All Forum Posts by: Chris Winterhalter

@Chaz Reid

Have you evaluated what's currently for sale on the market? I would take a close look at what is for sale and how long it has been on the market. You obviously want to be below a similar for sale comp however you can evaluate how much by condition, location, etc etc.

I would also take your comps back in your area 2 years to see what you can come up with. Is there currently demand in the area? How long will you have to hold the property before it sells?

Can you talk with a local agent about value? A good agent in a small town will know and understand values better than most.

Good luck!

@Stephen Earley

It looks like you are a contractor in Jersey City so you are probably familiar with the local codes. If you aren't familiar with historic buildings I would just network with other contractors that have dealt with historic brownstones. If it's going to be a gut project you have less unforeseens with a fire damaged brownstone because of how they were built (2-3 layers brick thick and hand laid stone foundations). You can probably figure all new interior framing for the gut anyway. You will want to make sure the rafters are solid and you don't have any structural issues. Honestly the more difficult part is the rehab on the historic structure than the fire portion of it. Get an excellent inspector or contractor that has dealt with fire damaged buildings to go through the building with you to verify. It can very costly to rehab these buildings properly.

State historic tax credits may be available in your area however you will have to go through an approval process which can be lengthy. They can also dictate how you rehab the project which can add costs. Generally if the project is less than 250k (rehab) it doesn't make sense (IMO) because of time lost. Your city might have tax abatements available which are easier to obtain. Other grants can be difficult and time consuming on a smaller project. The city should have someone in the development department that can help lead you to specific grants. You can also talk with a historic tax credit consultant. Good luck!

@Sam Erickson

A lender can still have parameters at 60% LTV and 30% down. They could have advertised it 70% LTC (or loan to cost) however it's essentially the same.

Here's an example:

Purchase - 50k

Rehab - 10k

ARV - 100k

You would meet the 60% LTV on the ARV number however you would still need to put down 30% on the 60k or 18k in a downpayment (if they base it on acquisition and construction). So the LTC would be at 70% because the cost was 60k and the lender's loan was 42k.

Here's another example:

Purchase - 50k

Rehab - 10k

ARV - 80k

They will only loan 60% of the ARV which is 48k. They still want 30% down on the 48k which would be $14,400 down + you would need to come up with the other 12k to finish the project.

Each HML is going to have their on parameters so my example might not fit into every one...i.e. some might not lend rehab costs and will only lend on the current value. That changes the numbers as well.

@William M.

Just because you have an appraisal and contractor bid doesn't mean the numbers are accurate. I could probably get you 3 wildly different bids on a project like this by picking up the yellow pages in Atlanta. You will probably also see a high disparity between appraisers on a project like this evaluating the ARV. The ATL members can give you better insight into the area however no matter where it is located a large long distance rehab will be tough. Like you pointed out there isn't much upside for the risk. I wouldn't necessarily shy away from a deal like this in my area with thin margins if the rents were strong and the area had promise. Honestly a lot of deals are not providing forced equity because of how much the market has heated up. The upside to doing the rehab yourself is knowing that everything was properly constructed (if experienced).

Also make sure you have an ample amount of reserves when handling a project like this. Vacant apartment buildings can be very difficult to hold because of lack of cash flow and construction overages. The city can also add many unforeseen costs when a building is vacant vs. occupied. You lose your grandfathering when handling a large rehab on a vacant building which means more code upgrades and eyes on the property.

@John Gregg

You don't need to be a licensed contractor to get builders risk insurance. Most vacant home policies don't cover theft where as most builders risk policies do. You will need to add a liability policy to the builders risk. Zurich is probably one of the few options for SFR's. There are other options but none that I found was as good as Zurich for homes 300k and under. Remember that builders risk policies will generally have min earned premiums of 6 months. You can get 6, 9, 12 month policies however they are not prorated if you sell or complete the renovation in month 5 etc.

@Jason Cobb

If I could find private money at 5% on a fully amortized 30 year loan at 90% I would be jumping up and down. Why 90% LTV? Is that some sort of magical number that will cash you out of your current deals or did you just use the number for example sake? You are essentially looking for a commercial loan if you are seeking 5% or below. You might be able to find a private investor that would bite on that deal however it's going to be close to impossible. Or their could be friends/family that would do the deal because they know you and don't care so much about the return. I'm guessing that's not possible since you posted on BP.

A local or regional bank would have an appetite depending on your personal credit, financials, and property financials. However they would probably be at 75-80% LTV, 5% or less, 20 year am, 5 year fix or ballon (depending on your area). If you had a long standing relationship, large deposit accounts (held at the bank), excellent income, and strong property financials they might consider doing 85-90% LTV however those would be extremely rare instances.

If you want low interest rates on the portfolio you are going to have to go to a local or regional bank. If you connect with enough banks you should be able to find one that will do 80% LTV on the refi. Have the properties been seasoned for over a year?

@Robert Blake

Congratulations! Great first property and just the right size for on-site PM. What cap rate did you end up buying at? Any other details?

Karma Senge I wouldn't bring him on as a partner right away. I would pay him a solid hourly rate or salary plus bonus on what he closes. It really depends on what his skill set is and what you can afford based on your current situation and projected earnings. Is this going to be a full time position or part-time? Remember that workers comp and payroll taxes should be accounted for in your budgeting.

It was a pleasure meeting everyone at the meetup yesterday! I appreciate all of you West Coasters inviting a Midwesterner in for the day.

Thanks to @Will Barnard for hosting the event (awesome job on the rehab) and @Jeff Greenberg for coordinating.

@Robert Shoffner

Congratulations on setting some great goals. A few things to note...

I'm not sure where you are located or what class of properties you are going to pursue however 40-50 units isn't generally enough for on-site property management. Depending on rent levels and property location it generally takes 70-100 units to pay for 1 full time person on-site. At rent levels around $500/unit you would be better off having an on-site PM that can handle leasing and small maintenance items (at 70-100 units). That combination can be hard to find (that actually do both well).

Also with only 100k in cash you would need to partner with another investor or syndicate the deal to properly fund the transaction and account for the proper amount of reserves at the 40-50 unit level.

Just a few things to think about as you are planning the transition.

• Start connecting with the Property Managers in your area that manage the class and size of property that you are seeking.
• Start connecting with local and regional banks that fund these type of transactions (you might already have one). These relationships can be hard to break into...but once you have your first deal completed with the bank they become much easier.
• Start networking with all of the brokers that deal in the property size and areas that you are seeking. Try to meet each one at their office, for coffee, or for lunch. Follow up constantly. Getting in the deal flow is one of the hardest parts of breaking into the 50+ unit mix (especially right now).
• Depending on where you are located join the apartment association group in your area. You will be able to network with other multi-family owners which can be extremely helpful.

Good Luck!