All Forum Posts by: Henry Clark

The appraisal used for the loan has three approaches. Revenue, asset or cost and comparable.  My recommendation is to let your asset get rented up and then do the appraisal.  This will help you get a higher level of financing and an easier assessment by your bank. 

You also asked about risk as your growing. I would do the following approaches. 

1.  What happens if interest rates increase. At what point do things trigger for you.  If you have a five year note and interest goes to 5/7/9/11.  What is the impact and what are your actions

2.  If x or y tenant leaves what is the impact or likelihood if I can’t rent for 6/12/24 months etc

3.  Is your insurance coverage escalating as you grow.  Both business property/liability and term life.  If you die during this growth period you want your family or business partners to be able to pay off some of the debt. Selling in a distressed situation is not good. 

4.  If you grow fast you will run out of collateral at some point.  If you want to keep growing need to do an assessment of which asset to sell to buy a better asset versus getting an equity partner  

Talk with your neighbors where it would run through and find out what they know.  You will find someone that already has addressed this. 

If you could be more specific and describe the property.  Is it in the middle of a large city or out a ways.  What type of properties are around it.  Are you willing to invest $100,000; $1,000,000 or higher on it.  Need more perspective.  Thanks.

@Carrie Blitz

Do the following steps:

1.  Determine your financing capacity.  Narrow down the size of investment you can do.  How much collateral or cash do you have?  Lets say $150,000.  Determine your financing method.  SBA 10%; SBA 15%; Conventional 25%; Conventional 40%.  If your doing a Conventional 40% then your target is a total investment of $375,000.  If SBA 10% then $1,500,000.

2.  Kennedy, New York is in Western side of New York State, correct?  This makes it simple then, since these are smaller, well defined towns.  Google Self Storage for Jamestown or Randolph.  Select the Map view in the upper left.  Move your cursor around and identify all of the storage locations per town.  Go take and inventory of their unit numbers, sizes and prices.

3.  Same as above, but go to Sparefoot.  Do the same thing and click on the map.  Get the prices by size for the ones using Sparefoot.  Not everyone uses sparefoot.

4.  By town, do the following.  Jamestown, NY has a population of 29,500.  Use a ratio of 6 units to 100 people.  Jamestown has a market capacity of roughly 1,800 units.  Even more if there are a lot of people outside of the city limits.  

5.  Compare your count from 2/3 versus the 1,800 units.  If Jamestown, has 1,400 units versus a capacity of 1,800; then you should build there.

6.  If Jamestown, has 2,000 units but they are all on the West side or some other side of town; then you should build on the other side of town if that is where a lot of population is.  Yes the town has to much capacity, but you have out positioned them.  People will use storage closer to them versus travelling far.

Always try to Buy first and build second.  Go to all of the storage locations and make them an offer.  Gets you into the business without going through the development curve.  Takes out competition.  If you build in another location later, you have Rent price control, with the more locations you own in a general area.

Start small and Make Your Big Mistakes Early.

We are in Self Storage and had a similar issue.  Bought land for $25,000 an acre; even though I thought it was worth $100,000 appraiser wouldn't increase immediately, since I just bought it for $25,000.  Had to wait a year and plus get buildings built and starting to rent.  Now the per acre appraises at $125,000 per acre.  With the new appraisal our bank will use that as collateral on our next project with them.

You may be better waiting until you are in the new location and have rented out some of the sqft.  Then pay for an updated appraisal.  I would have thought your Bank would have required an appraisal for your current loan.  Did it reflect your $1.25m or the expected $2.5m?

But how does the BAH play into things?  Will you be based in Arkansas and plan to use it there?  Or will you be out of the service.

Trying to understand from a Bank perspective why your hitting their DTI. If you are using it for your WA house, then the probably are only giving you credit for it, and not future cash generation as your WA lender mentioned above. You have to lay out the numbers for them.

Or you may have to wait till you rent the WA house to show it cash flowing, then use the BAH on the Arkansas purchase.

Good luck.  Lay the numbers out for them.  If it still doesn't work then they are more tight than your WA lender.

We are in the Self Storage business.  Different product but same concerns.

Quotes we have this year are 25% higher than Costs last year to build due to Steel and concrete costs.

It will be harder to hit your numbers on new investments, which is also true for New home builds.

If there are less Self Storage locations built, then rental rates will tend to rise "generally", location specific.  Same true for home rentals.

"doesn't seem to be a buyers market".  We are definitely in a Sellers market.  But this is probably the best time for a "Buyer" to buy.  

1.  Material inflation, will lead to interest hikes.

2.  Material inflation, will lead to Asset value increases.

3. Interest rates have not significantly adjusted yet. Run the numbers. Change to your situation. Determine what will be the impact to your decision. SFH unit price increase or interest rate increase.

Say $120,000 NE Texas home; Tyler or Longview.  Keep doing $10,000 price increase and see what the impact is to your decision.  Keep the price at $120,000 and keep doing 1% point interest rate increases.  When do you decide to not enter the market?  Lets say your rental rates stay the same in both scenarios.  Then adjust your rental rate up $xxx per month, that you think the market will allow in Tyler or Longview.

Examples: 

Interest Rate-  Lets say interest rate is 4% by the time you buy.  I slow down investing at 7% and will probably stop at 9% unless I was a Fix/Flip type investor.

Rental Rate- don't think you have much upside in a Tyler or Longview market, no matter how well you rehab the house.  Maybe in Dallas with a bigger pool of renters.

Cost- $120,000 to $130,000 hike.  Given a rental rate of $1,000.  Lets do this the easy  way and not pull in all of the costs and taxes.  Payback $120,000 / $1,000= 120 months.  $130,000 = 130 months.   10 months longer payback; not true with all costs considered, but you get the point.  A $10,000 price increase results in about a year extra in pay off.

I would say your Rental rate will probably stay about the same.  Interest rate will increase.  Purchase cost will have  a tendency to increase due to slow down in Building new houses.  We are continuing to build Self Storage, even though our material cost has increased 25%; we don't expect it to get better for a while.

Summary-  Don't know that it is going to get any better, if not worse.  As always run your numbers.

Realize I'm not answering your question, believe you need to go in a different direction.

1.  Save you money to get through school.

2.  If you want to do a real estate deal, get a 4 bedroom house and get the other three to pay for it.  That's if your already renting.

3.  If you want do remodel fix/flip or Brrr, go smaller, do a Trailer.

Good luck in College and your investments.

Loan officer to loan officer.  Whatever risk level they are willing to assume.

Need to clarify your situation.

a.  NC property is it cash flowing on its own?

b.  Washington property, is it cash flowing using the BAH?  If you move Bases, will this property cash flow without the BAH, since you will need it at your next base?

c.  Arkansas property, will it cash flow?

On all three do you have enough Collateral or equity to swing a third deal?

There are truly a million questions you can ask a CPA to compare.

You need to lead off with why do you need a CPA?

What type of Investments?

What stage or issues are you having or will have with the investment?

Make your question more definitive.

Example: I am looking to start SFH rentals. Need help with closing and documentation. What to do BRRR or Fix/Flip, how should I keep my records for you. What type of real estate clients and transactions do you handle? Did any 1031's? Etc.

Narrow it down to your interest, to get better responses.