All Forum Posts by: Tyler Kastelberg

@Gary F.

Gary: You'd net ~93.5% of your net sale price (after realtor fees). The 6.5% that you forgo includes legal costs to execute the monetized installment sale and transaction fees.

My 2 cents:

1) Monetized Installment Sale - Great if you want to liquidate your real estate and invest in other assets

2) 1031 Exchange - Great if you want to re-invest in real estate (and can find a new deal to buy)

3) Lease Option - I'm not terribly fond of lease options because you "cap" your upside and simply defer the decision to do a monetized installment sale or 1031 exchange to the future

@Kim Hopkins

Kim - Thanks for the clarification. I can't speak for other folks, but on my properties I have my accountant accrue the property tax payment over the life of the property tax period. For example, I pay quarterly property taxes on January 1 for January through March. My accountant expenses 1/3 of cost on the income statement each month and puts the remaining balance on the balance sheet as a pre-paid expense. This helps level out the cash flows on the income statement.

Does this help?

@Michael Le: Thanks for the follow up! I started typing out an extensive critique of his model, but I decided it best to send to you in a personal message. Blank has done a great job educating eager multifamily investors, and I'd hate to start a rift on the interwebs. My recommendations are a good way to "level up" your analysis in ways that paint a more accurate picture of risk and return for investors. Be on the lookout for a note in your inbox!

@Gary F.

I've advised on a few monetized installment sales -- one quick consideration: I haven't found a monetized installment sale dealer who will do a deal that is less than $1 million. If less than $1 million, opportunity zones might be your best option.

Good luck!

Sam Epperson Sam: Michael Blank creates great content but the underwriting model that he sells is not sufficient to adequately evaluate a multifamily deal. You’ll want to leverage other resources for modeling, and you might consider outsourcing to an expert if numbers aren’t your forte. My rule of thumb ... if you personally can’t build an excel model that accurately creates a picture of a deal, you should consider outsourcing. A model is only as good as its user, and it’s impossible to know the strengths and weaknesses of a model that you didn’t create yourself. Last thought ... working with an experienced partner on your first deal will teach you more than any online course. Best of luck!

@Sam Ojo

Sam, Assuming there is an HOA, be sure to consider the health of the balance sheet. You'll want to consider this in your underwriting, especially if there is a material risk of a capital call in the future.

@Toben B.

Toben: 24 units is a great size! It's still too small to form an on-site management team, so your biggest asset (and risk) will be a strong property management team.

The underwriting will be important. You'll want to make sure your growth assumptions, rent roll assumptions, and expense assumptions are independent of the broker's opinion. Costar has good data, but you'll want to supplement with local research (apartments.com, craigslist, zillow, etc).

@Kim Hopkins: It's more reasonable to model deals on an "accrual method," meaning you would spread the property tax cost evenly across all months. Most accountants will accrue these costs on an income statement. It's in your best interest to keep a healthy reserve balance for the property to support these ebbs and flows of cash flows.

@Matt McCue

Great thread!

Unfortunately, underwriting mixed use properties correctly takes a lot of modeling experience. 

You'll want to create a pro-forma (cash flow projection) for both the multifamily section and commercial section separately, then combine them in a summary pro-forma. 

Commercial underwriting requires that each lease is underwritten individually (so you'll want to ask for the leases). You'll want to assign probabilities to lease renewal and  assume a market vacancy, even if the units are currently 100% occupied.

Best of luck! DM me or reply here if you have any specific questions with the analysis. 

@Nicole Chang: I'm going to provide a counter argument to turnkey out of state investing. 

I'm not a fan of investing in small properties located in areas that are not familiar with unknown managers. The biggest determining factor of a profitable investment is a competent manager. It's hard to find good managers for small properties as the barrier to market entry for said managers is very low. Couple that with limited market knowledge, and you could find yourself in trouble.

Folks are finding deals in the bay area. Richmond and East Oakland provide opportunities for investors who have an appetite for low-income, high crime areas. The first in Santa Rosa have created an increasingly large housing shortage, providing opportunity to developers. 

If you have an appetite for large multifamily (80+ units), the conversation changes.