All Forum Posts by: Kevin K.

PWC or Kopaz puts out investor survey for expected IRR's for various property types. Adding some basis points to account for the additional risk given the value add aspect would make sense.

If this is not an option I would start asking investors what type of total return you would expect on this type of deal. 

I’ve commonly seen equity multipliers being used in value add deals, either mentioned by investors desires or even included in offering memorandums. 

So an example would be I put in $100,000 and get $200,000 backover three years. A 2.0 equity multiplier. A discount rate equivalent would be roughly 33%. We typically see discount rates applied to properties being held around 10 years vs. short term value-adds. Or a conjunction of the two shown above. 

I’d say it’s aggressive. 

I would caution against using a lower terminal cap rate(last year) then the going-in cap rate (first year). 

Generally your terminal cap rate is 25-75 basis points higher than your going-in cap rate. Mostly because the building will be older and may not have the same income potential as it had in the beginning of the holding period. Moreover, the increased rate is also used because of additional uncertainty associated with estimating what the cash flow will be when the property is sold to the new owner. 

As others have already mentioned, any future assumptions can have a notable impact on value if those assumption turn out to be wrong. This is generally why Multifamily is valued based on current market derived cap rates using the Income Approach assuming a stabilized occupancy of the coming year. Simple IRV formula Income/rate = Value.

Can you post a redacted copy of the OM? I’m curious to see how this was layed out or if they have any support for the lower terminal cap rate.  

@Sean Spitzer

I’m not sure how you formulated that. Because my state isn’t landlord friendly they’re no coaching programs here? Our dollars can’t cross state lines? Mentorship programs focus on various investment strategies. 

Anyway, I’ve run into many mentorship programs and know of people who has lost a lot, within my state. Spending over $25k in order to get material and guidance which is maybe worth $1k.

The point I was trying to illustrate was what, @Ashton Levarek has confirmed. People pushing guru programs on here as the cure all or only option without seeing if they could accomplish more making legitimate connections on their own and building a team.   Personally I much rather spend my $25,000 on professionals; accountants, lawyers, realtors or appraisers. Getting a professional opinion on my deal, company structuring, tax issues, a 3rd party value opinion, etc. That’s my opinion and I’m sure others will differ.

Moreover, as I stated before. If these programs are so great why not structure to fee to the mentor in a different manner. Giving 25% of the fee in cash up front and 75% in equity. Therefore, a $10,000 program the mentor will receive $2,500 up front, so if the mentee decides it’s not for them, the mentor still makes something for their time. If the mentee has actual issues with the deal the mentor will have a reason to follow up in order to look out for their equity stake. I feel a structure like this could help eliminate confusion on both sides. 

That’s my opinion on the matter and thank you Ashton for your service to our country. 

The amount of legitimate responses here is very worrisome. 

Furthermore, no one has suggested to keep searching the house! 

Everyone knows the first $$$ is just a decoy.. 

Mainly because I’ve seen way too many people get taken advantage of in this industry. If these guru’s are so great why not offer the $25,000 - $50,000 fee as equity in the deal? Then if anything goes south or the guru doesn’t pick up his phone when there is a real problem no one makes anything...

Furthermore, if they are making the returns they claim with their systems. Why not just focus on raising capital and finding more deals?

 To answer your question, no I don’t own large multi-family buildings. However, I have appraised well over 100 of them in the NYC area. I always ask how they got started. I’ve yet to hear “well after spending $50k at a real estate boot camp, I knew all I needed to know and jumped right in” 

However, I’ve read a ton of stories on this forum of people getting ripped off by guru’s and sold systems. 

It might not be the Appraiser, it could be the assessor. The appraiser should reconcile such a notable difference. Also, they should provide comparable assessments as one would compare sales in a grid format and provide a narrative explaining the variance. 

I’ve Appraised a few properties that were clearly over assessed. In one case a large piece of land was being included in the assessors gross building area. They applied a market value per square foot to this area. Thereby, over assessing the value. It wasn’t until we appraised the property that the borrower and assessor realized this inaccuracy. 

He has since filled a tax certiorari to clear this all up and reduce his takes. 

Unfortunately assessed values can be inaccurate as in some cases they relay on mass appraisal software. Of in other cases an old sale, if your state is allowed to practice this, they call it “chasing sales” and a few states don’t allow it. 

I would follow up with the appraiser, if you’re the client, and ask for clarification and possibly comparable assessments and tax burdens of similar properties and see where yours falls.

Good Luck,

As others have mentioned, the increase in NOI won't have a notable impact on the value as the Appraiser will most likely use the Sales Comparasion Approach with the Income Approach providing secondary support.

However, if you’re personally guaranteeing this loan, it may help on a global cash flow level. As the additional income will increase your total income (w-2, schedule c & e,etc). An underwriter may be able to provide more insight once this.

Good Luck,
 

This is a very needed post. As much as I love to hear success stories. Some of these posts and podcasts of “How I went from 5 to 500 units in under two years” . Then the post goes on to lack sufficient detail or turns out to by someone selling a low cost $50,000 mentor ship program or ten easy payments of $5,000. 

With that being said, there are many investors on this site who have experienced loads of success and can be a wealth of information. As Micheal Noto suggests, find people with your goals and align with them. 

Good luck  

I have to agree with Eric Johnson. If these mentors are so great at real estate investing, they should focus on running their funds, raising capital, finding deals etc.. 

There have been numerous posts on here about people paying $25k -$50k on “Bootcamps” or “Programs”. Those funds could be better utilized for a downpayment. 

Next time your at an event, tell them you’ll give them an equity stake in your deal for $25k vs. giving them $25k cash. That way they will have a financial incentive for making sure the deal works out. If it doesn’t, then they lose the $25k off equity, but none of their own funds. see if they go for that. If they are so confident in you and their skills, it shouldn’t be an issue. 

Good luck

This has been coming up a lot actually due to the covid pandemic. The bank I work for requires a minimum  of 6 months debt service, although they like to see 12. 

On a side note, if I was underwritting my own deal. I would assume at least 6 months of fixed expenses and debt service. 

Good Luck,