All Forum Posts by: Scott Krone

@John Casmon has impressed me with his knowledge of the MF apartment market in Chicago, Ohio and Texas.  I would suggest reaching out to him.

The only program that I know of that is specific to foreign investors is through Homeland Security and is called EB5.  The program was designed to encourage foreign investors by offering them a Green Card.  The minimum was $500k per person.  More importantly, you had to show for each $500k raised the investment created 10 jobs here in the US.  It is a very difficult process to get an investment qualified.

Even if you are a new investor, if you have a solid team (broker, contractor, etc) and the numbers work two non traditional lenders are Grand Coast Capital and Renovo Financial

Property taxes on commercial are based upon income.  We use a tax appeal attorney to make sure they are accurate as possible based upon our income.

The other way is changing the use which can command higher rental rates in the market place. That is why we convert warehouses (low rental rates) into self storage. We can obtain a much higher rental rate per sf.

I would encourage you to evaluate your strategy.  If there is that much cap compression perhaps it is not the time to develop a product that appears to have already reach market saturation

It appears your strategy was to aggressively pay off your house.  Why change your strategy?

The apartment market for selling is very high right now, some would argue over inflated.  We gave a presentation in MKE regarding our self storage facility we are developing there near Miller Park, the other presenters were discussing their apartments.  I was listening to their numbers and came to the same conclusion you have, too much risk for too little reward.  From a demographics point of view, MKE is a great rental market - we have over 500,000 people within 5 miles of our site, and over 50% are renters.

@Brian Eastman is spot on with regard to self dealing.  @Rita Medeiros if your goal is to stay out of tax troubles, then this is the key area to focus your attention. Most IRA companies will not allow you invest your IRA money in an asset you control. That is why our investors like our self storage investments. They are active real estate investors, have the IRA's but can't invest in their own deals. Our products meets their goals, and they can invest in them as their is no "self dealing." Self dealing typically includes spouse, kids, parents, grandparents, etc.

We are converting our fourth commercial warehouse into self storage.  We are interested in learning what investment strategy would investors find more attractive.  Here is the scenario.  

Facts

We recently purchased a 70,000 sf empty warehouse.  Our plan is to install ~600 indoor, climate controlled lockers.  We have a national self storage operator lined up to manage the facility upon completion whom we have used before.  The area has over 500,000 people within a 3 mile radius, and 66% of the residents are renters.  The square foot of lockers per capita is under 2.  The national average is between 7-9.  Tremendous demand and very little competition.   We have obtained all the zoning entitlements.  We have an SBA loan structured for 5 years for the construction and lease up period.   The SBA had to be restructured due to size of the loan, so we have to increase our equity by $500,000.  Our plan to hold the property for 5 years.  After year three we have enough cash flow to refinance our investors equity out of the deal, and they maintain their percentage of ownership.  However, we have received an offer to sell the asset upon completion/certificate of occupancy.

Question

Which would be a more attractive option:

A.  Guarantee rate of return of 10% annual on the $500k up to three year (worse case scenario), with no further cash flow or appreciation.

or if we don't sell right away

B. Investor has a membership share in the revenues and profit with the goal of being refinanced out in year three. Upon sale the IRR is 47.6% - however it is a 3-5 year investment to receive profits. Cash flow to begin on revenue in year 4.