All Forum Posts by: Russell Gronsky

@Fran Arti, I'd be careful about banking on a 30 year AM. You should consider what the numbers look like on a 25 year AM and a 20 year AM as depending on what kind of loan you get, the lender might offer one of these scenarios and you'll need to be prepared for it.

As for cash flow not supporting the price, the analysis you're showing here will help you negotiate the price down to a reasonable number...maybe. Important thing is for you to understand when you see this and stick to your numbers, don't reach.

Also, I know you're just practicing with underwriting so you're grabbing the first thing off loopnet to crunch some numbers but when you start filtering down to your target market, you're going to want to know how the taxes will work and what the mill rate will be so you can calculate accurate tax figures.

You'll likely also need 10% of loan amount in liquid funds post closing so factor that into how much money you need to bring to the table, in addition to the down payment.

If you plan on syndicating, definitely need to practice calculating IRR and CoC based off different splits and prefs/no prefs. Your closing costs (and hard costs prior to closing) will also vary quite a bit depending on if you're syndicating or not.

Finally, you'll want to practice calculating your exit strategies as you probably know, commercial loans are usually somewhere in the 5-12 year term even if the AM is 20, 25 or 30 years and numbers will change depends on how many years of IO you get, if any. What will a refi vs a sale do to your numbers and how many years after purchase? refi will run you 2%, sale will hit you for 7 points on average. 

Hope that helps.

Why do syndicators focus so hard on IRR? If you have a specific return you are targeting, wouldn't PV be a better metric to calculate?

@Enrique Huerta makes sense. Uncertainty is all around so they are cautious, as they should be. But this does present an opportunity for someone else to get into the space.

@Evan Polaski that is slick, offering ownership to the management company. Never thought of that. I definitely see some cons to this approach, as you mentioned, but is absolutely a worthwhile option and something to explore!!

@Greg Dickerson thanks! It was the video on your YouTube with Grant Carson’s that got me thinking about this.

@Erik Whiting, you’re right on the money about wanting 300+ units to start because there is enough there to support a full-time staff. There are other benefits to doing big deals and frankly, I’d do a 1,000 unit deal if they would let me. Even 5,000 units, the more units, the better.

And like I said in my original post, I know there are institutional players in this space but they are also looking for stabilized assets. Yes, they are happy with a 4-5 CAP asset that is stabilized. Are they buying value-adds? I honestly don't know the answer to that question but I suspect the appetite isn't as strong for value-adds from institutional money?

I've been a residential investor for 15 years and 2 years ago, I committed to moving over to multi-family. However, I'm struggling to find my place. So far, I've identified 4 ways to finance apartments:

1. Buy the building yourself or in a JV

2. Syndicate

3. Owner carry/owner finance

4. Some combination of the 3 options above

I like #1 above, but then my partner and I have enough net worth and down payment to only afford about 50-60 units. I want to do 200-300 right away. But again, the 2 problems are net worth and down payment. 

Syndication can get the funds raised but again, how do you get enough collective net worth to cover the loan amount? I'm probably missing something in my understanding of commercial loans?

Owner carry sounds amazing but will definitely be harder to find, especially on these bigger deals where there is possible interest from institutional investors (depending on condition of property of corse). I want a value-add so might not be competing with many institutional guys but there are enough people buying now that will definitely be some competition.

So for those of you who got into apartments and took down 200+ unit deals for your first one, how did you do it? Even if you're syndicating, those who are signing the bank note have to have a net worth to cover the value of the loan, right? Is it really that easy to find partners for your first deal who have a collective net worth of 20+ million? Are there other options on how to get around the requirement to have enough net worth to cover the loan amount (I understand you can be just slightly under the total value of the loan if you're a high income earner)? 

@Enrique Huerta, thank you for the excellent breakdown! That is super helpful. RedIQ definitely has my attention, especially if I can dump the mess mom&pop owners provide as their "books" to an analyst to input for you into RedIQ!

I have a "sniff test" i use that can indicate if I'm in the ballpark of asking price with some basic numbers within about 4 mins. But if the sniff test says I'm in the ballpark, I then have to do a deeper analysis, which takes more time than I care to spend on a deal that will still likely end up not going anywhere. So if this software can keep me from having to spend 45 minutes or more doing data entry, I'm very interested.

@Joseph A. I like REIA Pro because it sounds like a very savvy, advanced version of spreadsheets I've gotten over the years from various investors.

I’ve not used it myself but I do have Galinelli’s books

and I love them so I’m sure the software is solid.

@Joseph A. No clue. Those two I mentioned are the only ones I found that claim to be able to ingest spreadsheets but from some reviews I’ve found, they claim RedIQ works about 70% of the time to eat financial statements, the rest of the time, you still have to enter info manually. Not really surprised since every accountant sets up their books slightly differently...and then there are the owners who don’t do good bookkeeping and I wouldn’t expect any software in the world to eat their financial “reports”.

How much did they say it costs for RedIQ? Have you looked at The other software as well?