All Forum Posts by: Nick L.

I would add that if you are ok with the area it sounds like a solid deal. A rehabbed duplex that gets 3% of the purchase price in gross rents each month should be a good performer.

Oh and by the way you should definitely take the City of Milwaukee's landlord training course. It's free.

@Danny Stern

 4th & Locust is as warzone as it gets. It's the epitome of Class D. 

Nothing wrong with that if that's where you want to invest, as @Dawn Anastasi said. But let's not be delusional about the location.

@Account Closed

"What our company does is sell lifestyle not space"

Very well said. Good tenants have a choice of apartments and pick the one where they think they'll be happiest. Good landlords pitch their product to be more attractive than the competition's.

Yes, that's exactly what I'm saying. It's the same point that @Nicolas Paez made. It's just a simple way of thinking about the ROI on improvements.

Your order of priority should be:

1. Anything that is a safety issue, in danger of collapse or required by your lender or insurance company. For example a hole in the roof.

2. Anything that would make the difference between a target tenant renting or not renting. For example adding onsite parking if all your competitors already have one, or taming a jungle that makes the property look uncared for.

3. Additional work that attracts target tenants and brings higher rents or lower expenses. Rule of thumb would be if the additional monthly rents are 1% or greater of the cost. For example new appliances, dishwasher, in-unit laundry, more efficient HVAC/water heater.

A lot of items are going to be grey areas. For example you might have some older paint that is not terrible but would look better if it was touched up. In that case I would view competitors online or in person and make sure your quality is at least as good as theirs.

@Paul Birkett and @Bill Gulley

Thank you both for your very insightful posts. I've thought about dabbling in notes on the principle of "Eh, in the worst case scenario I end up owning the real estate". But you have convinced me that it's a complicated business and not for the amateur.

@Lior Shaashoua

There's a whole forum for foreign investors in the US. 

The top post discusses your exact question.

Long story short, you can't get conventional financing but there are lenders who will do it. Your best bet might be to work with an international bank with presence in both the US and your country. That thread mentions HSBC but there are others too. For example I know Citi does international personal/small business banking and I'm sure there are more.

30% cap? That is a hell of a slum! Still, that might help you with NMTCs and LIHTCs. 

Here's what I would do in your position:

1. Place an option. If the seller requires serious money, get it with a step-up period. Meaning you only have a little at risk in the first 30-60 days, then you have to put up more to continue due diligence.

2. Build a rough pro forma. Call every commercial lender, mortgage broker and deal financing expert you can find (at least 20) and talk to them about the deal. Position it as a construction deal more than rehab. Most will turn you down - when they do, ask if they know someone who would be interested. If you find one or two who are serious about the project, move forward.

3. Find some credible local GCs who have done this kind of work before. Get some solid estimates of hard costs, soft costs, duration and possibility of lease-up before completion. Build these into your pro forma.

4. If necessary perform other due diligence such as Phase 1.

5. Iterate over your construction and financing models, bringing in other experts like leasing agents as required until your numbers are spot on.

6. If you have or can raise the money, commit to the project and move forward. If not, sell it as turn-key to another investor.

I'm going through similar stages with another project at the moment. Perhaps we can share experiences.

@Stephanie Goodman

That's good provided that the local comps are no higher than 12% cap. I mean you don't want to put $2m into a project - even $2m of OPM - and find it's worth less than that at the end. (I hear that's a common problem with LIHTCs.)

Regarding financing, now that it's getting complicated I agree with @Christopher Telles that you need to be working with a specialist. Loan brokers are definitely a great option. Another option would be working with a co-developer who has specific experience with stacking public financing. 

You mentioned that the seller is a gov't entity. Would they give you a free-look period to tie the building up under contract or option while you build the whole game plan?

@Stephanie Goodman

From your description so far I like the project. I'm betting you could stack historic credits, LIHTCs, possibly a TIF or other local financing, and either the FHA or a commercial note to get you in with little or no skin in the game. You will need collateral though as the building clearly doesn't provide any.

If MI is anything like WI, LIHTCs will be very competitive. Best to make sure your GC or other partner has significant LIHTC experience to get you extra points in the scoring process. Sounds like the area is pretty blighted and will probably score you some points too.

What do you estimate the after-completion value to be and at what cap?