All Forum Posts by: Chris Winterhalter

@Sean O'Dowd 

@Adam Johnson has some great insight on this matter.  

I will add, 100 units doesn't need 5 employees, unless you are running the maintenance/construction & management side with all employees.  Which is very cost prohibitive & inefficient with only 100 units.  

My property management company has about 200 units under management with two employees + contract maintenance/construction vendors.  I would say they could handle 300-500 units with three-four employees max.  Now property class, property type & size will require different needs however you get the idea.  

On the property management/investment side at a basic level you need these positions:

-Bookkeeper/Compliance/Comptroller etc

-Property Manager 

-Acquisition/Disposition/Leasing 

If you develop or have a large construction side then you could add a construction management position, but this can contracted out without adding the payroll.  

Like mentioned payroll can bleed your cash reserves, so be very careful, & be ready to constantly feed the beast when you do add payroll.  

@Kyle Gregg 

I wouldn't cross the deal off my list just yet.  Just by glancing at the exterior it's not necessarily a high dollar repair (but could be).  

Vertical cracks are generally better than horizontal from a repair standpoint.  Have you walked the interior & exterior thoroughly?  Does the first floor have signs of settling in flooring, windows, doors, etc?  I would walk the home with 2-3 foundation contractors to get an idea of the issue.  Then make your offer contingent upon inspection, have a local engineer inspect and recommend a solution.  Many foundation contractors can recommend a cost effective yet experienced engineer.  It may be minimal or could be very expensive.  

You mention it's overpriced, I would make a low offer (especially since it's been on market for 100 days), & see where they counter.  If you get close spend your time walking with a few foundation contractors.  

@Alex Silang 

@Bill Gulley is spot on...it's very common for smaller sized transactions on many specialized real estate classes (i.e. small non-branded motels, restaurants, car washes, multi's, mixed use, etc).  However those assets tend to be more difficult to sell in the first place, making seller financing a necessity especially when the seller is trying to get a decent price.  

It's not going to work for every seller, buyer, or situation.  And the chances are that if it works for the seller it probably won't work for the buyer and vice versa.  But when it does work it can be a great situation all around.  It's another tool in our tool belt for financing & deal structuring.  It should always be considered but not always used.  

I successfully acquired a 64 unit complex with seller financing (10% seller 2nd @ 5%, fully amortized for 6 years).  Bank loan was 80% & we brought 10% to the table.  However we were only able to bring so little to the table because of our strong banking relationship.  We had the ability to bring 20%-25% to the table with reserves.  I doubt it would have been approved otherwise.  And the deal worked better for our situation with 10% down.  It's really tough to get commercial bank financing with less than 15-20% skin in the game.  Many banks will want 10% minimum but that standard is for strong borrowers with existing relationships.  

If the goal is to purchase a property with seller financing (exclude SFR's) because you don't have the means to purchase it otherwise, then I feel like you will be sadly disappointed, by either finding very few deals, finding out that you are unable to close, or getting into the wrong property. The exceptions might be with specialized asset classes as mentioned. But those are more operator driven in nature and come with a whole other set of risks.

@Rich C. 

It can depend on so many factors. You will be capped by LTV, generally 70-80% LTV and DSCR, which can be 1.25-28 etc. If you are able to pull cash out and deploy it into something that is going to give you a greater return then on paper many people would say to do it. However it depends on your personal situation. I prefer to be fully leveraged (75-80%) or paid off. This is hard to achieve over 5 years because of loans, pre-pays etc, however if properly planned for I think you can start achieving it over 10-15 years (paying off assets & leveraging others).

@Mark Forest 

Legalities will depend on your state.  We received a full year's worth of rent paid by the parents of someone trying to get back on their feet.  The parents wanted to ensure the son had somewhere to live (paid) for the full year.  If I remember correctly we had to hold the funds in a separate account and release each month (state was Missouri), similar to security deposits.  

Even though they are paying a year in advance I would still screen the tenant like you normally do, background check, landlord references, employment verification etc.  Just because they are paying a full year's worth of rent upfront doesn't mean you can overlook criminal or eviction issues.  They might just be wealthy drug dealers :).  

@Steve Olafson 

It's not going to end soon (well from a macro level).  I think there is a lot of opportunity for new development if positioned correctly (right location & right product).  Personally I think if positioned correctly multi-family will see another 7-10 years of strong growth.  However we might see several mini crashes from oversupply throughout that time period.  I'm also really curious to see what happens with rates, and how that affects compressed cap rates.  

If you can make the deal pencil, secure 10 year low cost fixed non-recourse debt, and build or purchase in a solid growing area then a 5-7 cap deal can work (depending on your equity side).  Just my dos centavos....

@Trevor Haasch 

Franchising will be very difficult even with the economy brands.  How old is the property?  The property is too small & probably too old for a brand, even with a significant renovation.  There are a few select brands that specialize in tertiary markets up your way.  Americinn & Cobblestone are two brands that will take on smaller properties.  However your 200k in improvements probably wouldn't cover the costs needed to bring the exterior & interior up to par for a brand.  I'm just guessing based on your comments.  Check out Cobblestone's website under their conversion brand, I believe it's the Boarders Inn product.  Look at the existing construction of some of the properties to get an idea for what you would need to do on the renovation side.  

Beyond that I would make sure that there's demand for a hotel in this market.  Just because it doesn't have a hotel nearby within 15 miles doesn't mean a hotel should be there in the first place.  The current owner is selling for a reason (with owner financing), & maybe that means the market needs a fresh new hotel property or maybe that means it doesn't have the demand.  

You don't have the luxury of looking at a STR report to comp nearby properties because of the lack of supply. However you could pull a STR report from other similar towns nearby, find a product that will match yours and get an idea for ADR, Occupancy & ultimately RevPar. Like @Jimmy Klein mentioned location is very important.  And also take note of his comments on FF&E wear and tear.  FF&E is something you should reserve for on a yearly basis (3-5%).  Also when you have a brand you will have brand standards, which need to be accounted for.  Good luck! 

@Nicolò Bolla are you in Ohio or Europe?  Do you have any more information on the deal? I.e. size, room count, name, location, asking price, REVPar, ADR, financials etc?  There are a few hotel specific sites to list hotels depending on the size, type, location etc.  Are you wanting to market to US investors (and why)?  

I would figure out who is buying & selling your type of deals in the market place/region and talk with them.  Potentially hotel management groups, developers, owners, & brokers.  You should be able to figure out who those companies are (especially the management companies).  That's just some blanket advice depending on the details though.  

@Nicolò Bolla 

You're probably in the wrong place.  So many questions to ask but what have you been specifically asked to assist with?  Selling the property as a broker?  Do you have the knowledge, contacts or license in the specific area (if a license is required)?  

Is it a branded hotel?  The owner is probably better off consulting with a specialized hotel broker in that area or region.  If they are trying to attract US dollars then there are several hotel brokerage firms that specialize internationally.  

Do you have a hospitality background?  

Tim Bauer Can you tell us more about the deal. You don't need to give away the exact location in the thread but what region and brand? What was RevPar over the last 3 years? ADR and Occupancy? You mention it was up to brand standards, when was the last PIP completed? Also there are always new PIP items when change of ownership (unless it's a new build). What's your hospitality experience? What do you need to put the deal together and what are you bringing to the table? Any other deal points, like room count, pricing, age of structure, etc?