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All Forum Posts by: Matthew Drouin

Matthew Drouin has started 56 posts and replied 392 times.

Post: I need an investor 30 unit multi unit in a prime location

Matthew Drouin
Posted
  • Developer
  • Rochester, NY
  • Posts 403
  • Votes 338

@Justin Reyes the location is outside of my zone of genius.  That being said, I’m experienced in adaptive reuse and those types of projects are going to be very dependent upon deep subsidies.  Even for office to market rate residential conversion.

And even if you are buying the building super cheap or even getting it for free in that case.

The first form of subsidy would be historic tax credits.  Does the building have some type of historic value to it?  It doesn’t need to be an extremely old building to qualify.  Check with your State Historic Parks Office and get their opinion to see if it would be likely to get a determination of individual eligibility.

If it doesn’t meet individual eligibility, does the subject property exist in an area that has historic fabric?  If that’s the case, you could get the area registered and then that building might qualify.

HTC could qualify the rehab expenses of your property for up to 40% in tax credits.

Bottom line, talk to your city and ask which developers have done similar projects to what you have envisioned and meet with those people.  They will be the best advisors or potential partners for a deal like that.

Post: Turning Challenges Into Opportunities: How I Saved My Multi-Use Property Sale

Matthew Drouin
Posted
  • Developer
  • Rochester, NY
  • Posts 403
  • Votes 338

@Dominic Mazzarella great story.  I’ve had several deals like this on the buy side and sell side where the “gremlins” came out and started whispering against my intuitions.  Congratulations on closing the deal.  Even without those challenges you had, it was still probably hard to find a buyer because of the use mix.  Industrial buyers probably didn’t like it because they didn’t want MHP and self storage and vice versa.  So it was going to require more tenacity by you to get the deal sold either way.  Just curious, what did you end up purchasing after and why?

Post: 10% down or 20% down???

Matthew Drouin
Posted
  • Developer
  • Rochester, NY
  • Posts 403
  • Votes 338

@Adam Newman you will want to confirm this with the bank but you can’t take a loan out to borrow for part of the down payment so you’ll need to provide all the funds yourself or have a gift from someone for that which you don’t have.

If you have a gift from someone to bridge the 20%, that would be ideal. Avoid PMI and then go to a local credit union and get a heloc after closing to gift the money back.

Have this as a tool in your tool belt but pursue use of the 3.5% FHA, knowing that you will be at a competitive disadvantage if you are competing with non FHA buyers, then you can call in the favor from your gift person.

Just know that if someone gifts you down payment money, your bank will require them to sign a letter stating that it is in fact a gift that doesn’t need to be paid back.

Post: Advice on Off-Market Apartment Strategies

Matthew Drouin
Posted
  • Developer
  • Rochester, NY
  • Posts 403
  • Votes 338

@Kenny Bao typically I’ve found my work in connecting in off market deals 100+ units has left me spinning my tires.  These are typically ownership groups, not single owner.  So a majority of the ownership groups would want to sell, plus since they are more sophisticated owners usually would sell through a broker to get max price and not sell privately.  I’ve found better results using my acquisition framework in the 10-50 unit space where there is one, maybe two owners.  And even then, the life cycle is generally pretty long from first contact to closing.  Sometimes years.


So I’ve found that leveraging brokers and being super clear on my criteria is a better use of my time.  It’s their full time livelihood to make transactions happen.  

Post: Affordable Housing Development Capital Stack Structures

Matthew Drouin
Posted
  • Developer
  • Rochester, NY
  • Posts 403
  • Votes 338

@Manuel Angeles affordable deals depending on size can have multiple funding sources…. Sometimes 5 in the case of 9% LIHTC deals but all the way up to 15 as I’ve seen in 4% deals.  9% is competitive meaning there’s only a certain amount of projects awarded each year by your states HCR.  4% is not competitive and is usually more appropriate for large projects because 9% will get allocated to projects of smaller size so as to spread the benefit.  There’s also a scorecard that gets released based upon many factors.  Affordable deals do not typically produce cash flow.  The developer makes their money on a one time developer fee of 10% of the total project cost.  Most affordable developers will pay more for a given piece of property but will want to lock it up for two years under a financing contingency so that they can go through two rounds in the event their project doesn’t get awarded on their first round.  That being said, if this is your first go around, partner with a development consultant.  They will typically take a cut of the development fee and it’s worth it.

Post: 1031 fourplex into a single family

Matthew Drouin
Posted
  • Developer
  • Rochester, NY
  • Posts 403
  • Votes 338

@Sung Yu another modality of 1031 is a reverse 1031 exchange.  This is where you find the property and then you can sell it after.  I’ve had many clients do a traditional 1031 and then they feel like they have a gun to their head with the shot clock.  Just one additional option.  Check with your QI about both scenarios.

I did have a client do a 1031, rent it out for two years and then moved in at the advisement of their CPA.  So I know it’s possible!

Post: Architect needed to aid in getting an added space on a 2family property legalized

Matthew Drouin
Posted
  • Developer
  • Rochester, NY
  • Posts 403
  • Votes 338

@Kerry G. very smart to engage an architect.  Some questions I would ask before engaging them officially.

What are the building code requirements for adding this second unit?

Can you give me some example projects you’ve done where you got Zoning Board approval in this same jurisdiction?

Then take the general information you get from that meeting and ask a general contractor about a general budget. Based upon those conservative costs, what's the ROI on adding that second unit from a cash flow and value standpoint? If it costs you $200k to build it, including soft costs, and it adds $200k to the value and $6000 a year in cash flow considering financing costs (Assuming 80% LTV) at a 15% ROI. That to me would be a no brainer.

If it’s much less than that, I would think hard on what your opportunity costs are.

And then make sure that the architect you do engage is experienced on getting variances approved within that jurisdiction.  Oftentimes there is a Zoning Board Of Appeals that is comprised of volunteers who need to review and then collectively approve the variances you are asking for.  An experienced architect will know what to anticipate.  And also having an architect with expertise in your area means that they should understand the zoning code like the back of their hand.  Sometimes complying with one part of the zoning code by making a slight change will trigger another part of the code.  For instance, sometimes they will have a parking requirement for increasing density.  If you have to add another spot, it might trigger max lot coverage or set back requirements from lot lines.

You may pay more for an experienced architect but it’s worth it

Post: Flagstar Bank & LLC Transfer

Matthew Drouin
Posted
  • Developer
  • Rochester, NY
  • Posts 403
  • Votes 338

@Steve Mitrano this thread got bumped up in my feed and looks like you found a resolution but just to add.  Another work around that isn’t discussed much is working on a strategy with your insurance company to protect your other assets in the event of a claim.

But also, it wouldn’t be a bad idea to consider getting the financing into your LLc name with a community bank and pulling cash out if you have substantial equity.

Right now, since the loan is in your name, it shows up on your personal credit report.  Once you start stacking more and more property loans into your personal name, it can bleed into your personal credit worthiness.

This bit me in the butt when I wanted to refinance my own house when rates were in the 2% range.  Since I had a couple million in mortgages in my personal name, I couldn’t do it.  The banks thought I was a dead beat because of my debt to income ratio.  Plus no matter what I did I couldn’t get my credit score above the high 600 range.  Once I did a portfolio refi, I got all those loans off my credit report and my credit shot up into the 800s very quickly.

Post: Cash Out Refinance

Matthew Drouin
Posted
  • Developer
  • Rochester, NY
  • Posts 403
  • Votes 338

@Van Lam I had a client just run into this recently.  Many community banks will give you credit for proforma rents.  The best way to do this is to renovate a unit or two to the specifications to bring it up to market.  This ensures you have a proof of concept to show the commercial appraiser.  You can then get financing either through refinancing the entire debt stack or getting a second mortgage with the same bank that did the first mortgage.  Many times they will hold back the renovation costs in escrow and release once you’ve shown the renovated unit and leased it.  My client bought a 22 unit building and used this strategy and walked out of closing with a check for $800k to perform the rest of the renovations, paid himself back his already expended rehab costs and his entire down payment.  Hope this helps!

Post: Why are a lot of MFH being sold with rents under market

Matthew Drouin
Posted
  • Developer
  • Rochester, NY
  • Posts 403
  • Votes 338

@Robert Quiroz I think all of the factors you have listed might contribute.

So I’m not going to comment on that but I am going to comment on an assumption you made.

If 85% of rents are below market on deals you underwrite then those contract rents are probably THE market rent.

You can’t just go based upon area median income to rent ratio.

First off urban areas are oftentimes street by street, block by block. So relying on 1, 3, 5 mile radius can be misleading because circles can be sloppy.


You also have to go on rent comps.  Perform this research by using the rent comp tool on BiggerPockets as well as FB marketplace, Zillow, Craigslist, etc Also for those 15% of units that are “at market”. How is physical occupancy?  More importantly, how’s economic occupancy via delinquencies? If you are going to test the market with a new standard, be patient.  Sometimes there is value to be unlocked in capturing a discrepancy between AMI to rent ratio but don’t leave yourself over exposed.  Pilot a unit or two with this renovation spec and see how much demand you get from QUALIFIED applicants.  Once you get some market feedback, you can perform accordingly.

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