All Forum Posts by: Matthew Metros

Do Property Taxes Increase year over year? I ask because I have seen financial models where they keep property taxes static each year. It does make sense to me as to why taxes would remain static each year, since your tax hikes can occur from government (federal, state, local...) Or if your property receives a high appraisal.

So, my underlying question is when is it appropriate to model for tax increases.

Currently reading David Lindahl's, Multi-Family Millions book.

In the book his advice is to determine the path of progress in your target city, and focus your efforts there for the greatest potential profits.

Curious to know what the path of progress looks like for this city - I know I can reach out to brokers and so on... Figured I'd crowdsource via this forum.

I am looking to understand how CAPEX plays into the MF value add strategy. For example roofs and HVAC.

How do these two elements play into value add? 

Do they:

Lower the purchase price - because we identified the need to replace 

OR
Do they go into rehab costs because they increase rents and the appraisal value?

Overall, I am trying to understand how larger CAPEX plays into the overall picture.

I am looking at a marketing package and am looking to develop a framework/system for finding the value add opportunities in the deal. 

In the marketing package, I am looking at right now all 8 units are 1 bedroom/ 1 bathroom with a front and back door and balcony space.

In total the property commands 3340 Sq Ft - Which equates to 835 Sq Ft Per unit. I know that this means I can add another bedroom because bedrooms are typically 200-250 SQ Ft. 

I believe 2-bedroom units are always more in-demand, easier to rent and the difference in rental income is very significant.  It takes a very insignificant amount of time and money to paint 1 more bedroom.

Overall - I am looking to develop a framework for the top elements to look at in these marketing packages that I can identify as value add opportunities.

I hope this all makes sense - Thank you in advance!

I am underwriting a deal and the marketing package has unrealistically low expenses. As a rule of thumb, I applied the 50% rule to meet reasonable 

I was told by another investor that small MF doesn’t have 50% expenses. It’s usually more like 30-35%. 

Should I Just have to underwrite with the given expenses to find out? Is there a better rule of thumb? I ask because I don't want to scare good deals away...

I will be utilizing the BRRRR strategy of Buy Rehab Rent Refinance Repeat to grow the portfolio.

We are looking for a delayed financing loan product that fits this strategy and mainly trying to avoid products that have high fees, a long seasoning period, and prepayment penalties. Once we renovate the property to add value (Equity), we want to refinance once the property increased in value.

My question is around the questions, products, terms, & conditions I should be directionally aware of when having conversations with lenders.

Below are some notes that I wrote to get the ball rolling on this:

Refinance Financial Products

• Convention Financing/Agency Debt (Are these the same?)

Refinancing Financial Terms To Look At

• Amortization Periods
  • Target: 30 Years
• Longer Terms
  • Target: 30 Years
• Rates:
  • Target: Concurrent with Conventional Residential Rates?
• Pre-Payment Penalties:
  • Surely I need to consider this?

We will be utilizing the BRRRR strategy of Buy Rehab Rent Refinance Repeat to grow the multifamily portfolio. I am trying to understand the terms and financial products I should be looking for directionally when in conversations with lenders when it comes to delayed financing products.

My definition of delayed financing products: 

Financial products that allow the borrower to first close on the property with cash, renovate the property to add value, and refinance once the property increased in value.

Overall, I am trying to understand what products I should be looking for and the terms that would be most advantageous and critical for me to evaluate. I hope this makes sense!

I am writing out my financing strategy as posted below. I am trying to understand the fundamental difference between Cash-Out Refi and Delayed Financing in Multifamily. I cannot seem to wrap my head around this!

Below I wrote my financing strategy - Passing along in case there is something off/ unclear.

We will be utilizing the BRRRR strategy of Buy Rehab Rent Refinance Repeat to grow the portfolio.

There are loan products that fall under the category of “Delayed Financing”. These products allow the borrower to first close on the property with cash, renovate the property to add value, and refinance once the property increased in value.

Once the property is renovated/stabilized and is "appraisal ready", the refinancing lender will be using an appraisal to determine the After Repair Value and will lend up to 70% of the after repair value (ARV).

In layman’s terms for our strategy to work, we are looking to buy at a lower loan amount and then refinance within a 2 year period into a lower interest and higher amount loan product.

We are looking for a delayed financing loan product that fits this strategy and mainly trying to avoid products that have high fees, a long seasoning period, and prepayment penalties.

This strategy allows you to deploy capital and get back the exact same amount (or more) within a 2-year timeline.

@Taylor L. You write:

Focus on finding assets that are currently under their potential market value today. Right now.

And then you write:

Most of us are not all that focused on cap rate.

This seems contradictory that you would not focus on cap rate, yet for finding assets that are currently under their potential market value, wouldn't cap rate be on the better metrics to focus your efforts on?

To preface this email - I found a deal that resulted in a return of 8% over 5 years with a 2% rent increases YOY. 

My partner responded - 

"Might as well invest your money in the stock market and make 8% in a few days…Or go buy in Ohio, where the return is much higher.

Doesn’t make sense to invest at 8%, for me at least."

Overall the theme is that during the quick analysis, we found that rents are already at the market. If there’s no room for rental growth, then returns are not high enough for the deal to make sense.

So my follow up question is how do multifamily investors include asset appreciation in their returns.

If my thesis is that overall the San Antonio market is going to receive asset appreciation greater than the rents over x amount of years, how does my underwriting process change?

I ask because the cap rate is based on cash flow, while other investors seek ROI Based on the appreciation.

I understand that multi-family valuations are derived from cash flow. But what I want to understand is the dichotomy between the cap rate and IRR. IRR will include the cap rate PLUS the asset appreciation PLUS the leverage going into the deal.

So why do multifamily investors just focus on cap rate when IRR is clearly a more confident figure for your return?

I will admit that my question is largely due to my inexperience in the field. I am really trying to understand this.