All Forum Posts by: Theo Hicks

Hi Tyler,

You want to base your expense assumptions on a combination of the current owner's T-12 and the market $/unit per year expenses. You can obtain the latter from either your real estate broker, property management company, or by purchasing the information online. I think the best approach is working with your property management company to come up with expense assumptions, since they are the ones who will be managing the asset.

@Joon Kim I agree with you in theory for sure. But I would imagine that the syndicators' reputation would take a hit if they are perceived as stealing other people's investors. Key word being "perceived". 

@Danny Randazzo appreciate the shout out!

@Stephanie Martinson no problem. We've all been there. This is probably controversial advice, but if you are the kind of person who suffered from paralysis by analysis, it might make sense to just jump into a deal, especially if it is a house-hack since the down payment is lower. That's what I did for my first deal and I probably wouldn't have gotten into real estate if I hadn't. But it depends on your risk tolerance and current life situation. I was single with zero debt and the capital I used was from the college fund I didn't use.

Depends if you want a paid mentorship or a free mentorship.

If you want to paid mentorship, interview a few coaches. My advice would be to select a coach who is (1) currently active, (2) has a track record, and (3) has a do it yourself system. 

Finding a free mentorship is more complicated. Essentially, you'll need to find a way to add value to a syndicators business so that it is worth taking you on as a mentee or employee. To add value, you'll need to get creative. For example, I offered to help a syndicator grow his brand for free and our relationship has grown from there.

Determine the costs of the renovations (either from your experience, your property managements experience, and/or a general contractor) and determine how much you'll be able to raise rents. Use the new cash flow and the overall down payment to calculate the return on investment.

Add 15% of the overall renovation budget as a contingency.

Generally, multifamily is valued based on the ratio of net operating income to market cap rate. Net operating income is income minus expenses, excluding debt service. Net operating income includes all revenue losses like vacancy, bad debt, loss to lease, etc. 

If you want to calculate the as-is value, you use the current net operating income. If you want to estimate the value at a latter date, like after you've acquired, renovated, and raise rents, you will need to use your own income and expense projections. 

If you want to find out the unit type breakdown for an off-market deal, you'll need to ask the owner or management company. If it is an on-market deal, the unit type breakdown is in the offering memorandum. If you are trying to get the unit type breakdown for random properties, you'll have to ask as well.

1% doesn't take into account adding value. If you are going to use the 1% rule, you should use purchase price + rehab costs and the new rental rates. 

Even better is to create a pro forma based on your income and your expenses. This should be a yearly breakdown at minimum. That way, you can see how much cash flow you will make each year.

Hi Joon,

Most of what I have to say echos what @Brian Burke advised.

1) When speaking with syndicators, determine their role in the deal. If they say they control $100M in apartments, did they find, underwrite, and asset manage the deal? Did they raise the majority of the capital? Or did they raise a small portion of equity and that's it. Major difference

2) A lot of GP's will have other people help them raise capital for their deals. However, this shouldn't impact the magnitude of fees. If the main GP is getting help with raising money, they should give up a portion of the GP rather than charge any extra fees.

3) If one of these "third parties" found you and you go to the main syndicator and try to invest with them directly, they will likely ask you to invest through the third party. Reason being is that they don't want to "steal" someone else's investor.