All Forum Posts by: Sam Grooms

We actually decided to finish the flip ourselves. 

First, even if there is demand, does the project make sense? If cost of living is low, how are you getting a good return on investment, with construction costs so high right now? Are you getting a deal on construction? Are you getting affordable housing grants from the city/state? Usually, new construction is going after the higher class rental market, for the project to be feasible. 

If there are only 8 apartments, you can likely do the study yourself. I would contact the property managers and ask for occupancy history and rent history. If they're smaller operations and don't have this readily available, maybe you can get copies of their historical rent rolls and create it yourself. 

Usually you'll want information on new construction permits, completions, absorptions, etc as part of your market study, but it doesn't sound like you'll have any of that in this town. I'm not sure how helpful a traditional market study will be. Look for multiamily advisors in your nearest big city. You can engage them to perform the study, but find out exactly what they'd be able to do for you, first. 

Our exterior paint quotes came in $15-$20k under budget, so that'll help offset the possible increase in HVAC costs. 

@Robert C., I'm very curious to hear people's thoughts on this. 

Another theory I've had for Phoenix (it sounds like this wouldn't hold for the Bay Area), is that the fundamentals have only gotten stronger over the last year. Phoenix rent growth is projected to be higher this year than the last two years. We're seeing some of the strongest population and job growth in the country. New construction hasn't caught up, and occupancy is still at all time highs. 

As for the country as a whole, I'm not sure why cap rates haven't started to move. It could be that there's still so much cash out there, people are willing to accept lower and lower returns, so that it doesn't get eaten up by looming inflation. 

Thanks! 

Budget to hire professionals, they can be worth every penny. 

For the offering, get an attorney that specializes in securities, not just one who has or can do it. We used Jillian Sidoti, and she was great. 

You'll also need a real estate attorney. We had a few last minute items come up from the lender, and we never could have closed on time without a great real estate attorney. I've seen deals fall apart because they weren't able to close on time. Which brings me to my next piece of advice. 

Hire a due diligence team. This can usually be done by your property manager. If they don't offer that service, you might want a larger property management company. You'll still walk each unit with them, but their experience is invaluable. 

Put extensions in your contracts. We didn't need it (we closed early), but we had a 15 day extension built in to the contract. It would have cost us $50K in nonrefundable earnest money, but if it saves the deal, it's definitely worth it. 

Use a mortgage broker. They might seem expensive (probably the most expensive professional you'll hire, depending on the size of your loan), but its their job to make sure that loan closes. In today's environment when you usually don't have a specific finance contingency, just think of this cost as extra insurance. 

Get your financing figured out between the LOI being accepted and the PSA being signed, if possible. We spent the first week after the PSA being signed still figuring out which lender we wanted to go with. By the time the application was in and they got started, we were two weeks from contingencies going away and our money going hard.

You can see that 4 of my 6 lessons deal with hiring professionals. Just factor their cost in to your numbers. 

I'm sure @Ben Leybovich also has some good lessons. 

What are you studying in college? Do you already have a job lined up? 

If you want to eventually do commercial real estate, I'd go into commercial real estate right out of college. Whether that's underwriting for a bank, an analyst for a services company like Cushman & Wakefield, or even a broker. All of those will help build knowledge, confidence, and credibility. 

 I get the sense you didn't read my entire post :)

I'd argue that its 10x harder to build value now, than in 2013. How could you not build value by buying in 2013?

If the seller was given the property today for free, and you told him he could have any increase in value on the property over the next three years, I don't think he'd change a thing. 

When I said he was not sophisticated, I meant in the sense that I don't think he could do what it takes to build value in today's market. That's not an insult. I'd happily switch places with him. Hats off to him for the tremendous gain he just realized. 

That's awesome. Congrats!

@Ben Leybovich, I love it. These last two posts clearly show the differences in how we think, and which one of us has a Bachelor of Science and which one has a Bachelor of Arts.