All Forum Posts by: Chris Winterhalter

@Nazz Wang 

How's the deal progressing?  

@Seth Wilson  The IRS is a wonderful organization...they would never lie :)...

@Bryan Koster 

Fannie's small balance program exists on paper however I don't know anyone that has successfully completed one under 1MM.  Plus fees are generally cost prohibitive with such a small loan amount.  I think this has been discussed a few times on BP so I would search the archives.  I would definitely not count on the program and I'm not sure it will pencil out with the extra costs involved.  Also be very careful of who you deal with from a commercial broker standpoint.  There are many great companies out there however there are many companies that are not credible and profit from upfront fees.  Find a local or regional broker who understands your market (and capital markets).  Fannie/Freddie multi-family loans have a lot of guidelines that don't fit into every property type (no matter the loan size).  

I actually just read this article yesterday about Freddie expanding their small balance program...however you should note the average loan size is 2MM.  

http://nreionline.com/multifamily/freddie-mac-ramp...

I definitely don't want to be discouraging, if you can figure out a way to make the program work at under 1MM I would love to hear your experience. 

Hey @Kyle Soderman 

It looks like you are still in college.  Do not worry about making more money in college, it can lead to making a lot less money later in life & can lead to the wrong profession.  With that being said congratulations on being on BP while you're in college.  That's a great step and if you stay focused on education and getting the right professional experience then you are on your way to success.  

It looks like you are majoring in real estate so I would assume your goal would be to work in the industry.  A leasing position is perfect experience and don't worry about the $8/hr+ commission vs. the $10.75 that you currently make.  Plus it sounds like the company is a good size PM firm with larger complexes across town.  This will be great experience and is a perfect first step into the business.  Without knowing too many details I would say take the position and focus on working your tail off (while still getting top notch grades).  I would also try to latch on to a mentor within the company.  Good luck!  

@Nazz Wang 

Transition issues can change based on region and property class but for small multi-families they can include:

• Immediate vacancy due to prior landlord issues like not mentioning move out notifications.  
• Massive pest issues because of prior LL, I've even had a prior LL have the tenants sign a document when they moved in that the unit was clean of pests and that the LL would not be responsible for any removal (seems great in theory but not really legal in this application).  But what happened?  Widespread pest issues with no one controlling the issue. 
• Non-payment & late collection issues (this can come up when not checking bank statements).  The prior LL might have been very lax on collections so tenants are not familiar with the new system.  AND many tenants in B- to C- units are not used to change and it can take some time getting set up with a new system.  Also some LL's try to put heads in beds when selling a building, filling any unit with a body and not worrying about collection, background checks etc.  If you do your proper due diligence this will come out (checking background checks that the LL should have performed).  And if you are unable to get certain documents make sure you account for additional expenses.  
• City issues, even if you check the City for outstanding violations doesn't mean you are free and clear.  I've seen some very interesting things, condemnation notices that pop up with a new owner, new violations, and crazy inspectors.  Plus some areas will require a building inspection for a new owner.  Even if you plan to rehab the building this can cause issues when existing tenants live in the building.  Make sure to plan for the worst.  
• Drug dealers and other criminals in your building. Problem tenants might have been hidden during due diligence but I guarantee you that once you take over the property these issues will come to light extremely fast.  

The list could go on and on...but I think you get the idea.  Adjust up and down depending on your class of building and the amount of due diligence you are able to perform.  Also make sure to immediately start building strong relationships with solid tenants upon takeover.  Bad tenants should be given ZERO leniency.  Describe your turn around plan to the tenants and SHOW them you are serious by putting it into action quickly.  Good luck! 

@Flavio Zanetti 

Very common practice, and a lot of commercial deals don't get "listed per se" on Loopnet or CoStar (more on CoStar).  They might be listed with the broker and marketed through his/her email & phone list.  However even when they are listed with a broker most will try to connect their inner circle of buyers with a particular type of product before it gets blasted out.  

Some sellers mandate (some banks) that the deal must be listed.  Even so, many brokers will give the heads up to their circle.  It's the people they've done deals with and they know will perform.  

@Bryan Koster 

There's no real rhyme or reason to seasoning with local banks.  Each bank has different standards (that can change borrower to borrower) and their standards have been changing rapidly over the past 3-5 years.  Some are 90 days, 180 days, a year, or two years.  Many loosen seasoning requirements on turn around deals with an extensive rehab (to say 3-6 months w/ new leases).  That's 3-6 months from stabilization.  

I've seen local banks structure an acquisition and construction loan several different ways especially when you are talking about a small amount of construction (less than 10k per door).  When you talk about cash out what do you mean?  How much forced equity do you think you are going to create?  If your goal is to be in the property with 10% or less cash/equity then you will more than likely need to season the deal 12 months+.  Most banks will have regulations on refinancing you out beyond 90% of LTC in under 12 months.  You have a few options in my opinion:  

Option 1:  You could purchase the property with cash or a private lender if you can get a decent rate.  You might be able to push the purchase price down with a cash offer and can bypass paying for certain closing items twice.  However it needs to be a 24 month private loan (or cash).  If you hit everything just right you might be able to pull off paying off your investor/cash & putting some cash in your pocket when refinancing with a term loan.  However this is very difficult to do especially in 2015.  Make sure you have extra cash on hand to deal with a low appraisal if you go the cash/private lender route.  And if you are dealing with a high interest rate that can kill your deal.  

Option 2:  Purchase the property with an acquisition and construction loan I/O that turns into a term loan after 12-18 months.  Make sure they will lend on the after repair value (based on the appraiser).  Put together a clear concise executive summary/pro-forma for the bank and appraiser.  Leverage will vary greatly by lender and borrower.  But let's say you can get 75% LTC (not to exceed 75% LTV of the after repair value) on the acquisition & construction.  Then you have one loan and one closing for 5 years +/-.  You may have to sign some docs with the bank once the term loan comes into play however that is generally minor.  

Option 3: Get an acquisition & construction loan I/O from a local bank. Lower the term to lower the interest rate. Rehab the property then look for permanent financing. If you try to refinance with the same institution I doubt they give you cash out within a 12 month period (after stabilization). They won't want to be exposed with a new borrower with no cash in the deal. You might be able to go to a different bank for the term loan and bypass certain items but it just depends on the bank.

It really depends on what you want to accomplish and your risk level.  I'm not sure where you are getting your funds so it's hard for me to point you in one direction or another.  Option 2 is probably the safest option.  Trying to pull cash out of multifamily deals in under 24 months is a difficult task.  It can be done but it's a difficult task.  

@Bryan Koster 

A relationship with a local bank will be huge for this deal. I've done exactly what you are proposing to do and it worked out well (it came with all kinds of fun challenges though). Go for the 18 month I/O loan if you can get it especially since this is your first deal. A solid borrower with a good bank relationship can get an acquisition & construction loan for the rehab. Some banks will even lend based on the after repair value of the complex (on my project they did). They went to 80% on the acquisition loan & 75% on the construction loan. More recently I've even had better terms on my construction loans. But it also took me a long time to build a relationship.

I have my contractor purchase materials as it makes the process much easier on my end.  Plus they tend to warranty items that they purchase only (especially plumbers).  Storage, purchasing, broken/stolen items can all add up to a large headache (and not worth the savings).  

Are you self managing or do you have a PM in place?  Moving tenants around is very management intensive and comes with it's challenges.  Make sure you plan ahead but also re-evaluate constantly so you can be as efficient as possible when handling the rehab.  More than likely you will drop occupancy upon take over so plan on having your contractor ready to rehab at least 4 units asap.  Also if you are doing plumbing work you might have to plan for 1st/2nd/3rd story etc openings.  I.e. if you have to replace stacks then you need the whole run of units going from 1st floor to your top story vacant.  Plan on signing new leases for the solid tenants (you can re-qualify if lease is up) & terminating or evicting the bad tenants.  Try to identify the bad tenants and coordinate rehabs around their lease expiration dates.  Or if they are non-paying or causing a problem that you can evict for then move forward asap.  Your occupancy will be lower than you are planning.  Use that to your advantage with the rehab.  Also depending on the shape of the units you might have an issue with the city.  Have you called the city to confirm if they have any outstanding violations on the building?  My building was occupied but also condemned (that was a challenge).  Develop a relationship with the inspector sooner than later.  Good luck! 

@Trevor Probandt 

My question would be why do you want to start syndicating multi-family deals?  There are plenty of people that make just as much money or more investing in their own portfolio without syndication.  But so many new "syndicators" want to get into the business because they have exhausted capital or don't have the sufficient funds to invest.  In my opinion you really need to be experienced with an established track record + some type of expertise to offer the deal.  You also need to have funds, strong income, & a solid balance sheet.  Most sponsors or syndicators are either management companies, developers/contractors, and brokers (or high income professionals diversifying with a small group).  And successful at what they currently do.  It can make sense to diversify into larger deals as they can control one piece of the puzzle.  They are generally well connected in the circle of influence which helps when putting together a syndication deal.  

I really hope that didn't sound negative however as a sponsor you are really creating a job/business especially if you want to make personal income from fees (unless you have a supporting business or can afford to hire a team).  But you are also taking on a lot of risk in the meantime.  Like noted, especially in this market.  However there are plenty of successful syndicators that started off just like you (just remember all the failed ones too).  

If you have strong income from another source, a solid balance sheet, & the dedication to find and put deals together then that's a start.  I would just find your niche in the process where you can create/control value.  

Good luck! 

 @Maura Paler 

This is a very interesting deal.  Understanding values is so local & the deal really speaks to your experience in the area.  However as you know there are risks.  Right now the large majority of the vacation buyers are cash which doesn't really impact a low appraisal if they see value.  The market could change and cash buyers might be the first to pull out.  There are many factors and you obviously know the area better than I do.  However I would do a few things...you obviously have a better grasp of value than the appraisers (or so it sounds).  When you stated the real estate agent performed an appraisal did you mean her opinion of value based on comps?  Or did she have someone perform an appraisal?  If homes are selling around the area at comparable prices why can't you get a solid comp set?  Could you put together a comp set and submit it to the bank to pass along to the appraiser?  You mention that there are two types of homes, owner occupied homes for locals & vacation homes.  However that still doesn't explain why you can't find a comparable vacation comp in the area?  Comparable properties are based on location, size, improvements etc.  Just because a local owns a waterfront property vs. a vacation buyer it doesn't make it more or less valuable.  I guess I'm missing something.  

Beyond that I would work with your bank (or another bank) to increase the LTV if possible.  You should be able to get to 75-80% depending on what type of financing you are going after (commercial local bank vs. conventional mortgage).  I would also figure out if your cash on cash return will meet your goals with 130k down.  Beyond that what is your exit strategy?  Are you forecasting strong appreciation in this area?  Good waterfront property tends to hold value over the long haul, however that can be impacted by so many things.  If it doesn't line up with your goals then I would re-evaluate the deal and your direction.  Good luck! 

@Karen Margrave 

Feel free to reach out anytime! The more I absorb from the industry the more I believe it's vital to have the right operator (hotel management company) involved in the project from beginning. Site selection, demand generators, and franchise selection are so critical to the success of the deal. You can hit big returns with the right selection, right market, right time, but HUGE losses with just a few mistakes. Hotels are priced at a cap rate like other CRE but it's really interesting how NOI can vary greatly with different operators. It can push sky rocketing valuations in good times and very low valuations in bad times. It can definitely come with risk but with the right partner and the right deal it can work well.