All Forum Posts by: Sam Grooms

You can generally get more by going to market. You'll have savings by not involving an agent, but usually not enough to make up for the discount you're giving to the seller. 

If you do accept one of these offers, just get them to pay all closing costs. Have the contract read exactly what you're to receive, "net" of any fees. If your sales price is $1M, you're to receive $1M at closing, net of all closing costs and fees. 

First, cap rate and ROI are not the same thing. Second, cap rate is just the relationship between price and income. If I buy at a 5 cap, that was the relationship between price and income at the time of purchase. Now, as I improve the property, my price is constant, but my income goes up. Therefore, my cap rate as it relates to my purchase price goes up. My income is now equivalent to purchasing at an 8 cap. Yes, I can turn around and now sell it for a 5 cap, which is a lot lower, and realize a huge gain. But you can also decide to cash flow, now that your income is up to an 8 cap's income level, if you want cash flow instead of a lump sum (the gain).

As for trying to buy high and sell low, that's just speculation. So while it may be logical, its not a strategy. 

You can cash flow in Phoenix, you just can't buy the cash flow. It must be created. You'll need a large value add to get your sub 5 cap purchase up to a 7.5/8 cap, but it's achievable. At that point, you can realize your gain and sell, which is what most value add investors do. But you can also hold on for cash flow. You now have an 8 cap in Phoenix, one of the best growth markets in the country, instead of a secondary or tertiary market. That's some powerful cash flow that has a lot of room to grow. 

It's absolutely all based on assumptions. But everything doesn't have to go right for your 5 year projection to be correct. If you underwrite conservatively (excess cap inflation, excess interest rate increase, pad your expenses to give your NOI some room, leave some upside in your rent projections, double your economic loss from today's averages, etc.), you can significantly outperform if everything goes right. 

Due diligence is impossible for the average person? I'm pretty sure the average person can look at projected rents and comparables and see if the two are in line. They can look at assumptions used and see if they're conservative enough. They can ask the sponsor for deal history and contact information of current investors.  If someone can't do some fairly simple due diligence tasks, they shouldn't be investing in syndications at any point of a cycle. 

I'm invested in syndications where I'm not the sponsor. One benefit is diversification (and truly passive income). Another is seeing what colleagues (I don't look at them as competitors) are doing. Call it market research (market being syndications, not the real estate market/economy). I've implemented changes to our financial reporting from what I've seen other's doing. 

Here are some before and after pics, too. 

 Absolutely. I wasn't sure if you meant investment/asset management (sponsor) or property management, but both can ruin your investment. 

@Jay Hinrichs alluded to management, but here are some ways to fail strictly related to underwriting:

1. Underestimating operating expenses
2. Underestimating expense growth
3. Overestimating repositioned rents
4. Overestimating rent growth (post stabilization)
5. Underestimating capital expenditures
6. Not enough reserves
7. Not enough contingencies
8. Not inflating exit cap rate enough
9. Not inflating interest rates enough (if not fixed)

As an investor, you need to be able to understand and "check" all of these out during your due diligence. 

Everything is moving right along. Most of the common area and exterior projects have been completed. We have painted the property, finished the landscaping, added a fitness center, updated the laundry room, renovated the pool area, and rebranded the property. The office remodel and business center will start next week.

As for the interiors, 25 units have been renovated, all of which are leased at or above our projected rents. In fact, most units are preleased before the renovation is complete. We haven't received any push back from the marketplace on our post-renovation rents, so we recently increased them another $30 on average. 6 more are currently being renovated.

Here is a graph from last month's reporting showing NOI since we took over.