All Forum Posts by: Jamie Grubb

@Mike Redondo - I do not think it is a good idea to buy something that you (or anyone from your team) has visited.  I have bought single-family properties without visiting them, but I had a trusted realtor, contractor, and partner visit them before pulling the trigger.  If you are only able to look at pictures and speak with a realtor about a property, there are going to be many things missed that could add up to big expenses.

When it comes to multifamily, I think this is amplified.  If it is impossible for you to look at the property prior to purchasing, you MUST have trusted partners that can point out repairs/concerns and estimate (in dollar terms) the remediation plan.  

If you plan to play the role of the 'hands off' money guy, I think you can get away with not being at the property, but I would not recommend it.  Pick a market that is convenient enough for you to get to, in case of an emergency, and check-up every once in a while.  No one will look after your investments like you do.

On the other hand, if you really want a passive investment, you should look into syndications.  You are trusting your money to people who will take care of all aspects of the project - finding, financing, and operating.  I (and many others) have talked about syndications on this forum and there is plenty of 'education' out there to get up to speed.

@Allison Macalik To answer your question directly, look for books, podcasts, and speak with people who are actively raising money through syndications.  I would also look to partner with an experienced syndicator for your first one.  

As @Scott Runyan mentioned, the size of this deal seems better suited for a JV or partnership than a traditional syndication. I would look to forums and meetup groups to find partners with complementary experience.

@Justin Goodin - Very nice and simple pitch for passive syndications.

I entered passive multifamily investing after doing several single-family rental rehabs.  I also self-managed the properties, so it was very time intensive while working a FT job.  

Like @E. C. "Stony" Stonebraker, I did a lot of research into multifamily before committing to my first passive syndication.  I read books and went to every meetup I could find.  I planned follow-up conversations with General Partners and got a feel for how they evaluated deals. It can be intimidating looking over an investment proposal and figuring out what to watch out for, but as long as the incentives between GP and LPs are aligned, it is a great way to create truly passive income.

@Luke Lattimer There are different types of lenders and they will have different terms for the loans.  You can find fixed-rate commercial loans for 10+ years, but a majority of commercial loans are floating rates.  I'm guessing here, but your loan is probably <$1m which makes bank financing the most likely for this loan.  Banks are sensitive to interest rate movements and will most likely require 'resetting' after a certain period.

Also, prepayment penalties are common for commercial mortgages.  There are ways that you can 'buy it down' though.  By agreeing to a higher interest rate, you can negotiate a more favorable prepayment penalty.

I agree with the others here, that #2 is the better option.  Unit turns can be expensive, and unit turns after pets can be really expensive!  If you can lock in a longer-term lease (>1 year), that would be an even better option.

@Justin Goodin Solid list of considerations.  

You're correct that the Sponsor is most important.  Their experience, reputation, and character are the main criteria that I look for.  I also like to establish a dialogue with the Sponsor well before doing a deal with them.

Hey @Josh Gibson. I'm sure you can find some good advice on this forum, but speaking with a lawyer/accountant is going to be your best bet.  There are so many things about your situation to consider - Do you want to protect other assets?/How big do you plan to grow this business?/ Can your properties sustain the higher financing costs?

With that being said - Generally, (and most likely in your situation) commercial loans are going to be more expensive. However, you need to weigh this against the protection an LLC provides. Maintaining a rental portfolio in your own name exposes your other personal assets to risk. For example, if you are sued and the property is in your name, you will be personally liable and could be forced to pay claims with personal funds/assets.

If you want to keep the rentals in your name, speak with your insurance company about policies that can protect your personal assets.

@Jonathan AcevesThat seems like a nice cost basis for a 3 unit.  What is the location and what kind of rent are you getting? Also, how much initial capex did the property need?

The census data is the most accurate and reliable information for researching neighborhoods.  It can be a bit dense/dull, but it has everything you need in one place.  

Another site is Vestmap.com.  It takes data from multiple sources and puts it in an easy-to-digest format.  

Watch out for the sites that try to boil down a neighborhood into a 'score'.  I researched several of my rental properties (after purchasing them) and found the 'score' can be very misleading!

@Craig McLaughlin The commercial loan you quoted seems to be a bank loan.  There are other commercial options out there, but I will respond to the spirit of your question.

80% leverage on a commercial loan is very aggressive. I believe that targetting a 70% LTV removes a lot of the risks associated with the investment. This lowers your monthly payments and allows for more of a cushion in a downturn. That being said, you should be executing your business plan, holding sufficient reserves, and monitoring market rates.

When monitoring rates, you have to balance the remaining tenor on your loan (options greater than 5 years exist but at higher rates) versus the rates being offered.  Prepayment penalties are another consideration.  

As @Jai Reddy mentioned, it is good to consider refinancing prior to making the acquisition.  Many commercial investors were burned in 2008-2010 when they could not refinance loans as they came due.  Taking a conservative approach and considering pitfalls mitigate a majority of the risks associated with commercial investing.