All Forum Posts by: Ryan Daigle

I wouldn't focus too much on the cap rate in this situation. It's a useful rule of thumb for judging value at a very high level, but once you're in the weeds you need to look at the expected performance of the property vs. the cap rate. Underwrite at a detailed level and come up with a purchase price that works for you. Don't be beholden to a cap rate.

Hey @Mark Lovejoy. Wow, 40% annual return for your HML. I bet he would do that!

That's pretty rich, but if your business plan supports those cost of funds then it doesn't mean it's a deal breaker. But if you work your network and local investing scene, I suspect you'll find much less onerous terms than that.

Hey @Mark Lovejoy, Can you be more specific with the options on the table?20% interest seems punitive, but you might be referring to equity share there. The origination fees, IO period, delayed payment, and other terms also factor in here.

Hey @Tom Keller, you're probably going want to use the same playbook as any other region to start: county foreclosures, distressed seller lists from ListSource, auction sites, and don't give up on the MLS too.

What have you done to date and what has your experience been like?

Hey @Mike B., I think you have an asset class problem. You’re wanting high yield returns from an asset class (multifamily) that is more of a balance between appreciation and yield.

If CoC is your investment goal, then you should probably focus on MHP and maybe hotels (once we're out of the COVID mess)? Those asset classes offer higher yields.

Getting 12-20% will still be quite challenging, but at least you’ll be looking in the right place.

Hey @Shawn Thomas. I wouldn’t expect 100% occupancy for any property. You can hope occupancy stays at 100%, but should plan for at least 10% total vacancies (with short term closer to 20% as @Greg Dickerson and I are doing).

The other thing you will need to confirm is does 100% vacancy mean there’s a body in 100% of all units (physical vacancy) or you are collecting 100% of expected rents for 100% of the units. Many times landlords will stuff their rent roll with bad tenants just to show 100% physical vacancy. But these tenants are often frequently late, or skip town owing back rent, so your economic vacancies would be quite high.

But no need to be Chicken Little either. If it’s a well-maintained B or higher property in a good neighborhood and strong market charging slightly below market rate then you can plan for above market occupancies.

Also keep in mind the rent roll is a snapshot of a moment in time. Is it possible to show 100% at one particular day? Sure! But don’t extrapolate that out another 364 days in your underwriting.

Cheers!

@Gitit Hefetz look at you trying to time the market :)

I wouldn’t necessarily invest in a long-term asset class like MHP (or any commercial real estate class) for a short term disruption or even several quarter recession. The fact is the long term trends of a shortage of affordable housing is only increasing, in any market climate, so MHP is probably just as attractive today as it was one month ago (same for multifamily).

Of course, I do hope this current disruption flushes some money out of the system so prices can contract a bit and there’s less buyer competition. But that doesn’t change my affection for any given asset class.

Good luck!

Hey @Alejandro Antonio Taylor JR. Others have already spoken to the need to let your own goals and underwriting dictate the offer price, not the seller’s list price. I agree with this.

To the other part of your question – if there’s a meaningful gap (greater than 10%?) between your offer price and the ask, use the broker to get a sense for what the seller will consider. You don’t want to offend the broker/seller by submitting what they think is a lowball offer, but you don’t want to mis out on a good opportunity either. So contact the listing broker and ask questions like “what pricing guidance are you providing?” or “what’s the whisper price here?”.

You can also ask the broker why the seller is selling to get a feel for the seller’s motivations. If they’re trying to 1031 into another deal they’ll be more motivated to sell quickly which may impact your ability to drive a deeper discount.

Hope that helps!

Hey @Andy Wilson, didn't mean to be specific to the PPP. The EIDL program has similar constraints, from what I've read.

@Grant Pope if you think creating an LLC for each property is a lot of administrative overhead, then I have bad news for you about creating your own fund! :)

If your investment partners are equity holders, then an LLC for each is the best route, sorry. If they're debt providers, then you might be able to get a securitized loan from each, personally guaranteed by you, but I wouldn't recommend that either.