All Forum Posts by: Account Closed

@Brandon Barnic

smaller complexes (2-4 units) don't have amenities, so you won't be competing with the large, new complexes that offer pools, community rooms, rooftop decks, fitness centers, etc.

In my opinion, it's a very good sign if new communities are being built in an area and if you buy/own a smaller complex, you don't try to compete with them, rather, you offer a safe, clean apartment without all the bells and whistles for less than the fancy complex.

@Daniel Levine

 I think it's okay to buy, but only if you can get a loan with a longer term maturity (7+ years).  Anything less than that in my opinion you are taking on a gigantic risk.

If you are buying a 4plex or smaller and using 30 year fixed residential financing I say buy every good one you find.

@Michael Worley 

I appreciate your post and agree with you.  My argument was not "interest rates are so crazy low that it's causing high prices", rather, multifamily cycles are nearing a peak in most markets so be very careful with regards to short term exit strategies.

I am concerned that I see a lot of newbies saying, "Hey, I just bought an apartment building and it's amazing and I have a 2-3 year balloon payment and no exit strategy other than to refinance!"  I want people to run sensitivity analyses that show the value in 3 years if rates rise 200-300 bps and cap rates follow.  Even if rents grow 3% per year that won't be enough to offset the cap rate movement and thus you'll be faced with having to refinance or sell a property that is worth less than you paid for it.

I agree rents will continue to rise for the next few years.  As I mentioned in my initial post, we are still buying aggressively.  We purchased over 2,000 units in 2014 and hope to match or exceed that this year.  We are putting long term (10 year) debt on our properties so we won't be faced with a difficult decision in the short term.

We've seen Fannie and Freddie pull back big time in the past two weeks and their quoted rates have risen almost 60 bps on a 10 year loan in the last two weeks.

@Juan Diaz

 completely understood and that makes sense.  my comment about those markets was simply where they are in the currently multifamily cycle for properties of 150+ units and larger.  single family homes are obviously a different strategy and as you said if you are holding long term paying 5% more really doesn't matter.  obviously, over paying on a multifamily deal at the top of the cycle with a short loan maturity is an issue and that is what my initial post/warning was about.

I agree that all three of those markets have strong long term fundamentals.

@Juan Diaz 

@Chris Harrington

I just got outbid significantly on a large deal in Kansas City.  It's a deal in Overland Park that is going to trade at a low 5 cap.  The group paid $1.5 million over list (on a ~$25 million deal) and is putting down significant nonrefundable earnest money.  For an 80s built deal that needs a lot of work.  

Raleigh is completely overbuilt and Wash DC is past the peak and has been declining due to the level of new construction.

Call the local building department and speak to someone there.  It's not an easy, or cheap, process from what I recall.  They can give you the guidelines.

You should plan to review all the owner's financial statements, review the rent rolls, walk every unit, audit every lease, have contractors inspect the mechanical systems, roofs, create a business plan, review title, review environmental reports, shop all the comps, etc

Do you have financing already lined up?

@Conway Churaman

 what value can you offer an existing investor?  How would hiring you make my (or another investor's) life easier / more efficient / etc? What skills and experience do you have?

No one is going to hire you because you need to make a change.  Someone may hire you if you have something to offer.

@Michael Kresloff

 knowing the rents is key.  assuming they are $650/month per unit, a quick back-of-the-envelope analysis shows the following:

$650/month rent x 8 units x 12 months = $62,400 gross potential

less 15% for vacancy, loss to lease, concessions, etc = $9,360

Effective gross income (EGI) = $53,040

less 55% expenses (estimate, you need to verify expenses) = $29,172

Net Operating Income (NOI) = $23,868

Applying a 10% cap rate to deal (I can't imagine it is 13% if it's in a decent area) = 

$23,868 / 10% cap = $238,680 value