All Forum Posts by: Tanner Sherman

Paul, 

It sounds like you are raising private capital, so the first thing you are going to want to do is meet with a real estate syndication attorney to make sure you are doing everything correctly in order to not subject yourself to the wrath of the SEC. 

There are other legal structures that do not involve the business of selling securities, and a real estate attorney can help you set that up property in order to protect yourself. Problems arise when investors don't get the return they were expecting or the market shifts, and then everyone gets sue-happy. 

As far as providing returns, I think the best way is to structure your partnership like a large syndication, offering investors a preferred return of 6-8% before you see a penny. After that you split remaining cashflow anywhere from 50/50 - 90/10 with the favor going to the investors. 

You could also take investors on as debt- offering them a fixed interest rate whether the property performs or not until they recover their capital via refinance or sale of property. This interest rate would be negotiated between you and your investors but typically sits in the 10% range. They trade off is if your properties provide 25% IRR, your investors do not get the upside because they got the security of fixed rate return. In the previous example, the investors share the upside and the downside, but either way you are motivated to get the properties to perform as you don't get paid until they do, which is comforting to investors.
 

I would recommend talking to a commercial appraiser so they can explain to you how they value properties. In commercial multifamily (5+ units) we do not determine value by comparable approach, we use the income approach. We do still need comparables to determine what the cap rate is for a particular area, but after that the ARV is determined by the income it produces. For example, if your 5 unit property is rented out for 1k per unit, and expenses are estimated at 50%, your annual income is 60k, minus expenses gives you a Net Operating Income (NOI) of 30k, and if your area is operating at a 6 cap you would divide 30k by .06 giving the property a value of 500k. 

To learn more about cap rates check out this Biggerpockets blog article here.

Thanks for sharing, looking forward to it!

Well thank you- you are absolutely right, it is completely underutilized and the houses I show that have the pre inspection waiting when you open the door stand out from all the sellers that don't get a pre inspection. 

Another trick I like to use is have my sellers find a copy of the inspection they got when they bought their house and cross off the things they fixed then share that with potential buyers. 

Have you tried checking out the Find an agent tool at the top of the page? It's a great way to find investment minded agents in your area. 

It is not foolish to limit yourself to one area, in fact, I believe you should become an expert in one area before moving on to another one. If you are going to focus on one specific part of town and are looking for one specific type of house, you will be ready when that deal pops up. If your criteria is too specific, try broadening a little bit. If you realize your goals don't align with your market, that is when you should choose a different market like somewhere in the midwest. 

This question would be best answered by your lender. Because it is a commercial loan, you are actually at an advantage over residential loans because you do not have a 6 month seasoning period. You could pay cash for a property one month and then fix it up and raise the rents and the next month you can do a cashout refinance with a commercial loan. I would also talk to a commercial appraiser to learn how they value your property via income approach. I believe this is your best course of action right now over a HELOC.

This is a tricky question- while the roof itself will not necessarily directly help your sale price, NOT doing the roof could negatively impact your sale price. Take into consideration the curb appeal, functionality, severity of roof damage and age of roof when deciding whether or not it needs to be replaced. If the roof functions fine, doesn't appear torn and ugly and still has 3-5+ years of life left, then you should be fine to not replace it. Bert bet would be to get a roofer to check it out and pay them to write you a letter you can include in your listing explaining the life remaining. 

Some hard money lenders will cover the purchase price and the remodel costs if the ARV looks good. There are rehab loans out there but both HML and banks typically want you to have some kind of skin in the game. All of this depends on the ARV of course. If you found a property that has an ARV of over 265k, I'm sure the banks would line up to lend you that 35k.

Interview local small banks and see what their lending requirements are, and what LTVs they can offer as well as seasoning periods. Check out this Biggerpockets blog to help you interview lenders by clicking here.

Andrew,

The first, most important thing to do is get guidance/clearance from your broker. Wholesaling real estate is an area that many brokers do not want their agents getting anywhere near, due to potential legal issues. Other brokers will just require you to be extremely transparent with all parties involved about what it is that you are doing and there may be additional disclosures you need to get signed. I would start by giving them the option and being extremely clear about the trade off- I can list your house for x amount, after fees, commissions and headache you are left with x, or I can agree to buy it from you, cover all closing costs and you don't have to do a thing to it but I will be selling it to a 3rd party for a fee. Their next question will naturally be wondering how much you would make. This question is the reason why many brokers do not wish to engage in wholesaling, because most wholesalers don't want anyone to know how much they are making on the deal and if you are a real estate agent you are expected to be a fiduciary. If the seller knows you are an agent, and you tell them their house is only worth 50% of ARV, they are going to be pretty upset when they find out you made 20k selling it for 70% of ARV and this opens you and your broker up to lawsuits.

I have tried many different money saving tricks in the past, the envelope method, swear jar, 52 week plan, you name it. The one trick that always worked for me was the $5 Bill savings plan. This one is pretty simple, every time you come into contact with a $5 bill, you put it into an envelope. If you spend a $5 bill, you must put $20 into an envelope. This method is extremely effective if you work a tip-based job like bartending. I was able to save up thousands of dollars in a couple of months, and it shifted my mindset to break down my large bills and consolidate my $1s into $5s; I got excited to hide money from myself. 

The most important thing I learned from this, I now know as Pay Yourself First. Working in the 21st century, most jobs utilize direct deposit so savings tricks that require you to put aside physical dollar bills are more of an inconvenience when you factor in having to remember to withdraw money. Luckily, setting up allotments with your employer is fairly easy to do, and you don't necessarily need to invest this money. If you put it into an account that you don't check very often and just forget about it, you will be amazed at how quickly this account can grow.