All Forum Posts by: Sam Grooms

Capital reserves get taken out as well. Some people include this above NOI, others below. But it's a lender requirement, so you'll need to account for it in your cash flow calculations.

First, decide what you want, then figure out if what you're doing will get you there. Don't feel like you have to move into syndication just because others are doing it. 

The people telling you to syndicate remind me of the investment banker in the fisherman parable. I'll post it below for those who haven't read it. 

Disclaimer: I've syndicated deals. $40 million in acquisitions in the last year. I'm now at a crossroads, where I have to decide if I want to grow into a business, or keep it small and have plenty of free time. It's not an easy decision. 

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An American investment banker was taking a much-needed vacation in a small coastal Mexican village when a small boat with just one fisherman docked. The boat had several large, fresh fish in it.

The investment banker was impressed by the quality of the fish and asked the Mexican how long it took to catch them. The Mexican replied, “Only a little while.” The banker then asked why he didn’t stay out longer and catch more fish?

The Mexican fisherman replied he had enough to support his family’s immediate needs.

The American then asked “But what do you do with the rest of your time?”

The Mexican fisherman replied, “I sleep late, fish a little, play with my children, take siesta with my wife, stroll into the village each evening where I sip wine and play guitar with my amigos: I have a full and busy life, señor.”

The investment banker scoffed, “I am an Ivy League MBA, and I could help you. You could spend more time fishing and with the proceeds buy a bigger boat, and with the proceeds from the bigger boat you could buy several boats until eventually you would have a whole fleet of fishing boats. Instead of selling your catch to the middleman you could sell directly to the processor, eventually opening your own cannery. You could control the product, processing and distribution.”

Then he added, “Of course, you would need to leave this small coastal fishing village and move to Mexico City where you would run your growing enterprise.”

The Mexican fisherman asked, “But señor, how long will this all take?”

To which the American replied, “15–20 years.”

“But what then?” asked the Mexican.

The American laughed and said, “That’s the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich. You could make millions.”

“Millions, señor? Then what?”

To which the investment banker replied, “Then you would retire. You could move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”

I'd argue that it helps multifamily. Marriage rates and birth rates going down, means less people are settling down. We're likely looking at more lifelong renters. 

I would add that it's also a good idea to pay attention to the equity multiple. You can inflate the IRR with an extremely early exit.

You'll have to ask the seller. Extraordinary isn't a specific expense, similar to non-operating. It encompasses a wide range of expenses. My guess is they're using it incorrectly, though, whatever it is. Like you said, extraordinary should not be recurring. Also, it's an outdated accounting term. GAAP has eliminated it. 

You'll want to use Net Operating Income in your calculation, not Net Income. Include all revenue, minus all operating expenses. Basically, everything except for debt service and any other non-operating expenses. 

It's a very small subset of buyers that determine their office pric purely based on a cap rate. Small multifamily mostly gets valued based on comps, even over 5+ units. Large multifamily and/or sophisticated investors price based on their required returns. 

Generally, you'll get lower rent per square foot by doing this. There are exceptions, though. 

This is common for development. There's substantially more risk prior to entitlements, so that equity gets better terms. 

Yes, you'll need a role in the GP, other than simply raising money. 

 Even on a commercial loan? I believe he's looking at 6+ units.