All Forum Posts by: David Thompson

Menalik,

I think % of equity into the deal as a starting point then bake in an acquisition / asset mgt fees as ideas for your time finding the property, developing a business plan and executing the business plan if the others are passive.

Matt,

Interesting story.  You mentioned that you don't have a strong network but you have experiences as shown here and can talk the language.  You might surprise yourself w/what you are capable of.  Certainly, one year ago you may have never thought you were capable of taking down a 12 unit and overseeing all aspects of the project. 

You are looking for a mentor which I always think is an excellent idea to consider.  You like MF so maybe you look for direction there.  You don't necessarily need a lot of money to get out of the rat race.  There are ideas out there that you may have never thought about.  The one below started as working w/a mentor in an area that had attractive potential.

https://www.biggerpockets.com/blogs/9145/61278-wor...

Cathy,

Couple comments.  Generally speaking, more units can give you scale (reduced costs / efficiencies per $ spent) and commercial properties (5 units or more) are valued based on the income approach and not so much comparison of other sold properties like residential.  There is a concept in commercial real estate called forced appreciation where the owner has value add opportunities to increase the income of the property through common practices like renovation, new management to improve operational efficiencies (described w/example in link below).  The owner has more control w/the right property to drive appreciation even in markets that might not be appreciating for residential, commercial can appreciate w/these practices.

The knock against condos in general are the high HOA fees per unit and lack of owner control over those costs that can quickly eat away at the cash flow.

https://www.biggerpockets.com/blogs/9145/53820-why...

Matt,

I get this question a lot.  @Percy N.  I like Percy's response.  I think you should understand what you are looking for in a coach before you go interviewing several of them. Most coaches will have decent content or program to learn the language, analyze deals, markets, etc.  The separators might be:

Cost

Time w/them (flexible for your schedule; frequency, etc)

Are they doing deals w/practical real world experiences to share (or just teaching)?

What's their network size and breadth, can that be leveraged to help w/your deals ?

Can you help on their deals - i.e raise capital (this was a separator for me)

What other business / skills does your coach possess and willing to share that will help you grow your business?  

When I started out I hired a coach who not only was doing big deals and had deal flow to learn, but I also got to participate by raising capital, growing my investor base and experiences off his credibility.  He also possessed business building and marketing skills that helped me reach more investors and grow my experiences.  Link below may help you think about what's possible in this business w/a coach.

https://www.biggerpockets.com/blogs/9145/61278-wor...

Good points @Mike Dymski.  The default rate on MF loans vs single family was 1% vs 5% nationwide at the 2008 downturn. Eliminate over exuberant / speculative markets live Vagas, Phoenix and Miami and it was more like nil.  I was reviewing yesterday a syndication prospectus on self storage and mobile home parks.  The operator of the self storage has like 40 yrs experience but in the prospectus there was an adverse event that prompted several properties to go under during the last financial crisis.  When I inquired about this it was not due to poorly managed properties or over leveraged properties, simply laws were in place at the time that prevented market specialists (like property managers of CBMS) where the loans are in the hands of investors and their hands were tied.  There were no rules in place to enable the specialist to work w/the property owner and investor of the note.  Loans were coming due on 5, 7, 10 year notes during that crisis (credit markets were frozen) and essentially little opportunity to get refinancing / workouts.  Cash calls w/investors were challenging to get alignment to pay cash and pay off the loans as they were coming due.  Lots of property owners in these niches lost properties during the financial crisis, investors lost money and I'm sure many because of frozen credit markets and laws on the books. Since 2013, those laws have been changed to help prevent a repeat performance.

James,

Various ways to get into the business.  Two most common ones are finding deals for syndicators and raising capital.  I find the latter would be the easiest path because most syndicators have their own relationships built, full time analysts and have strict criteria.  All seem to need capital to go after more and bigger deals no matter how successful they are.  I'm more than happy to chat w/you offline about that latter and ways you might think about getting started.

Phil,

Couple thoughts.  I work w/a lot of sponsors and see commonality around this from a cap raise standpoint.  If I bring all the money to the deal - either all mine or investor money that I raise (down payment, closing costs and rehab money) and do nothing else, then I should get min 33% of the GP split....this is for experienced syndicators.  Let's assume GP gets 30% / LP gets 70%.  Then the capital guy is getting 33% of the 30% or 10% of the entire deal.  If you are relatively new and inexperienced I may ask for more.  

Steve,

I think the other question is do you want to be totally active or willing to explore some passive opportunities.  I see a lot of folks successful and enhance their chances w/properties in their own local.  As you move to out of state, you can certainly can pursue turnkey but you increase complexity IMO and hence, could also explore some passive opportunities in teaming w/experts who know the market,, submarkets very well, are experts in their niche and look for investment partners like yourself to help fund the deal.  You can earn and learn in a hybrid manner.  I've written a piece in BP on this before for your interest.

https://www.biggerpockets.com/forums/432/topics/30...

Gianluca,

Some good comments here and like @Joel Owens additional points.  All investments have a certain degree of risk as mentioned, nothing guaranteed...but you want to be in the best possible position to win and weather through challenges. You definitely want to start w/the people involved.  See vetting sponsors - top 10 tips link below I culled from my experiences as an insider and investor.  

At a high level, its the market, deal and team that drives overall value. Delve into these areas.  

1) Market (jobs/pop) growing well above natl avgs and projected to continue

2) Deal - value creation (value add deals only) with a simple business plan that makes sense; and most importantly assumptions are conservative across the board.  For example:  I like to see the sponsor provide analysis to stress test the deal by showing me what happens to returns when occupancy, rents don't meet forecast under different scenarios.

3) Team has experience in all aspects of the niche and has tenure over the last downturn (review track record).  

The blog link below goes much more in depth on above and more - top 10 tips to vetting a sponsor

https://www.biggerpockets.com/blogs/9145/53959-vet...

Gino,

I think raising capital stops a lot of folks.  Be more than happy to share any thoughts on that w/you and contribute to your class / seminar.