plan to hold the properties for just a few years. Why? Because depreciation is heavily front-loaded (if you use cost segregation) and there are benefits to exchanging out into larger property after the value rises. Since this business is about maximizing IRR, it makes sense to buy, get some appreciation and take accelerated depreciation, then sell (1031 exchange if possible), buy a larger property, and repeat.

Jerry, the return is all over the place. It depends on where it is and how long I've owned it. ROI can be expressed a couple different ways...cash-on-cash or total return after appreciation from resale. I'll give a couple examples from some recent deals:

On one of them, I'm seeing cash-on-cash in the low teens. Using conservative projections on a five year hold, I'm forecasting the total return in the twenties.

On another deal, the cash-on-cash is in the low single digits. My forecast on conservative 5 year projections was in the mid twenties. Instead, it did so well that I'm selling it now after about 22 months and the total return will exceed 40% annualized. Seems contradictory to have such low cash-on-cash result in such a high IRR, but it serves as an example of how there are a lot of variables in this business that effect the IRR. This was a rehab/value-add deal.

The first deal was financed by Citigroup on a CMBS loan, the second one was hard money (which helps to explain the low cash-on-cash).

It is true that your lending options change as the size of the loan changes. In my experience, the larger the loan, the easier it is to get. As an example, last year I was doing two multifamily loans at the same time. One was $350,000 and the other was $4.35 million. The smaller loan took twice as much of my time, and I could only find one lender to do it, a small local bank. The larger one had about a dozen lenders bidding to do the loan.

I can't definitively day what markets or strategies are "best", but I can share what is working for me right now.

I'm buying rental houses in California. There is high demand for renting houses in CA because foreclosed-out former homeowners are looking for houses to rent. Only 1 out of 5 foreclosed homeowners move into an apartment, so apartments aren't seeing the same demand forces here. To make matters better, home prices have fallen as much as 75% from the peak in some areas, and are about half of replacement cost (or less).

I'm buying apartment complexes in Texas. There is high demand for renting apartments in TX because there is fierce job growth and in-migration. People getting a new job or moving to a new area typically rent an apartment, so the demand is driving rent and occupancy growth.

I agree with Glenn, flipping is a good strategy and you can probably do that just about anywhere...however I'd argue that it is likely more profitable in higher cost areas. At least, that has been my experience.

Houston also created over 83,000 jobs last year, and led the nation in population growth. All the while, construction of new Multifamily is at a multi-year low while absorption is high. Forecasted rent growth and occupancy gains are impressive. I point all of this out because it illustrates how these various "top ten lists" don't tell the whole story. There are a large variety of indicators that must be analyzed in order to paint a picture of opportunity.

To add to the difficulty, data points like the CNBC report are typically on a macro level. There are localized pockets within Houston that far outperform the macro-level overview.