All Forum Posts by: Matthew Drouin

@Elen Saar this is my method. Although, I can’t really speak to schools specifically because they are so subjective. Maybe check some local Facebook parents groups and gather a consensus there?

1.) General neighborhood curb appeal. Do the properties around the area seem generally well maintained? I mean there’s bound to be a stinker here and there (those are the ones you want to buy), but are lawns neat and tidy? Flowers? How are all the roofs in general. A lot of houses with roofs that are shot? Garbage blowing around. Tons of cars in every driveway or even parked on front lawns? This curb appeal check is indicative of a couple of things. Occupants going the extra mile is a an indication of owner occupancy and general pride of ownership. Secondly it signals that rents or incomes in the neighborhood are high enough to warrant reinvestment back into the properties.

2.) Retail check. Look at the adjacent retail corridors. What do you see? Starbucks? Chick Fil A? Whole Foods? Or do you see Rent A Center, check cashing stores, corner stores, smoke shops, and pawn shops. Also in these retail areas, what’s the tolerance of riff raff? Do you see panhandling and loitering? This is a general indication of income. Plus your tenants will find adjacency to a hip area a valuable amenity.

Hope this helps in your search!

@Abe B.

I love low cap rate product and areas. Especially historic areas, here’s why.

Low cap rate always gets a bad rap because your cash flow will be lower than high cap rate. Yes cash flow is important. It’s important to your investors and important to your bank. On low cap rate deals, you just to bring more cash and less debt to the table in order for the deal to work. Especially in a higher interest rate environment.

The really cool thing about a low cap rate market is that it signals that the market is very high demand and in demand by higher income earners and with a lot of future economic growth. This means that future rent growth will help this property cash flow much better in the coming years.

Plus because it’s a low cap rate market, each dollar of net operating income it that much more explosive to the underlying property value, which means you can pay your investors a nice return on a sale, or refinance it and pay them back on a refinance that much more quickly.

So let’s assume it’s a 4% cap rate. The gross rents are $300k a year but organic rent growth has been an average of 7% per year over the past 20 years. So Super solid market so it’s a got some long term historical data behind it. Let’s just assume you are able to grow rents by that amount each year over the next 5 years…

You’ll be able to push rents up to almost $400k per year! Or a $100k increase! Assuming you were able to keep expenses stabilized over that period (very unlikely but just for easy math sake) and market cap rates stayed the same (4%) that would have increased the investment value by $2.5 million. So assuming you originally paid $3.75 million for the property and put down $2 million for a downpayment, that’s a 25% annual rate of return!

Now all this analysis was on a fictional property but hopefully you get it on why low cap rate isn’t necessarily bad.

Plus the reason why I like historic areas is desirability and high barrier to entry. They are very difficult to build new in so competition is kept to a minimum.

@Shane W. Chapin "see" you soon buddy!

Join us for our next episode of Go Big! Live with the mysterious Shane Chapin.

Shane used to work in car sales after he got out of the Army; started out in the small single family rental space until he realized there was one issue... SCALE!

He started educating himself on the self storage investing business and became financially free with only a couple of deals.

Relatively new to the Real Estate space, Shane has been focusing on value add self storage facilities, implementing remote management processes and systems, while driving revenue and then selling for a profit. In his words, they are a flipping storage business.

Local to the Rochester area, Shane is a real estate mystery. A frequent Podcast guest and well loved named in the industry, Shane proves that you don’t need flashy websites or intense marketing to achieve your investment goals and financial freedom. You just need determination, a strong why and a great partner.

You won’t want to miss this opportunity to chat with Shane and ask your questions LIVE! This is a chance to elevate your real estate game and learn from from someone diving right in to the Real Estate world.

The live show is in our Facebook group.  The link is here.  So request to join and I'll let you in.  You can either stream it on facebook or go right into our zoom call where we will dissect Shane's first big deal; learn how he found it, how he raised the capital for it, how he structured it and how he brought it full circle.

@Julio Gonzalez hope you got some insights out of it!

@Scott E. I decided to take the cash because I want to have as much dry powder as possible for when sellers start to really capitulate in our market.  Keep in mind, we are opportunistic on asset class.  We've been an opportunistic buyer of office since covid, but we started to see some systemic cracks in the capital markets as it pertains to that product, so we've made a pause.

Here's why.

We had the opportunity to buy a 125k sqft trophy class A office deal at a smoking hot price. We went out to our preferred lender to request a term sheet and they came back with 50% LTV max! So we thought... maybe that bank is changing their risk appetite. So we went out to 3 more banks and they came back the same, 50%-60% ltv. I could have raised the capital but I am thinking that this tenor with banks and office is going to create some serious liquidity issues that us and our investors will be able to come in at even more attractive pricing.

In regard to the Securities Based Line Of Credit, some brokerage houses allow you to borrow up to a certain LTV against your investment securities. The community bank's wealth management group that I work with will issue you a LOC up to 80% LTV.

This does a couple things: 1.)  It gives you a flexible credit facility at a great rate (relatively speaking).  2.)  As your commercial real estate portfolio grows and your loan balances grow with new acquisitions, lenders become more and more sensitive to your liquidity position when you are filling out Personal Financial Statements.  We want to keep our strong position as principals so that we don't have to bring on as many other principals (Co GPs) just for the balance sheet purposes.

@Julio Gonzalez I had bonus depreciation that I had claimed on those properties because they were value add.  Also I converted to real estate professional status and absorbed the net loss carry forwards I had as well as washing out my wife's salary when she was working her W2 at the time.

Zero sum meaning, that if I did the Cost Seg is was going to cost $9k and save me $40k on the $50k worst case tax hit.  So I would net about $30k out of doing this but lose longer term tax efficiency out of that asset.  I haven't taken the cost seg off the table but it's not a slam dunk.  We are going to prepare 2023 taxes and do some tax planning and really figure out the cost benefit.

@Charlton Zang Jr

Like everyone else recommended here, what’s your ultimate goal and most importantly why?

It doesn’t matter which direction you end up going; it’s not a life sentence so follow the most important rule for beginners:

The DDD rule.

It stands for “Do a Deal Dammit!”

You will learn so much in the process but most importantly you will have built the confidence to actually do the one thing that everyone on planet earth wants to do but never does…

Own an investment property!

Secondly. Regardless of your strategy, never buy a “cheap” property. Always buy in great locations that you would want to live. If you buy in a bad location, you can’t change that. Newbie Investors who buy in bad locations, very often, it’s their first and last deal.

It sounds like you have a decent amount of capital to buy in a good location if you add the possibility of a HELOC.

Don't be afraid of this tool. You might be thinking, we'll if this deal goes bad and I'm not able to pay the HELOC then I could lose my HOUSE! 😱😱😱

Listen if you take any loans out that you don’t pay, you could lose your house. However debt is the real estate investors biggest and most essential wealth building tool. But like any tool, it needs to be respected and used carefully.

Helocs are great because you can draw on it and pay it down and use it over and over again. I used my HELOC to build a $15m real estate portfolio using the BRRRR method and started scaling into larger commercial and multifamily.

Here's my suggestion, open the HELOC. That's your homework. Search your local credit unions. They love Helocs.

Cheers!

@Chelsea Price

If your goal is to find enjoyment in this venture and meet people then your own backyard would be probably ideal.

Attractive areas in DC that are popular for tourists and business travelers would be have good for demand year round.

And then hopefully, if it makes money, you can reinvest that cashflow into traveling to your beach town and pay for your travel there.

The biggest mistake I see most STR operators do is they buy in far away places that they like to travel to with the idea that they will use it for themselves and then rent it out.

I think the better option is buying an investment that pays for your travel to whether you want to go that you can have the optionality of going wherever you want when you get the travel itch.

@Gabriel Rinato If you are moving, then why bleed out $21k+ in taxes and insurance alone just to save a few bucks on capital gains taxes if you have to wait to sell (not sure where you are on the time line)  I guess you have to perform the calculus there and talk to your CPA to come up with the ideal scenario.

Option 1, presents a bare minimum negative cash flow of $8500 a year if you rent for aforesaid amount of $3500 a month.  The annual debt service on a 30 year mortgage at 7.5+ interest is $29k per year.  Also there are many more expenses than just insurance and taxes.  Think repairs and maintenance and cap ex etc.  Plus having one property in an area you no longer live is just going to occupy mental real estate as long as you hold it and the juice isn't going to be worth the squeeze!