All Forum Posts by: Joshua Christensen

I tend to underwrite to a more conservatively assume CAPs rise.  It's the old plan for the worst and hope for the best scenario.  

That being said, the bigger issue I'm seeing right now is Beyond conservative and leaning toward fear based investing.  Only taking action if the deal has fat projections, meaning the seller has lost his mind and wants to sell for a ridiculously low price.  

There is a disconnect between buyers and sellers beyond CAP rates. Buyers expect Sellers to cower in the corner at their amazing low offers as if they are doing the seller a favor.

Through the years, I've watched "investors" pillage through offers doing nothing but wasting time on offers that were never to be accepted.  Why?  What does that prove?  I think it is more of an ego thing.  I've actually watched Sellers price their highly distressed properties at 50% of market value and buyers come in with offers that are 1/2 of that already low deal.  Amazing.

To your point @Ashley Wilson, Operations have always been the mainstay of true investors. Whether its a value add or a yield play, operations are the key to success as CAP is the result of NOI and a sales price. CAP does not come first, although we can learn a lot about a market by looking at resulting CAPs of comp sales. We can guage market norms with this data.

It's time that the over-inflated values of the early 2020's, that brought out every "expert" at how good they were, return to a more normalized market.  This is the time when real investors step up and make deals.   It's the time when the fundamentals of investing are tested.

No more of the "rents will always rise" type of investing to sell 20% IRRs.  
 

Denver has been a very solid market over the last 10 years and looks to continue the trend as migratory patterns continue to head that direction. 

First, You're not buying an investment property.  You're buying your home with the intent to rent it out in 5-6 years.  At the point you're looking to rent it, consider all the factors necessary for investment.  In the meantime, for your family needs, does it fit the bill?  No one knows what 5-6 years will do in any market, so if it's a great deal to live in for the next 5-6 yeast then enjoy.  

If in 5-6 years, you can rent it for a nice profit, do it.  If it makes more sense to sell, then do that.  

As for the basement, it is an inexpensive solution to add value to the property.  Additional bedrooms may or may not help if you already have 4-5 bedrooms.  Consider 1 bedroom and a flex space like additional family room, etc.  If you want the gym for your use, you could make a large bedroom and utilize it as your home gym, then rent it as an additional bedroom.

The financing is real.  Benjamin mentioned the fine print.  If you're building with a production builder who has an in house lender, essentially they offer 30 year fixed.  They are buying the interest rate down to the 5.99 to sell more homes.  I think what Benjamin referred to is more of a custom builder utilizing a builder loan that converts to permanent after construction.  Not the same thing.  

It sounds like it could be a great family home for many years.  Don't over think it.  

@Vanessa Switzler Congratulations on your move to a new market.  

We had some offers out a few years ago in Huntsville & Montgomery.  Lots of growth and also lots of saturation and supply these days.  They've gotten tougher to pencil.  

I'm in the Albuquerque market as an investor, Broker & property manager.  We've seen some great growth in the SW.  As for SW markets, ABQ is the "affordable" option as SoCal, AZ, and CO have become over valued making it difficult to find decent deals.  Our jobs base has been growing steadily and we're currently 12-13k rental units short of upcoming demand (based on published jobs coming to the market).  

Our property taxes on multi-family are capped annually at 3% max increases which help with annual tax lightning.  The university and the Air Force base are a continuous source of renters as well as incoming transplants.  

Many of the smaller assets (5-30) are small operators who have not raised their rents to market and are leaving a lot of rent on the table.  In many cases $200-300 per month per unit.  I just sold a 10 unit that was leaving $650 per unit on the table.  That's without any major rehab, just pure market rents in a livable condition.     

Quote from @Gabe Goudreau:

Quote from @Joshua Christensen:

Quote from @Gabe Goudreau:

Hey Everyone, 

I've been building an Excel financial model that can quickly analyze potential value-add multifamily projects and I've run into an issue that I wasn't expecting - when calculating the returns, do you take into account both the refinance and sale proceeds, along with the cash flow? Or just one of the capital events along with the cash flow?  

Currently, when I include both refinance and sale proceeds, I get an unrealistic XIRR of 49%, while the average cash flow throughout the investment (7-year hold period) sat around 8%, and this seems incorrect to me. 

Please let me know some feedback, I can elaborate more if needed. Thank you! 

 I agree with David.

IRR is sensitive to capital events. Does your refinance include a return of capital at that time? If so, your IRR is going to be affected in a higher way. If you pay back all the upfront capital needed to fund the deal, the return becomes infinite after that, so that plays heavy.

When I underwrite my deals, I plan on 5 years without a refi.  It's a more "pure" approach, then if I like the numbers, I'll move forward.  A refi only juices my returns in that scenario if I refin in less than the 5 year projection.  Underwrite for the worst you'll accept and then perform to your best ability to maximize over time.

Yes, it includes a return of capital at that time. Here is an ss of what I have currently, this connects to other tabs of the model. The ($597k) is the initial equity invested, the $220k is proceeds from a refinance, and the $1.2 MM is sale proceeds. These are based on fictional numbers, assuming a 7-cap valuation at refinance & sale. I will run through an actual deal soon, just trying to fine-tune the model in the meantime. 

Find a model that you can run the exact same test numbers through that you trust has accurate measurements of IRR. Then model yours to a similar approach. It becomes your "control" to compare against.

You have a great start and a 30 year runway.  You're not looking for a 2nd job in RE.  Keep it simple with what you know.  You have a team you trust in St. Louis.  

How long did it take to build out your team in St. Louis?  How many did you have to go through to find your dream team.  

Every market you go to will have growing pains associated with learning the market nuances, finding the right team, and finding the best deals. If you don't want another full time job, why go through all that?

You could consider REITS, Private Placement Deals, Hard Money Lending, Syndications, etc. and invest passively, or continue acquiring hard assets that come with heavier time expenditures.  

More markets equals more time needed to track, meet with your team, travel to and from, tax season, etc.  

Best wishes

 I agree with David.

IRR is sensitive to capital events. Does your refinance include a return of capital at that time? If so, your IRR is going to be affected in a higher way. If you pay back all the upfront capital needed to fund the deal, the return becomes infinite after that, so that plays heavy.

When I underwrite my deals, I plan on 5 years without a refi.  It's a more "pure" approach, then if I like the numbers, I'll move forward.  A refi only juices my returns in that scenario if I refin in less than the 5 year projection.  Underwrite for the worst you'll accept and then perform to your best ability to maximize over time.

 What's up JT?!

You are on track to a great start in your journey.  Congratulations.  I don't know the Chicago or IL markets, as I'm in NM. Options I see happening for you without knowing all the particulars of your situation.

1. FHA 3.5% DOWN - They allow you to purchase 1 up to 4 units and may allow you to use 75% of the street rents to offset your loan qualifications. Check with a lender. Also, with FHA, family members can give a gift to help with down payments. Sellers can contribute up to 6% towards allowable closing costs.

2. CONVENTIONAL 5% DOWN - Again, check with your lender on the specifics - must be owner occupied, rates will be higher on this program than FHA.

3. SELLER FINANCING/SUBTO -  This is a patience game as you have to call on a lot of owners to find one who may work with you.  One way would be to start networking here on Bigger Pockets to see if anyone has something you're looking for that they would consider a low-down option to finance you into your first deal as a house hack.

In any situation, the first thing to do is talk to a few LOCAL lenders who deal in the grant programs for First Time buyers.  Sometimes those programs only allow for single family dwellings.  Ask about Down Payment Assistance programs.  The lender is key in this scenario.  

Best wishes to you.

 Glad to add some value.

 Robin, this is fantastic information.  Thank you for sharing in such great detail.

Hey Logan, lets connect.  My dad lives in Killeen actually, just down the road from you.