All Forum Posts by: Tyler Kastelberg

@Ty Kester

Ty - Your best bet for construction financing for a deal like this will be hard money or a local bank. As you eluded, you won't be able to secure institutional financing until stabilized. With either the hard money lender or local bank, you'll probably need a balance sheet partner.

@Omar Khan - Do you know any sponsors in OKC who could talk to Ty?

@Snehann Kapnadak

Snehann: Contrary to most of the thread, I'm not a fan of giving equity to property managers. As a sponsor, I find it important to keep autonomy to remove and replace the property manager. When a PM has equity, this becomes more messy.

If you go this route, make sure you have a call option on their equity so you can cleanly end the partnership if needed.

@Anthony Pace

Anthony: I second @Jeff Kehl

One thought ... if the market vacancy and other local indicators suggest you would be able to find a tenant, you could purchase a commercial building and "shell it out." Completely demo the old interior, nasty dry wall, and false walls. Install fresh drywall (where it makes sense) and repaint a nice white color. This will give prospective tenants a clean slate with which they can re-imagine the space on a tour.

Best of luck!

@Lawrence Zhou

Great timing - I'm working on a blog post that will outline the parts of an investment memo. Will send you a template that I use for my clients.

@Daniel O'Neill

Daniel - Welcome to BP!

A few thoughts as you begin your journey into RE investing:

1) Follow the advice of the above folks - don't go turnkey. Turnkey properties (along with any single family investments) carry significant tenant and capex risks. One bad tenant or an unexpected roof leak can decimate your return.

2) The biggest determinate of an investment's success is property manager (also referred to as operator). Do your research, and choose wisely.

2.5) Never sign a long term property management agreement with an early termination fee -- keep flexibility to replace your manager (you only have to make that mistake once $$$)

3) Consider investing in a large property as a partial owner rather than buying a small property, especially early in your investing career. When you invest alongside an experienced team, you'll learn a load of good information that can be applied to your future investments. I think highly of @Omar Khan and his operation -- I'm sure he'd be happy to field your questions about investing as part of a syndicate.

Best of luck!

@Caleb Silvers

Caleb: Sounds like an interesting project. Given the repair needs on the building, I'd bet the renovations will be greater than $150k. A few things for you to keep in mind:

1) Check the zoning. Could this potentially be a development opportunity to raise the current structures and construct a new building with more units?

2) You mentioned the property is old ... could it be eligible for historic tax credits? Some banks will buy the credits from you, reducing your all-in costs.

3) If gutting, be sure to decommission any central utilities (boiler, etc) and separately meter the units. New utilities should be installed as to allow for costs to be passed to residents. 

@John Moon

Given the information above, I believe you have two good options: 

1) Finance all three separately on conventional, FHA financing (under 4 units)

2) Approach a local bank on the deal. They most likely won't allow as high leverage as FHA in (1), but they'll be used to "unique" situations.

@Daniel Brown

Daniel: The renovation costs are going to be very dependent on construction costs in your market. I can tell you that I repainted the building, and that alone cost $30,000.

If you can show a lender that the ARV will be much greater than your all-in costs, they might be willing to lend 80-85% on the total project.

@Daniel Brown

Daniel: I've purchased and rehabbed a building very similar to this and have learned a few things that you might consider:

1) Consider investing in an update of all the major systems, including plumbing, electrical, and HVAC

2) The key to making #1 profitable is passing utility costs to the tenants -- make sure electric and heating/cooling is controlled and paid by tenants

3) Plaster is terrible to maintain over time ($$$). If falling apart, consider removing and replacing with drywall.

My gut tells me that you're a bit low on your renovation estimate. 

Model it out to see if it makes sense. You might even be able to get high leverage construction debt while you're doing the renovations. 

@Ian McDonald

Of the list that I shared, the census data is actually my favorite. It is backward looking, but I like how it paints a picture of population migration over time. For example, you'll find Chicago has been shrinking over a number decades while other major metropolitan areas have seen continued growth.