All Forum Posts by: Arn Cenedella

@Adam Berlinberg

I mean no offense or disagreement with any of the other comments. Just expressing my opinion. 

If you can get some kind of fixed rate Bridge debt that may be an option. That being said, i don’t think floating rate bridge debt is the best option for a new MF investor. 

I’m very active across the US in the MF syndication space and I can tell you ALMOST ALL of the properties in trouble today have floating rate bridge debt. Even experienced operators are getting burned with this floating debt. 

Given the relatively small size of the deal, I’d keep it simple and raise the cash you need and get fixed rate debt. 

It now costs $10,000 a unit for a cosmetic unit then. Be sure you have accurate cap ex numbers. 

If you proceed be sure you have accurate cap ex numbers plus cash reserves so you can deal with any problems that crop up and I suspect there will be some unexpected negative issue arise. 

Set yourself up for success by having cash in the bank after close. 

@Adam Berlinberg

Congrats!

On 5 or more units, it’s considered a commerical loan and the borrowers Debt to Income ratio is largely irrelevant. The property more than the borrower has to qualify for the loan. It the debt coverage ratio of the property that matters. Lenders typically will want to see net operating income (rent less all operational expenses but not including debt service) to be 1.2 to 1.25 times the loan payment. 

Lots of factors to consider here:

My initial reaction and asking price, I don’t believe agency debt will be the financing solution here. Agency loans are based on current property performance and require stabilized occupancy of 90%. In addition, there is a typical minimum size agency loan of $1M

Do you need to spend money to improve property to be able to increase rents?

Agency loans will not finance cap ex work.

My initial reaction from afar is that your best option would be a commerical loan from a smaller regional or local bank or credit union. They might include cap ex cost in the loan  figure 5 year term 25 year amortization no prepayment penalty.

Use this initial bank loan to acquire property, fixed it up, increase rents and then perhaps go for long term agency debt.

I own a MF assets from $1.1M to $35.5M.

In contract now to buy a new deal for $1.1M, we will get financing from a local credit union.

I suspect that will be your best bet.

Lender may have net worth and liquidity requirements too.

Get on the phone and start calling around, talk to five lenders.

Hope this helps!

@Vishal P.

Apartments get taxed at 6% in South Carolina. 
Most counties have online property tax calculators.
Just enter address or tax map number and toggle to 6% enter purchase price and you will get a pretty accurate calculation of future property taxes. 

@Kyle A.

Nice overview about cash calls and questions & issues investors should consider.

Consult CPA for sure and be aware even if property is sold at a loss if cost seq and bonus depreciation was used, this sale could actually create a taxable gain in the year sold.

For example let’s say a property was purchased for $15M in 2022 and $5M of bonus depreciation was taken in 2022, basis in property is now $10M.

Now sold in 2023 for $13M for an actual loss of $2M.

But for tax purposes said sale actually generated a $3M gain - $13M less $10M basis.

@Tom Lafferty

All good points. Each deal is different and bottom line, market knowledge is the key to it all.

When I look at a property, I think about what I can do to make the property better and worth more. The “finish line” is not one month after you buy the property, the “finish line” is in most cases is 5 to 7 years from now.

In the multifamily space, investors often talk about “meat on the bone” or “proven value add” “proof of concept” where the seller has demonstrated ability to increase rent based on unit renovations and so they don’t renovate every unit, they leave some meat on the bone for the next buyer.

In my experience in good growth markets in desirable areas, it is hard to buy based on current NOI.

Let's say property is worth $3M based on current NOI but one sees a clear path to get value to $4M in a year or two after spending $200,000 cap ex to upgrade property - leaving $800,000 profit in the deal. Would an investor be foolish to pay $3.1M for the property or would the investor be foolish from walking away from a $700,000 profit (reduced from $800,000) because he or she paid $100,000 "more than the property was worth".?

For me, I’d paid the extra $100,000 to buy a good property with a nice profit potential.

Again this depends on the market and on the specifics of every deal…….

Perhaps not quite analogous…….

If you were a home flipper and a wholesaler brought you a deal that you knew you could make $50,000 profit on it. And you know wholesaler was making $20,000 on the assignment, would a flipper not buy the deal because a wholesaler was also making a profit? Or would a flipper not care what the wholesaler profit was if he could make $50,000 in the flip?

@Gerardo Waisbaum

Yes many paths to get to the goal. 

I did note that if one wants to go direct to MF, it would be best to join a team in a “supporting” role to start. Do 3 or 4 deals that way and then perhaps move on to a lead sponsor role. 

And of course “supporting” roles vary greatly from deal to deal and from lead sponsor to lead sponsor. Is the “supporting” role primarily capital raise? What’s the actual involvement in the day to day operation of the asset? What level of input and responsibility does the newbie actually have?

In some cases, it won’t be much. Most experienced operators have their team in place and have most roles covered  

Each person needs to figure out the best path for them. You are so correct, there are Multiple paths. 

@Amir Khan

That’s a good way to do it.

I see far too many people (in my opinion) with little or no actual practical experience being a landlord much less owning an apartment building of any size trying to syndicate a 150 unit $20M deal.

Why would any investors (outside close friends and family) invest their hard earned cash with someone who has little or no experience? There are dozens of deals out there run by operators with great experience. 

Would one sign up for heart surgery with a MD who had never done one before? 

There’s a learning curve here and in my mind, learn with your own capital before you learn on the job with other people’s capital. 

I fully support mentorship and there are lots of good programs out there but a new investor needs to understand the mentor needs to “sell the dream” to get students - selling the dream of owning 16 units doesn’t have the same ring as owning 200 units.

I’ve been in real estate since 1978. Sold lots of houses. Ran a size-able single family home rental portfolio for 35 years BEFORE I went to multifamily - started with duplexes, went to quads, then 12 units and last year closed on 281 units $35.5M. I believe in progress based on solid fundamentals and experience. Slow and steady. Many operators and their investors are now finding out when the market stops going up, yoy better know what you are doing or you can lose your shirt.

So I believe some personal practical experience owning and operating rental property is a good idea before moving to other assets.

People can get into syndication in two primary ways:

1) Find a deal or 2) Raise capital.

Find an experienced operator to team with and let him order teach you the business. Yours will be in a “supporting” role - compensation won’t be huge (don’t quit your day job) and learn. Over time, gain knowledge and experience so that one day 3 or 4 deals down the road, one is ready to handle the huge responsibility of taking care of other people’s cash.

One should also take stock of where they are at - what strength and capabilities they have, what income, what amount of capital, who their social and professional sphere is, etc etc and then come up with a real aka tic plan as to how to proceed.

This all can be done but it takes a cold hard assessment of reality and then consistent effort over time to make it happen.

Now that @Amir owns some rental property, he can tell his friends, family and associates about it and as they see him do well, NOW he will have more success asking for capital to do bigger deals.

There’s an expression How does one eat an elephant? Answer - one bite at a time.

@Brad Crumpton

Check with City building department is the easiest and best way to figure this out.

If you are using an architect, the architect should know the ADA regulations in residential construction.

@John McKee

Good point. To take it a step further let e make one another point.

Yes when brokers talk to me as a buyer, they want me to price off projected.

However, when they talk to me as a seller, they want me to list off actuals.

Funny how this works. 😀

Arn