All Forum Posts by: Spencer Gray

@Troy Chambers I don't know many investors who would invest for a 4% return especially for an intensive value add deal of which you don't really have any experience doing. Investors are going to want to see returns above 8% cash on cash year 1 with the ability to multiply the principal 2-3 times over a decade if it is a long term hold. 

Everyone has different goals and preferences. If you're accredited, you could invest in syndicated value add multifamily deals run by sponsors that are experienced and proven operators. Get a preferred return with annual cash-flows ranging 8-15%, IRRs 15-20%. Diversify your capital across multiple operators, asset classes, and markets. 

It's not unreasonable for them to ask about your sources and uses/financing plans. If your plan is to figure it out when it is under contract they'll want to know how many deals you have done where you have successfully raised funds after a deal under contract, and how much equity did you raise. The market right now is incredibly competitive and is a sellers market. As a seller, if I have multiple buyers bidding at around asking, even if you are the highest bidder but there are two others that have any sort track record of closing, who would you sell to? 

I would have a good idea of where your equity is coming from, they don't need to be fully committed but you don't want to start having conversations about who you are and what you do while you're in DD. I would go over underwriting/analysis of several prospects with potential investors, even old deals, to see if they would be interested in that type of investment. Once they're on board with the strategy, then you can even tell the broker that you have x number of investors on the sidelines waiting for a deal. You still have the line up the capital, but you want to have an idea of what the capital stack is going to look like before going in.

@Oren K.

I think we're on the same page. 

Besides issues relating to functional obsolescence anything can be fixed (outside of tearing down and building from scratch), but it's all about how it effects the numbers and underwriting, of which physical condition is just a part of. It doesn't make sense to completely gut/rehab if you can't achieve much or any of an ROI of those funds. Often it doesn't make sense to do anything. There's also inherent risk in any kind of rehab/construction project, the more there is to do the more chance there is of something going wrong. The more experienced you are the more you can understand that risk to a point where it is minimized as the process has become a part of your systems/best practices. Just like you said - it all comes down to what rents can be achieved after the fact. Then it's down to comps, demographics and how the asset will be operated.

Does the property have functional obsolescence issues? If not then it's just a process of doing due diligence and determining a proper maintenance budget, RR/capex reserves and how those numbers fit into your underwriting. Hopefully there are a few issues to address and an opportunity to increase rents. 

Too much/expensive debt 

What size and location? Large multi family is trading high low 5's to high 6s depending on location, class, etc. Market has been hot with out of state investors. 

@Neil Goradia - In general I like the near East side. While it's still one of the patchiest parts of the city, Holy Corss, Woodruf Place and Cottage Home having been gaining more and more traction for quite a few years and their attractiveness is spreading to nearby neighborhoods and blocks. It's a popular alternative for millennials who want to be close to downtown, aren't into fountain square or are looking for a little more value. His specific address on Randolf wouldn't be my first choice but as a long term hold might not be too bad. 

I really like the area. 

However Aniges list, who was just bought by Home Advisor, just announced yesterday that they are selling their entire corporate campus/headquarters that is just a few blocks away from your prospect property. Their campus was one of the few things really propelling the near east side (luckily not the only thing) forward. Not that those employees would have been your target demo but it will effect demand in the area. 

Also, about the sewage/water - when the leases end in March (not too far away) let your tenants know that in the new lease they are responsible for all utilities. Ideally you let them know a 1-3 months prior so you have time to find a new tenant before their lease expires. 

 https://www.ibj.com/articles/65746-angies-list-eas...

Way too much risk for the reward. If you have to do a rehab and a full lease up I would not do it unless I could take most, if not all, of my cash out within 12-16 mo and then see at least 8% cash on cash after the refi. 

You can put your money into a syndication (with an operator with a solid and seasoned team) of a stabilized, cash flowing asset (200+ units) in a B area and be earning 8-12% cash on cash year 1 without ever meeting with a contractor, tenant, pay bills, etc. For all the work you are about to do, and the risk, why? Are you doing it just to do it or are you looking at it strictly s an investment to make money/build wealth?