All Forum Posts by: Chris Winterhalter

@Thierry Van Roy

My business partner & I have a hotel construction business along with our real estate business. We have been looking at getting into the hotel investment side of the business for the past few months. We did a boutique hotel construction project in Manhattan (SoHo) earlier this year so I am somewhat familiar with these types of projects. I also tried to pick ownerships brain on the investment side.

I am a little confused by your question though...what are you specifically asking for help with? Are you looking for advice on the investment side? I would think the developer/investor would be well versed in this? Boutique hotels can be difficult depending on room size, REVPAR, area etc. It's more difficult to run a hotel that won't support a good salary for a full time GM and supporting staff. You have a certain amount of payroll that can affect profitability if you don't hold to a certain REVPAR number.

Or are you asking about design? Is the hotel going to be an independent non branded hotel or is it going to be a boutique hotel under a certain brand? For example Choice Hotels has what they call the Ascend Collection which is basically for boutique hotels that want to be a part of a larger brand.

Any information would help including but not limited to:

-Proposed area (or general area ) or desired type of area

-Size of hotel - including # of keys (rooms)

-Limited service or full? Bar/Restaurant owned by hotel or leased

-New construction or redevelopment project?

-Any other info you can give would be great

@Rikard Lorén

I was in Stockholm in August of this year and was blown away how awesome that city is! I used to think I was redeveloping historic buildings when they were 100 years old...but you have buildings that make our oldest buildings look like new construction. Truly a beautiful city. And I commend you for becoming active in the BP community.

Okay on to the cap rate....it can be a bit confusing in the beginning. For one it's used to value properties in a specific marketplace but isn't standard by any means. Capitalization rate valuation is really based on the market and risk. A new build Manhattan A++ institutionally owned 1,000 unit apartment building that trades at a 4% cap rate is much lower risk than a 10 unit property in a C- neighborhood in a tertiary market. The 10 unit property is a higher risk and the market rewards the higher risk with a higher rate of return. The market will only pay so much for a riskier investment and that is based off of a certain return.

With that being said, as real estate investors we are always looking for a deal. So we might target properties that have cap rates of 10% or higher based on our investment philosophy. Because the real estate market has much more disparity than the stock market we are able to create value in certain ways. So we might be able to purchase a property that produces a 10% cap rate but is actually valued by the area, property type etc at an 8% cap. You have to be very careful that you are properly evaluating the deal. It takes a sophisticated investor to actually create real value from just the purchase. There are many known and unknown costs in acquisition that make it difficult to create value just from the acquisition. Generally value is created through turning around a distressed asset through proper management, renovation, value plays etc etc. That's not to say you can't create value over the long term with buying stable real estate at market value but only commenting to the fact of creating equity quickly.

I hope this helps and wasn't too confusing...

@Nick Patterson

I think there are a variety of reasons why seller financing can be attractive for a buyer including bringing less than 20% to the table at closing. Many banks will have different policies on this however most have a 6 month - 1 year seasoning period where they will only fund up to a certain amount of LTC (loan to cost). The bank might still look back to your original purchase price and want to know what you have done to increase the value. If your purchase was a value play or reposition type deal then you should be able to justify the increase in value. However after a certain period of time the bank will just use an appraisal to justify the value. In my experience if a bank doesn't want to do a deal they will come up with pricing or terms that do everything but hand you a denial letter.

@PE Burke - Welcome to BP!

It depends on your investment philosophy but let's say you seek a 10% cap rate on your properties. You purchase into an investment let's say at:

1MM - Purchase & Rehab

NOI - 100k

100k NOI/1MM Entry Price= 10% cap

Let's assume income and expenses don't change however the market changes for the better. You have set up processes to evaluate property value every year for many reasons including your sell/hold evaluation model. The property is now worth 1.5MM less 10% transactional sales costs = 1.35MM. So the area was priced at a 10 cap and is now priced at a 7.4% cap or 100k NOI/1.35MM price. Bearing that you can still purchase similar properties at a 10 cap price (possibly another sub market etc etc) you might be better off unloading your funds into other investments. You also have to calculate the cost of your time into the deal as well. You also have to evaluate the sale from a tax standpoint.

Do you have a portfolio you are currently looking at selling?

@David Hart

Contact Fisher & Co Real Estate Services (PM) - Catherine Fisher is the owner - 314.604.7355. They are great with most of the surrounding city. They currently have 51 of my units under management. I have been using them for 3 years now and am very happy all around.

For agents/brokers try:

Terry Yuede - 314.952.3971 for single families and multis up to 20 units. I have been working with Terry for 5 years now.

For over 20 units network with Hendricks-Berkadia. They only handle multi-families and have a good presence in the area. (636) 391-3911.

Chris

@Roger Lin

Congratulations on winning the Capital Challenge. That is awesome!

@Porter Rappleye

Ann makes some good points. You could get some amazing exposure to the real estate community and learn a lot from a MRED especially if you are fully committed to it. Then you could work for a company that's inline with your investing goals to learn how the pros conduct business. Mistakes made on your end won't be on your dime and will more than likely be avoided with your support network. If you leave on good terms those relationships can last you a lifetime in your investing career. You might be taking one step back to take a leap forward.

@James Mudd

I think a lot of it depends on your investment philosophy like mentioned above. Would you normally invest in the house (or 2-4 multi) if you weren't going to live in it? If not then analyze why it makes sense to buy a property as an owner occ. I am a huge believer that owning your own "HOME" is not an investment. It depends where you live, the affordability index, buy vs. rent comparison etc. However, generally at best a home becomes a piggy bank/savings account. Obviously people want to own their own home for many other reasons than an investment i.e. starting a family, having a place they call their own etc etc. Most home owners (even investors) are emotionally tied to their own home and make financial decisions that are not always best for the property. Maybe that is over spending on a renovation or finishing a basement in an area that doesn't warrant the upgrade.

With that being said I do think having an owner occ 2-4 unit can be lucrative (depending on area) because of the availability of financing and it's an income property (hybrid). @Michael Seeker also brings up some great points on the pros/cons list.

@Account Closed

HUD does offer a 40 year term with higher LTV's for larger multi-families however I think the program is very strict. It's mainly for affordable or senior housing from what I remember.

@Thomas Swindell

You should be able to add contents insurance of $5,000-$10,000 for a responsible price in the future. I didn't input about other preventive measures because a lot of good suggestions were made however having contents insurance and a lower deductible can be worthwhile as a last resort.

@Thomas Swindell

Most builders risk insurance covers theft (Zurich). Did you have a builders risk policy in place? Also depending on the property adding contents insurance can be worth while in case appliances/staging furniture etc is stolen.

I think it's always worth while to budget in solid insurance that covers theft with lower deductibles because of the rampant theft. Also remember that you need to have a vacant home policy or builders risk (with liability) if you have a home sitting vacant or under construction. I've seen some new or part time investors get burned because they didn't properly insure a vacant property.

Good luck and keep pushing through!