All Forum Posts by: Ryan Daigle

Thanks @Justin Elliott. That -6% makes a lot of sense. And while related, it doesn't even address your economic vacancy expenses. So factor in -6% on your market rents on top of what is sure to be at least a doubling of bad debt, delinquencies, etc... Your collected rents could easily be down 20%+ from what you might have pro-forma'd not one month ago.

Guess we're going to find out which operators had enough safety built into their models here soon...

Thanks @Sam Bates. Definitely agree there is no one size fits all approach to underwriting in any market, but also looking to get a sense for what changes we're bracing for at this early stage. I appreciate your insights here.

What does multifamily underwriting look like now given what we know so far of the impact COVID-19?

I know there are very few new transactions going under contract right now given the huge amount of uncertainty that still exists. It's natural to see both buyers and sellers moving to the sidelines right now. And, any transaction that does initiate will have a 6-8 month close delay (closing guidance from Freddie/Fannie). Still, we're facing a new reality at least for the short term and I'm curious what changes you're incorporating into your underwriting?

Here are the assumptions I've built in:

• Flat to slightly negative rent growth for 2020 and 2021
• Double total vacancy in 2020 (at least 15%-20%)
• At least one year of reserves (Fannie/Freddie may now require 18 months!)
• 20bps/year of exit cap rate expansion (minimum of one percent expansion if hold time > 3 years)

What do you think. Rational? Too optimistic? Too conservative?

Hey @Josh Brekke, ditto to what @Jaysen Medhurst said about being more specific. I can grow your $300K by $1 over the next 10 years tax free – is that what you want? I suspect not!

What sort of annual appreciation are you looking for? Over how many years? Are you expecting cash flow? What risks are you willing to take? Do you want to defer taxes or eliminate them?

Answering those questions will go a long way towards crafting a more relevant response.

Hey @Sri L. It sounds like you're trying to execute a very risky business plan without previous experience? I suspect it will be tough to pull that off without assembling a team custom-built for this specific approach. Any lender, commercial or private, will want to know they have an experienced team managing their funds before handing over millions of dollars.

Kudos to you for seeing an opportunity and thinking outside the box, but what is your background and who will you have to guide you through this process?

I'd echo what @Evan Polaski said about being careful to not just copy something you've already seen.

But once you have your content and structure established, I'd recommend going to a template site like Envato to find a presentation template you can use. They're not going to help with the messaging, but will help with the graphics design aspect of your pitch deck.

Hope that helps!

@William Tomp I would probably speak to a local property manager and ask what needs to happen with the property for it to get to 92% occupancy. You'll probably learn a lot from their perspective on that.

It's rare for that kind of vacancy to exist without some sort of systemic issue. Builders might be the first to get burned when the economy turns, but they're not stupid. They will have done their research before committing to bringing new units online.

@William Tomp I wouldn't want to proceed until I understood what exactly is behind the high vacancies for the area. If it's part of a long term downward trend, then the numbers that look great today can quickly look not so great two years from now.

Do you have that understanding/insight?

@Justin Thiesse yeah... I've been hearing the case for massive inflation for over a decade now, and it hasn't happened. I'm sure if/when it does you'll see everybody and their mother saying "I told you so", but they've been telling us so for forever now and it hasn't come to pass.

You may be right this time, but it's just made me very aware that I don't have the market knowledge or sophistication to place any bets on that being case. Just so many factors to account for.

At the end of the day I do believe that real estate is a good investment for inflationary periods, but it's not what's driving my investment thesis. I try not to get too cute with that kind of thing.

Are you looking to make any specific decisions based on future inflationary trends?

@Christine Mulkins is spot on with seller-financing. Its main benefit is how customized you can make it to serve both you and the sellers' goals. If a 5-year balloon payment isn't in your best interest, then see if you can extend it. Or negotiate the ability to pay for a series of one year extensions at the 5 year mark so you're not locked into selling at that specific moment in case COVID-25 is destroying the worlds' economies then :)

Seller financing is your chance to get creative. Understand the seller's motivations and use them to craft an arrangement that works for them AND you.

Good luck!