All Forum Posts by: Ivan Barratt

@William Kim the answer is simple. Get educated on what a good deal / sponsor looks like. Best way to do that in my opinion is to evaluate 100 deals (just like you would do for a rental property) before investing in one. Do this simple (but not easy) task and you'll develop a "finger tip feel" for what a good sponsor/deal looks like.

Sources for deals: bigger pockets, crowdfunding sites, google/research.

Google: "Pareto principle"
In short, you have a lot of education and perspiration ahead of you IF you want to go down this path. Good news: you're in the right place to get started. :)

With the 10 year treasury falling (again) and hovering at 250bps we're likely to see continued cap rat compression. Why buy deals? Because it's still possible for me to earn a higher "risk adjusted" rate of return on my capital. This gets somewhat better if there's a value added component. Further, if I'm risk averse (I sure as heck am!) I can lock in my debt rate for 10,12,15 or 35 years on apartments (can't do that on other asset classes).

Keep an eye on the spread between the 10yr treasury bond and the general cap rates for say multifamily. In 2006 the spread got down to 100bps before everything fell apart. Today the spread is still roughly 250 to 350 bps depending on what you're buying.

Tough to find a deal: yes!

Are we in a bubble? nope!

@Jay Hinrichs thanks! I'll be sure to follow up.
@William Benefield here to help if I can be of service.

@Dean Attali this strategy has "brought down the house" throughout history.

The saying goes, "Don't borrow short and invest long." 

Read: Long Term Capital Management and The 2008 housing crisis as two great examples when values dropped and short term raised increased.

Talk to a well versed CPA however; I was able to sell my small MF and reinvest into larger deals without paying taxes thanks to the new tax plan and accelerated depreciation. My scenario may be different than yours and it always pays to have great advisers on your team.

All the best!

Great points thus far. My first two deals were 35 and 30 units. Made just about every mistake in the book. What ultimately saved the deals was having in house management company working for free for a couple of lean years. Luckily we were able to eventually bounce back. 

One we sold 5 years after purchase for a 9% IRR (not bad considering what could have happened). The other we were able to secure redevelopment financing to throw everyone out and start over. A year later we refi'd with Freddie SBL and it cash flows great.

I'm forever ever grateful to have learned a lot on a couple of small deals with one partner involved before stepping up to syndication.

@Mike Dymski is 100% correct. There is a day of reckoning coming for the mediocre sponsor/deal.

@Brian Burke well said as always sir.

1. Deal Flow

2. Deal Flow

3. Deal Flow

@Matt Heerwald one of the very best ways to learn a good deal from a bad deal from a great deal is to look at 100 deals! Do this and you'll have 100% confidence in your evaluation. You'll know what to look for and you'll catch when critical pieces of the offering are missing.  You'll literally develop what's often called a "finger tip feel" for a good deal.

Skip this critical step and you're adding a lot of risk to the equation. Be patient. Crawl before walking. :)

All the best!