All Forum Posts by: Christian Cascone

Be sure not to confuse gross profit with cash flow...run the numbers on the BP rental calculator and you'll be able to answer your question based on your investment criteria...

Appreciate the kudos @Marvin McTaw

So I spoke to the city's P&Z Senior Planner and he confirmed that based on current zoning and lot size, the city will allow us to add a third unit to the duplex!  Never ceases to amaze how taking the time and effort to put in good due-diligence work can pay huge dividends.  

You absolutely nailed it Jimmy. Having vision, understanding rehab implications and knowing the market cold are key to making this work.  Institutional investors do this all the time in prime markets...they will pay top dollar, with a clear highest and best vision.

Certainly not for the faint of heart, but in some ultra-competitive markets, faithfully sticking to a conservative approach and rule-of-thumb numbers often leaves investors sitting on the sidelines, frustrated and empty-handed. 

I've developed over $100 million in commercial and investment real estate in my career and I've got some unconventional advice you won't hear everyday...if you want to win in an ultra competitive real estate investment market...overpay.  

Before you tune me out as a crazy contrarian...let's consider some reality check perspective...

The road to real estate success is paved with countless golden tales of auction bargains, foreclosure and shortsale deals, distressed property below market buys, off-market steals and great negotiation tactic strategies.  Everyone seems to have a story...so why is it that finding a great real estate deal often seems so daunting and difficult...?  

There are of course, deals to be had in every market and we've enjoyed our fair share...but what do you do between the one-in-a-millions...?   Without question, the real estate investment market has generally gotten quite crowded, competitive and even saturated...especially in multifamily.  A great apartment developer friend of mine, who has been in the game some 50 years and has successfully developed thousands of units, recently estimated that he believes some 10%+/- of Atlanta residents now consider themselves real estate investors in some capacity...that's over 500,000 people if your counting.  Whether he's right or not is largely irrelevant...the fact that the perception even exists is telling indeed.  

I attended a duplex auction the other day in South Florida--some 80 people showed up before I lost count...and nearly all registered to bid.  They were not the usual suspects...moms carrying babies, retirees, young couples just out of college (some still in high school I think!), grocery story and machine shop employees in uniform...I estimated that maybe 10 or so were seasoned investors.  When the auctioneer asked how many were attending an auction for the first time, nearly half the crowd showed their hand.  (Bonus advice...never show your hand.) 

How can anyone investing using hard disciplined numbers possibly win in that kind of environment.  Someone less experienced is bound to overbid investment grade pricing through emotion and/or lack of experience.  

The answer...work harder, be more knowledgeable and be willing to overpay for the right deals.

Starting bid on that duplex was $100k, turn-key NOI profit ended at $250k (investors out), the easy to access online sales comp market value was $285k...once the bid crossed market even the newbs reluctantly stopped bidding.

We won the auction at 10% over current market.  Everyone applauded, then looked at us like we were crazy (and maybe we are).

Look closer.  The duplex in question had great potential and attributes. Ideal central location (with new Class-A all around), very nice neighborhood, good bones, easy conversion from 2/2 to 3/2 units, good rent comps, high potential rent increases through capital improvements, no title issues or liens conveying clean title and warranty deed, well-liked long term month-to-month tenants paying well-below market rents.  The current numbers didn't work at our buy price, but everything else did.   Most would call this speculation...I call it doing what it takes to get the upside.  

This is of course, a numbers game, but sometimes getting lost in the numbers alone means not being able to look beyond what you see and closing a great opportunity (that's some great Lion King wisdom right there!).  I don't really like to buy on speculation or potential, but in certain markets, you have to be willing to do the hard work to beat the competition and take on a bit more risk.  We saw things in this property that others did not, or at the very least, were willing to take on more risk to get the deal.   Sometimes you gotta break the rules to beat out the competition...just be certain that its the right deal and you know what you're doing.  

We did this on another property a few years back. Asking was $250k, NOI max price was $285k...we beat out 9 other offers by breaking the psychological $300k barrier and buying at $305k (yup, $55k over asking). After $150k of reno, property currently does $85k gross/year with an NOI of $59,500 and is currently worth $850k at a 7-cap. Guessing a couple of those other 9 buyers wish they'd ponied up that extra $20k.

Whether it'll pay off this time remains to be seen...now the fun begins...who's ready to reposition and force some value!

To quote Captain Barbossa..."The Rules are more like...Guidelines really..."

Check out the BP Hard Money directory Hard money just means money lent against a hard asset.  These loans cost more, but when used properly, can be a great tool for the sophisticated real estate professional...especially once you establish a relationship with the lender.

Seller financing for all or part of a deal, is often as easy as asking the seller to do the deal...never ceases to amaze how few people ask.  You have to know what you want, then ask for it.

Angels and private money are relationship deals.  This approach has been most famously utilized and institutionalized by Silicon Valley, but fundamentally it's all about relationships.  Angels get to know you, your vision and your deal/product/company...then they decide if the total package merits VC funding.  It's no different in real estate.  Know your stuff and present a great package...when done right, you are doing the investors a huge service.  You've done all the work and all they have to do is watch you make them money.

Putting deals together without using your own money is not nearly as difficult as people think.  Remember that investors are investing in you, before they invest in the deal.  Learn as much as possible and know what you're doing, network and build relationships...then have the ability to identify the deal and the courage to act on it.  Having sincere objectives beyond just making money goes a long way towards getting people to want to do business with you.  These are a few keys to successfully funding and closing deals.      

Way to take action!

More information is needed to accurately evaluate your deal, but based on what you've provided...

1) Any US bank will absolutely require a down payment, usually on the order of 25% and perhaps more...there will also be a reserve requirement.  Expect the banks to hedge their risk since this is your first MFH deal.  But that doesn't mean you have to use your money for it.  There are many ways to make this kind of purchase without using your own capital...seller financing, private money and angels are all great options.

2) Type of loan and terms is contingent on lending entity criteria, deal parameters, buyer qualifications, collateral value, et al.  You may have to pay a bit more to get into your first deal...the value add is education by doing.

3) Appraiser will determine asset value, underwriting will determine value to lender...low occupancy may factor.  You may want to consider a bridge loan to reposition the property, then refi at 6 months into long-term commercial financing.  Qualification will be largely asset-based for the bridge, then occupancy and debt-coverage based for rental financing.

4) Yes. Value in commercial goes up based on the NOI. Increase net income, increase value.

You are in the right place...BP has literally thousands of resources and posts that offer a free education to those seeking it out.  You've got the take-action part going.  Spend time networking, researching and learning...and your deals will come together through the power of knowledge and eventually experience.

Added to my calendar...thank you for organizing Jon.  Please add me to the ping list.  Look forward to meeting and networking with a few fellow local BP investors...

@Stephanie Younger I am a national development director and have interviewed and screened literally hundreds of contractors for virtually any and all trades that you could possibly imagine.   I would recommend approaching hiring a contractor the same way a manager would go about hiring an employee... 

Absolutely make use of all the online tools available throughout the process

Evaluate resumes and reviews/recommendations from trusted resouces, peers and past clients (like you would on LinkedIn for example)

Narrow down your search to the top candidates and schedule in-person interviews

Choose your top 3-4 final candidates and check references

Then ask at least three to provide bids for your scope of work required

Evaluate the bids and pick your top candidate...then there is one crucial step left...

Make sure to take an in person look at the physical finished work your final chosen contractor has done recently.

Like almost everything else in real estate, choosing a great contractor requires time and effort.  But once you find a great contractor, you can use them indefinitely in their area of expertise for most all your projects going forward.   And if their price seems high on other projects going forward, it's always good to compete the bid so they don't get too comfortable!:)

Hope this helps...