All Forum Posts by: Tom Meade

Hopefully your as-is contract had a provision for as-is, "to be delivered in same condition as the time of execution of contract". If so, seller definitely needs to fix or give you a credit at closing.

Leverage - damned if you do, damned if you don't. If you don't use leverage, its very tough to deliver attractive returns to investors. But when you put hard-pay debt in place on properties, then you can run into trouble if the unexpected happens - i.e. big cap-ex, falling rental rates (yes rents can go DOWN), increased vacancy (for any number of reasons, including functional obsolescence, crime, population and employment shifts etc) or other issues that affect the financial performance of the property.

if you own the property outright (no leverage), then you can either ride these things out or go borrow the money to fix specific issues. But if you have max leverage on the property, you could be in big trouble.

Also, commercial loans typically have balloon structures - amortized over 20 or 30 years, with loan terms of 5, 7 or 10 years. Ask guys who bought in 2005/2006 how things looked when they had to re-fi their deals in 2010 and 2011. Ouch. Bought at the top and forced to re-fi at the bottom, with capital markets still effectively frozen. Not good.

sorry @Karen Margrave

just re-read your post and realized I wasn't really responding appropriately (was surfing around on my phone, back at my desktop now). There is definitely more value if you develop housing with this specific model in mind. But as has been pointed out, this is very much an operator-driven market. It would be like building nursing homes or dental offices. If you have a good customer in mind, and they want to work with you on the design/build, that might be a great fit.

But I don't think the model is mainstream enough yet to be developing these types of properties (SRO or shared housing) "on spec". Just my opinion.

There are a few threads on this topic I believe. This can be a very profitable business but you absolutely have to know what you're doing, or partner with an operator who does. Transitional housing, Halfway houses, rooming houses, recovery or 12-step houses. These are all different twists on the SRO (single room occupancy) or shares housing model. Each tenant may have their own room or share a room, but definitely common kitchens, baths and living areas. As the operator, you may provide some tenant services (eg counseling or food pantry) or none at all - such as in a straight rooming house. Try searching BP and the internet for some of those terms and you should find lots of info. Let me know (with an @ tag) if you have any specific questions I might be able to answer. Good luck!

Bill Gulley -- believe it or not, D4's can be used for market rate new construction (or rehab), by for-profit sponsors.

Jay Hinrichs is a lender up in that area.

Hi David- FHA 221(d)(4) loans are for either new construction or substantial rehab of multifamily properties - defined as 5 or more units. Due to the cost and complexity of the application process, you don't usually see loans less than $1 million, and even at a million it's a relatively expensive option. FHA 223(f) loans are for refinancing or acquisition of existing multifamily and are a little less costly but same basic thresholds apply. Do a search for those terms and you'll find some lender websites with basic loan program info, and HUD probably publishes some fact sheets or FAQs as well. Let me know if I can answer any specific questions for you. All the best, Tom

I've never used thinset under cement board, for what it's worth. I'm not sure you really have standing to make him do it the way you think is right...you say yourself you're a DIY guy and he's the pro...tread carefully

Hi @Jamal White - what you're getting with a JV structure is a partner, not just a lender - so you're giving up equity ownership in the deal. A typical structure I've seen (and used) looks like this: As the General Partner, I might bring no cash to the deal, but I sign for the bank loan or Hard Money first mortgage. My JV partner would bring all the equity needed for the transaction, and earn an 8% preferred return, then we split any upside 50/50

Example: We buy a house for $200k, and put $50 of work into it. JV partner brings $100k equity, I sign for a $150k bank loan. Lets say we sell the property for $350k, net of all expenses. The first $150k goes back to the bank, then the JV partner gets $108k, then we split the remaining profit.

Go into these things with your eyes wide open (which it sounds like you are)...if you think about partnerships, everyone should bring something to the table. So if you're a novice investor, but have contracting experience, maybe that's how you get into the deal. But if you have no cash and no relevant experience, why are they willing to do the deal? Be real careful of the 100% funding scams out there - if you have someone offering you terms like that, but they're asking for all sorts of fees upfront - run!

Good luck!

You *might* get some love from a local or regional bank, but you wouldn't qualify for a Fannie/Freddie/Life Company multifamily loan. You might get a CMBS lender to do the deal, but the seller held second mortgage would be a problem.

Your experience is good, very good even... if you've been involved in LIHTC deals then you obviously understand highly structured, complex deals. Hands on experience is big too, but to get the full benefit for those, you need a relationship banker who can make a portfolio loan for you. But with no cash in the deal, I think you probably have an uphill battle.