All Forum Posts by: Sam Grooms

Again, if you're buying at a 14% cap rate, yes, you can get 20% cash on cash. If you're paying $30K/door, yes, you may be able to get 20% cash on cash. 

Overall, it just sounds like we invest in completely different areas for the most part, which is fine. 

At a minimum, you need to understand what's in those documents so you know what options you have as an LP should things go South. If you're not comfortable reading through them on your own and understanding them, then yes, you should have an attorney read them for you. If I had to guess, I'd say about 10% of LPs go this route. 

As for fees, there's no easy way to answer that. Some attorneys charge $200/hr, some charge $750/hr. Some can probably get through these documents in a few hours, while others might take a day. Some will have comments/questions that you go back and forth with the Sponsors on, while others will just say nothing out of the ordinary in the documents. 

How I got into real estate and now apartments:

https://www.biggerpockets.com/renewsblog/left-high...

My first large multifamily:

https://www.biggerpockets.com/forums/223/topics/60...

 Yes, you're right. If you can buy at a 14% cap rate, you'll be over 20% cash on cash once its leveraged. 

No, I wouldn't include a cash out refi. I have no problem getting 20% cash on cash when I have no cash in the deal. I'm talking 25%+ down (likely more today, with where the market is). I should also clarify that I'm typically looking at 100+ units, where you're dealing with more sophisticated sellers and a more efficient market. 

Did you mean to post this in the Multifamily section?

 I'd love to see a deal you bought in 2018 that has 20% cash on cash with a normal capital structure. 

@Tyler Merritt, my only assumption was that the property didn't have any Other Income. If it does, then that would only decrease the $2,000 I mentioned (I should have been more precise and said $2,300). 

As for my calculation: 

Scheduled Rents: $96,000 ($500 rent x 16 units x 12 months)

NOI: $58,625 ($875,000 Asking Price x 6.7% cap rate)

The difference between those two is $37,375, or $2,336 per unit. That $2,336 makes up Other Income, Economic Vacancy, and Operating Expenses. For this discussion, let's assume other income and economic vacancy offset each other. 

(I'm going to get a little side tracked here, but you'd be surprised at how often this is the case for a stabilized property. Check out this property @Ben Leybovich and I underwrote this week. Once its stabilized, GSR and GOI are fairly close to each other, meaning economic vacancy and other income are practically offsetting)

Anyway, back to the topic at hand:

Typical operating expenses for larger properties are $4,300-$5,000 per unit per year. I can subtract about $300 of that due to the change in management [less in payroll (now zero), more in management (from 3% to 10%)]. I can subtract up to $900 if there is no utility expense (there will likely be some for common areas on a 16 unit, but let's assume there's none). That would leave $3,100 in expenses. 

If your operating expenses are in fact $3,100, that would take your 6.7% cap down to a 5.3% cap. When you see extremely low operating expenses like that, it's important to go over them in detail. It'll be more about what's missing, than what's included. 

I know what R&M should be ($450-$550). If I don't see that in their T12, are they booking some of their R&M as non-operating to prepare for sale? Or are they just not performing R&M and there's a lot of deferred maintenance? (While both of these scenarios would decrease your purchase price, and increase your operating expenses in your pro forma, the latter would further decrease your purchase price).

I would go through the above process for each expense category. 

 If true, that seems like a pretty imbalanced market. Exponentially greater risk, with no premium for that risk?

You're finding 20% cash on cash for class C multifamily? Sign me up.