All Forum Posts by: Account Closed

Ben Leybovich understood. And trust me, I understand that us having the scale we do makes a huge difference. I also understand 100% about having to have your first, or first few, syndications go extremely well. Otherwise you don't get to do it again. I think you are being thoughtful and appropriately cautious. I guess I'm just pushing you to either to look a little harder or expand your markets a little or if nothing else, come to terms with sitting on the sidelines. Just don't tell me about it every day :)

I am with @Serge S. on this one.  I am little annoyed at how everyone claims to be so smart but they aren't doing deals.  I'm not that smart and I've purchased over 3,000 units the past three years on behalf of the fund I work for and every single one of my deals has been a strong performer.  Granted, I look at deals in several markets which helps, but please don't tell me it's not possible.

The last slowdown has scarred many people, for good reason.  But most "slowdowns" don't look like that.  I feel that those sitting on the sidelines and waiting for "massive discounts" may be waiting for a long time.  When overbuilding takes effect, obviously there may be some price relief and sure a little better pricing, but with demographic trends the way they are these days, don't expect to see bargain basement pricing on multifamily any time soon.

I work for a fund that is continually buying, buying, buying.  Let me see if I can explain the rational.

We offer a 7% preferred return to our investors, as well splits above that amount.  Our president is the largest investor in our fund, so we have more skin in the game that any other investor.  We believe rents will continue to grow modestly the next couple of years, most likely.  @Ben Leybovich you are a smart guy, you understand the delta between cap rate and interest rate is where the money is made.  If we buying at 6+ cap rates (and that was usually 7+ the past few years) and financing at 3.5/4% or lower, we are making a lot of money.  

Will their be a slowdown?  100% YES.  That is a certainty.  But, if we are buying deals with 10%+ cash on cash returns in stable secondary and tertiary markets, short of 2007/8 happening again, what's the likely outcome?  Things slow down in a couple of years and instead of paying our investors amazing 15% returns, we are then paying a more modest 7-9%.  Still keeps people happy and we still are able to raise money.  And so we don't make as much as a company.  But we've been making money hand over fist since 2011.

We put 10 years loans on most properties.  We are getting 2-4 years of interest only with incredible rates on nonrecourse loans.

@Ben Leybovich as an example, I put together a deal in your next of the woods last year.  Bought 204 units built in 2004 out of foreclosure just north of Dayton for about 40% less than replacement cost.  Put a bank loan on it, stabilized operations and refi'd end of 2014.  Appraisal was $2 million higher than purchase price 11 months later.  We put a long term loan on the deal and expect 11-12% annual cash on cash returns for the foreseeable future.  

Are there risks out there?  Of course.  And as @Steve Olafson said, it's very metro specific.  I totally understand why he's not buying in Phoenix right now.  He also doesn't need to buy. He's doing quite well.

If you want to keep growing today, you need to be opening to expanding your target markets a bit, or yes, you might be sitting on the sidelines.  

Maybe we will be famously wrong.  That is a possibility.  But our model has worked for 23 years, built incredible wealth for our founder and he has NEVER missed a mortgage payment on any deal in 23 years.  That includes 2007 - 2009 when the world imploded.   

My $0.02.  But remember, I'm not as smart as most of you.

Eyal B. Nice work! How did you find this deal!

We are seeing Fanne/Freddie compete big time with each other right now. We recently closed a 200-unit deal with an 80% LTV, sub 4% 12 year fixed loan with Fannie. And it came with 4 years I/O.

John Horner what type of personality do you thinks best suits wholesaling?

How are you going to upgrade the units if you have no money? What are the numbers on this deal? Do they make sense? How do you know it's even a good deal? In today's market, most good deals don't sit unsold for several months.

For what it's worth, I tour and underwrite 100s of large multifamily properties around the country each year.

99.9% of the time, I use the 50% rule for my initial back-of-the-envelope analysis to see if the property warrants more time and investigation.

Sure, it's not an exact science and if you have time to run numbers and investigate every deal great, but these guidelines were created by (and for) people who have to make very quick decisions on whether or not a property is worth further investigation.

And funny enough, the company I work for owns over 45 large multifamily properties (~9,000 units).  Our average expense ratio for our entire portfolio is around 49%.

Devan Mcclish what size properties? The big boys won't return your call unless you are a serious buyer with capital and a track record.

Originally posted by @Mark Masiel:

You have 22k in savings yet you owe 4800 in student loans? Any reason why you don't just pay it off? That would be the first step financially I woukd take. 

Only if the interest rate is high.  I have over $10,000 in student loans still (I'm 37) and I've been paying the minimum payment on them for the past 12 years even though I have the means to pay them off completely. Why?  Because they are fixed at 3.3% interest.  I can achieve many multiples of that investing my money in real estate.  Just because you can pay something off DOES NOT mean you should.

@Brandon Low with all due respect, you might want to start with some real estate basics.  Check out BP's beginners guide to real estate investing.  A lot of the questions you ask give the impression you don't understand the use of loans to buy real estate.  Probably something you want to get your arms around before you get too deep.

To answer your question above, obviously he carries insurance that protects him.  His properties are large apartment buildings scattered throughout 12 different states.  He has what are called non-recourse loans on most of the deals so he's safe.

Again, maybe take a step back and do some reading / basic real estate stuff and then come back with questions.  It will all make sense, I promise.