All Forum Posts by: Rick Martin

Do you genuinely want to be a landlord and have the time to manage a real estate business? Maybe a house hack can help you answer that question. Going this route, I don't recommend sharing walls or floor/ceilings, especially if you plan to have children. Ask me how I know.

People often believe they want to get into the real estate business and find out that finding deals, getting qualified, and then dealing with unruly tenants isn't all that is cracked up to be. They find out that it's the cash flow, appreciation, and ability to take advantage of the depreciation they like(which can be accomplished by investing in syndications).

Both have that "BRRR" potential, where you can potentially pull your principal back out and redeploy.

If house hacking is part of a bigger plan, I say go for it. If not, consider starting to build passive income streams by investing in our first syndication.

It's a timely topic for sure. From a historical perspective, floating rates exceed the conservative, fixed-rate debt structure in terms of ROI, depending on risk tolerance. Our latest deal has a Freddie Fixed for 10 years and low leverage. While it does provide some peace of mind, it does limit us in terms of disposition, but it doesn't handcuff us. Our business plan takes a little longer to match the debt, and when we succeed and increase the value as we intend, we could seek a supplemental loan. The prepayment penalty steps down significantly by year 5, so if we choose to sell in year 5 or 6, we can take the prepayment hit and still exceed pro forma.

I wouldn't write off looking at deals using the bridge debt structure. How do we contend with the uncertainty of floating rate debt? We build in the SOFR curve (future projected interest rate curve) and pad the spread (what banks are charging) by 25 to 50 basis points. Even after this, we have a reserve for a rate cap in addition to our other reserves. It's a lot of reserves, but we've been able to get some deals to pencil this way.

The takeaway: fixed allows you to sleep at night but does limit the upside and restricts your flexibility. Floating-rate can still let you to sleep at night with the write protective measures built in and be a better match for your business plan. I do believe when we are looking to refinance in 3 to 5 years; rates will have come down from where we are (based on the historical FED funds rate curve).

The two major components in MF is either finding / running the deal, or finding the money. For the former, are you good at financial modeling, analysis, broker relations, or operations? For the latter, are you a skilled marketer, content marketer/developer, CRM wizard? Lots of areas for you to add value.

@Grant Spruill Do you want to operate (acquisitions, asset management, disposition), or would you like to syndicate and raise capital (raise capital, build a platform, due diligence, stay compliant, investor relations, educate investors, marketing)?  Essentially to you want to find and run the deal, or do you want to find the money? Allocate most of your money to your main focus, but be educated in all the other aspects of the other as well. Conferences, masterminds, meetups, books, podcasts can often suffice for the latter.  

I am no attorney, but I would think you could form a single-member (disregarded ) LLC.

Ezra - I think it is wise to do a one-off or even a couple deals before settling into a permanent team- the dating before getting married scenario. You can get a feel for how each other's skill sets fit, and how dedicated each member is. A rapport should definitely be well-built prior to doing the first deal. You can find these potential partners at meetups - live and virtual, joining a mastermind, and at RE conferences as well. 

I am not sure you could fetch top dollar with the cost of borrowing so high.

Underwrite at both current and market rent, and get an understanding of what value could be added. Start the negotiation at current rents, and have a strike price that you won't go beyond, knowing what you can operate it at.

Are we talking smaller or larger MF? If you can get deals to pencil without pulling any fools gold (high rent growth, low exit cap) you keep making offers. Re-trades are happening. It is becoming less common to get deals to pencil but if you can get the right debt/equity structure, deals can work.

Yep Jen if you want to remain passive, investing in syndications is the way to go. Just make sure to look for 506b offerings (accepts non-accredited), and start to interact with the syndicator. They cannot offer something to you without a pre-existing relationship.