All Forum Posts by: Ian Stuart

For a 6-unit, that's typical.

It also depends on how your total management fee / onsite payroll structure is setup. For a 6-unit, you could easily hire an onsite manager - and (instead of paying them a salary) give them a full monthly apartment rent credit, so they're living for free. In that case - you'd have no management fee, and no salary payroll. That said your true annual payroll cost would equal the monthly manager credit * 12 - which would essentially just offset your GPR if you were renting the manager unit out to a market rate tenant. 

Alternatively, you could also hire a third party manager for 8-12% EGI to check on the property every now and then, collect rents via RentCafe, send tenant notifications, handle leasing / show units via their website, and handle turnovers. That said - the larger management companies likely have a minimum unit size (say, 20 units) - so you may have to settle for a smaller local manager. 

Best,

Ian 

@Derrick Washington

If these are truly a stabilized, cash flowing assets that doesn't need much capex (and you're not planning to do a big value-add renovation) - why not put a permanent agency loan on it? 

With Freddie Mac SBL and Fannie Mae Small Loans - you're looking at (a) up to 80% LTV; 1.25x DCR in most markets (up to 1.20x DCR in Top Markets) (B) mid-high 3% rates (b) 1-3 years interest only and (d) 30-year amortization. Downsides are - because they're permanent loans, not much flexibility on the prepayment penalty - you're looking at Greater of YM or 1.00% of UPB when you pay it off - typically the last 3 months of the loan term open at par. Loan costs also slightly higher than banks - 1% origination fee, $12K app fee, legal, title/escrow, third party reports - all that fun stuft - but comparable.

With the Agency small balance programs, you don't need to establish a Single Purpose / Asset Entity LLC (though you could if you wanted to). You could own it individually, through a trust, in an LP - you name it. Plus - the loan's assumable, so if you want to sell it in the future and 1031 into something else - the buyer could assume, it would just cost them 1% in assumption fee, and potentially some small time legal review fees.

That said - if you're doing a value add, go with a bridge / hard money loan, then you could take it out with a perm loan once you've completed your upgrades so you can cash out into a downpayment for a new deal. 

These would likely only be applicable to the $1.2M deal though - since minimum loan size for Fannie Mae Small Loan (when they stretch for it) is $750K. 

Looks like their WIX page isn't even up... 

https://www.bancofunds.com/

They doing your acquisition, value add bridge, or refi debt?  

Best, 

Ian

@Account Closed

You're going to run into this a lot with small deals. However - there's a pretty simple solution. 

Tell them that your lender needs them. More often than not - this is true, especially if you are financing with a permanent lender such as Freddie Mac SBL / Fannie Mae Small Loans. 

In many instances, small owners keep terrible books. Their rent roll is literally written on the back of a napkin, the closest thing they have to a T12 is an annual rollup with incomplete December numbers and a note to "pickup daughter after her gymnastics gig". Don't even get me started on asking folks like this for a capex ledger / receipts...

If the property owner has an accountant, tell them to have their CPA put together a rough set of books - it's in their realm of responsibility and they should be able to turn them around in a day if they are any good. If the property owner has professional managment - not having a T12 or rent roll is inexcusable and they should be called out.

If push comes to shove, coach them up and send them a (A) Rent Roll Template and (B) T12 Monthly P&L Template in Excel and have them to fill in the blanks.

If you need templates - shoot me a DM and I'll share my standard templates with you. As a Freddie Mac SBL Seller/Servicer and Fannnie Mae Small Loans lender I run into this all the time - especially on loan sizes from $1-3M. We often have to coach borrowers up as they learn the ropes of producing quality books after they 1031 into their first 20+ unit deal. 

@Kyle Bergren

I am strictly a multifamily Fannie Mae DUS / Freddie Mac Seller Servicer. My minimum loan size is $750K - I do not do loans less than this metric. 

Sounds like there was a material lapse in communication with your lender, which led to information surfacing during underwriting that negatively impacted your deal. Future reference - the onus is on the borrower to make it crystal clear to their lender what type of deal they're working with, provide more than enough info/documentation, and for the lender to do their best to identify potential potholes in the road before going under app. 

If you are inexperienced - the onus is on you to assemble a team around you (a lender) that is more experienced than you are. This is why it is important to ask about (a) track record (b) analytical capacity (c) questions related to specific underwriting rules (d) etc. before you go under app - to determine whether or not you're working with a sleazy salesman, or a mortgage banker. 

Your lender should've asked about this up front - but you also bear the responsibility for not vetting your banker well enough up front. As I'm sure you know - there are many incompetent jokers in real estate lending who should instead be selling used cars. The onus is on you to vet these clowns to ensure you don't get re-traded. 

That sucks!

Best,

Ian

@Namit Raisurana Sure thing, I’ll DM you my info.

@Paul DeSilva Correct, I lend in all 50 states with Fannie Mae and Freddie Mac.

A great book with timeless advice is William Nickerson's "How I Turned $5000 Into $5,000,000 With Real Estate". 

The tone of the book is very folksy, but has great information when it comes to analyzing properties from both a physical, financial, and geographical perspective. 

When it comes to analyzing financials of properties - best way to learn is to talk to brokers and lenders!

Pick up the phone.

Develop, but only if you know what you're doing. 

Even if you're literate in the numbers, and your development yield shakes out to 7-8% on paper in a supply constrained market with strong demand drivers for your product - you still need the ability to execute. You'll want to bring on a partner. 

This is especially important when it comes to financing the project. If you're planning to lever up and utilize HUD 221(d)4 financing to build (vs. a construction loan from a bank) they'll want you to have a GC / Manager / etc. with HUD experience.

Building is higher risk - but higher reward, and requires significantly more knowledge, expertise, and teamwork than flipping value add deals.