All Forum Posts by: Rick Martin

All good books @Justin Goodin I recently read the one on the upper right, and got a lot out of it.

@Tuli Green the second strategy you are describing is the BRRR strategy for where you buy it (with your own capital, borrowed from a private lender, LOC etc), rehab if necessary, rent it, refinance, then repeat. When you can pay cash like this to the seller, it positions you better in negotiations. A seller will, theoretically, give you a better price if you can close quickly. You typically need a "seasoning" period of 6 to 12 months of stabilized rent to satisfy the bank and the appraisal. Then yes, in your scenario you could do a cash out refi of 75% LTV of your new ARV (after repair value), and repeat the process.

@Parker Stone in our last two deals we had an 8 pref, and as returns rise above this, those cash flows go towards paying the LP's back their original investment. Then at a refi or sale, the first proceeds are paid back to the LP's to pay them back in full, and that is when the split occurs, and the promote kicks in. Thus, the GP's do not share any of the proceeds until the LPs have their original investment back. So I guess we are European! Of course the GP's do earn an aquisition fee, and asset managment fee. 

@Ty Martell even though a small MF would be based on the comps, it definitely doesn't hurt to do a good financial analysis and divide that NOI by the prevailing market cap rate.

@Alysha Johnson I have heard that Mesquite can still offer some good value. Since you are from the Atlanta area, that gives you an unfair advantage there as well. How much of the work do you really want to do? Take it on full-time? If not consider investing in some syndications, passively. Then the entire map is open. We tend to focus in the SE and Texas.

@Joe Boyer yes there are books on how to vet operators, and plenty of market data to vet your market, so I will throw in a few deal specifics that I think people should look at, once comfortable with the team and the market.

Deal fundamentals - 

What is the cost basis? Did they get a good price/unit, or did they overpay? Can the deal stand on its own without the incredible financing that we are seeing? 

How achievable is the business plan? Are they not overspending on the renovation budget? Are they not shooting for the moon when it comes to rent increases?

Where do the rents land in comparison to the comps? Are they still around the median after renovations, or are they attempting to set the bar? Be careful if you are at the top.

Is there a good balance between cash flow and profit at the sale or a refinance if it is a value-add? Cash flow is realized income during the life of the hold, and if you are solely banking on the upside, you are increasing your risk and waiting a long time before you can evaluate the performance.

At this point in the cycle, sometimes deals are made and now found, so it doesn't hurt to have some good financing. What are the terms? Having 36 or 48 mo's of i/o can boost cashflows. Is it floating debt? Did they figure in future rises in interest rates? Did they purchase a rate cap? Are there line items on the t12 that missed a value increase (ex. RUBS, green program)?

Is the project well capitalized? Does it have a proper operating budget, renovation budget, replacement reserves? This is important with C class.

Did they include a refinance in their underwriting? That adds to the future uncertainty and can undoubtedly boost returns.

I'll stop now. Sorry, just had coffee.

@Dennis Yosco you are well on your way. It sounds like you want to bring in an equity partner/mentor who not only has operational experience but loan experience as well. Make sure you have correctly accounted for a new tax assessment, insurance (costs are up), renovations (costs are up), operating budget, and reserves. And yes, as Taylor says, make sure it is feasible to syndicate a building that size as legal fees are not cheap. Once everything is air tight, put a professional prospectus together highlighting the strengths of the market, deal, and most importantly you. From what I can tell, you bring a lot of value.

@Adam Bielous let me know how I can help.

@Jaclyn Spinelli unfortunately insurance is one of the line items that has gone way up since COVID. The price of lumber and renovations, in general, have also increased, so build your margins accordingly. Yes, I would continue to call insurance companies. Try to reach out to local REA's or network with folks local to you here, and maybe someone can give you a good recommendation.

@Rita Merlo find out if your competition in your area are doing a utility bill-back. If so, implement one yourself. If it is the case, give them notice, and if they start to call on the competition, they’ll find out that it is standard and they’ll stay put. It also has a green effect, because they will start using less water, once they find out that they are paying for it. If you just plan on raising the rents, again see where your competition is. You don’t want to set the bar for being the highest rent among the comps. If anything you want to be in the middle of the pack.