All Forum Posts by: Matthew Drouin

Eva, trying to answer your questions here that you dropped in the thread.

1.) In regard to the best interest rates, the market is pretty fragmented so it's best to check around wherever you are looking to establish your foot print. For your first commercial deal, your best home is probably going to be with a local community bank or credit union. Join a local facebook RE group and ask who the best commercial lenders are and ask for a point of contact instead of just the name of the bank. Not all loan officers are created equal so if you call up a branch, you are likely to get assigned someone inexperienced. You'll find that interest rates will vary from bank to bank. If it's a matter of a quarter point but the more expensive debt is with a bank that offers better other terms like amortization and LTV, and they have a rock star loan officer, I'd go with the slightly higher interest rate product.

2.) Profitable and stable are two words that have a negative correlation.  It's a matrix where you'll want to find something that is on the spectrum that is in alignment with your risk tolerance and understanding.  Multi family is the most stable but also is more profitable than Single Tenant Triple Net Lease properties.  This is something I would have to dig into your background on to properly advise on which asset class might be better for you and also how much management intensity you desire and/or can handle.

3.) Percentage down. Typically speaking 20% down (80% LTV) is the bare minimum that commercial lending requires. 10% down is unheard of unless you are getting a great deal and negotiate some small seller financing in second position or getting an SBA Loan for acquisition where your business will occupy over 51% of. The other thing to consider is that a bank might do 80% loan to value but also require a Debt Service Coverage Ratio of 1.2. Which is its a low cap rate deal, you might need to put 40% down in order to meet the banks DSCR loan covenant. I've done deals like this where I've had the seller hold a small second, subordinated to the banks 1st position mortgage, with payments to the seller deferred until balloon payment which I make coterminous with the bank's mortgage.

4.)  Additional Fees.  Yes there are expenses other than a downpayment.  You'll have your standard recording fees and mortgage tax, etc.  But you'll also have a bank attorney fee, your attorney's fee, a commitment fee (sometimes equivalent to anywhere between .25% to 1%, appraisal fee, environmental fee.  One slick trick that I've used on reducing the mortgage tax is, I'll see if I can get the sellers bank to assign the current debt to my bank and consolidate it with the new debt I'm putting on the property.  This has saved me hundreds of thousands of dollars.

@Carini Rochester I agree with Greg but to be clear Good Cause does not require a landlord to provide free housing, it just forces them go through the onerous and expensive and lengthy process of actually going for non payment eviction instead of a hold over proceeding, when the landlord knows that a monetary judgement is worthless and just wants possession of their rental unit back so they can fix it back up and rent it again hopefully to a great tenant.

Also the problem with all this is that from 2019 to now, landlords have gotten used to having economically or physically vacant units and have priced that risk in.  So I'm seeing units being held back for longer... sometimes months to find a qualified bulletproof applicant.

@Bonnie Griffin Kaake all of those will be on the table and be rigorously discussed as we chart our way forward.  I'm friends with one of your colleagues at CSSI Brenda Reding.  You guys are the best!

Unfortunately Good Cause Eviction passed last night in the city of Rochester, NY.

I want to thank Council Members Lashay Harris and Michael Patterson for doing the right thing and voting “NO” on this largely performative legislation…

that will only TEMPORARILY protect a small handful of city residents living in EXTREME under market rental units…

But it will have broad and adverse negative consequences for the WHOLE community.

(So please thank them and also support them 💰💸💵 because their vote was not popular… but it was right)

It’s not the end of the world but it will fundamentally change how you run your real estate housing business.

✅ First and foremost, holdover evictions will be illegal. Meaning you cannot just evict a tenant because their lease has expired.

You will have to build sufficient evidence admissible in court and to the satisfaction of a judge to prove good cause to get a warrant of eviction.

Many housing providers kept high risk tenants on month to month leases so that if the tenant stopped paying rent, you could simply give them a notice to vacate and recover possession of the rental unit that way.

The reason for this methodology was because the HSTPA of 2019 passed in NYS made it extremely onerous and costly for housing providers to evict due to non payment.

That method under good cause will be eliminated.

So you can still keep tenants month to month but you will need to document the lease violation due to nonpayment rigorously.

How many times and how late is “good” enough?

I guess we will find out when the implementation of the new law occurs and then is tested in court.

Nevertheless, written documentation will be your friend.

✅ Secondly, good cause has a max cap on yearly rental increases at a certain margin above CPI or 10%, whichever is less.

For those of you who own stabilized, high quality housing like we do, this shouldn’t be a problem.

But instead of keeping rents flat because you are a nice person or increasing just a little bit, you could get yourself in trouble when it comes to funding future major repairs and capital expenditures.

As long as you are increasing to what the market will bear, you will be in good shape.

Also if you are looking at purchasing blighted, dilapidated housing with the intent of raising rents and financing improvements to the property, you will have to take this into consideration and buy accordingly and on in place rents not projected rents.

On the implementation side, however that pans out, you might be able to get these necessary rent increases to finance repairs but you may need to go to housing court in order to get the green light but we are just not sure at this point and remains to be seen.

✅ Thirdly, in regard to objectionable tenancy and nuisance caused by disruptive tenants, you will need to document these violations with undeniable evidence.

Because police reports are not usually able to be procured due to disturbances like drug trafficking or domestic violence, you’ll need to take matters into your own hands on producing that documentation.

I recommend getting security cameras installed in all common areas and outside your properties.

I’ve used SimpliSafe security cameras but you’ll need to install WiFi service at your properties so that you can maintain recordings in the event of violations and add to your lease that any tampering with said cameras constitutes a lease violation as well.

This is still developing and once we get further clarity, we will host a round table with legal experts on how to best protect our properties and residents.

@Carini Rochester there’s a huge critical mass building at four corners.  Going to take some time but I’m hopeful to help make downtown a place in excited to bring my kids to and for them to know their dad played a small part!

@Ambica Pilli Couple of questions, from 10 units to what's your realistic max?

What have you tried so far?  I've been an investor for 18 years but transitioned to commercial 8 years ago and the deal flow side of things is way different than 1-4 family residential.

@Anna Smith contact Alvin Schein esq

212-935-1400

His focus is development in NYC

@Stuart Udis plan A was to reposition as small office and keep it that way. But when the two elevators went down and we realized we were barely able to make DSCR and weren't cash flowing enough to cover long term major maintenance and cap ex, we had to pivot into Plan B.

in regard to renovating in a partially occupied building, it’s a nightmare.  Dust gets everywhere.

Tim, great question.

We have relocation language in all the tenants leases.  We also own the building next door so idea would be to relocate the tenants to that building after building it out.  Also there is a special tax abatement for office conversions but requires the developer to retain 15% as commercial use.

So we have the option to stack them and consolidate.

Spencer, congratulations on the acquisitions.  Once you can figure out how to buy your second property, then you've started beginning to master scale.

But I have a questions, you said:

"Our end goal is to build wealth over the next several years and leverage that wealth to buy multifamily commercial properties!"

You might be ready sooner than you think.  It took me 11 years, 25 properties and 76 doors to replace my income but when I bought my first larger commercial deal, it replaced my wife's income in one year.  Why didn't I do it sooner?  Primarily self limiting beliefs.

One of my clients just closed on their first commercial deal and they only had one duplex before I started working with them.  Just something to think about.  If you want to get on a one on one, I'd be happy to look at your current situation and give you advice on next steps.

Cheers,