All Forum Posts by: Reed Rickenbach

I live in Memphis so the rent-to-price ratio is probably more favorable than your market. I have flipped 11 homes in C areas so far. There seems to always be a buyer here in any area of the city due to rental returns. 

I'm with you on those principles for buy and hold. But the question was about flipping. In that case, factor those variables into a discounted sale price.. I only buy and hold in areas I'd live, and I take quite a bit of qualitative data when making those decisions. Flipping is mostly quantitative in my process. 

In Memphis you're still seeing 5-10 investors offering on every property.. although the winning bid is 10-20% lower than it would have been early 2022. Plenty of competition still in the market but no one making the crazy offers they were early last year. 

I just finally started buying again with a 6 plex under contract from a wholesaler. Early 2022 there is no way I would have been the winning bid at this price. 

What is the projected CoC return of the syndication? If the bulk of the return is in IRR you're going to be paying that HELOC on your own for the next 5 years. Is your HELOC variable?

You either invest with cash, get a CoC return of 5% (I assume) and IRR of 12-14% (I assume)

OR

You invest with HELOC, taking variable rate risk and get a 0% or negative CoC return & a 7-9% IRR if your operator gets the sale price they're aiming for.

As a one-off I don't think it is a huge deal but I wouldn't get in the habit of collateralizing real assets for these especially at variable rates..

 I think you're in a perfect spot to bring it up. Don't worry about it being offensive or anything - it is not offensive to ask. Worth the ask!

Are you looking to house hack?

Just thinking through this personally, I'd hope one of my residents had done enough research to confirm whether or not it is even plausible for them to buy. If someone called me wanting me to walk them through it and give them a deal, it may be a harder convo!

You never know until you ask..

A lot to comment on here. 

Properties already purchased: I think the repercussions of the rate increases will differ property-by-property. Some operators may have floating debt, some don't have adjustments until 2026 and beyond. Those with floating debt & lofty market rent growth proformas will likely be in a negative cashflow situation as early as this year. I haven't found any concrete data on what % of properties have lofty rent projections + floating debt.. Could be 2% of existing multifamily or 25%. Not sure where the breaking point is. BUT it is likely that any "bad operator" inventory that hits the market due to default will be bought up by good operators at a discount.

New acquisitions: Short and sweet. I HOPE operators are underwriting at current debt cost levels, moderate to flat rent growth in the next 1-3 years, and exiting at a higher cap rate than purchasing. Of course this would support a lower purchase price than when rates were at 3% and new leases were trading out at 25%+. 

Rents: I have seen OFFERED rents in the sunbelt down 15%+ from last year. This is different than the rent roll or existing rents down 15%. The FED is aiming at getting the cost of housing down and it is working. Where the bottom is for rent declines, I have no idea.

I'd recommend getting a job in real estate. You could do paperwork at a real estate brokerage, etc. Just get around real estate and get some tax returns under your belt. Try to ignore the overnight success stories or other 18-year-olds that tell you that you don't need a job. 

If you're around real estate daily and you have a paycheck, you'll find yourself in a deal faster than otherwise.

Following

 Collateralizing your only retirement savings to buy real estate with debt. Dave Ramsey's blood pressure would be very high right now.