Finding, Financing and Syndicating Multi-Family Properties

Michael Becker from Old Capital explain how to invest in apartment buildings from the perspective of a lender, an investor and a syndicator

 

Apartment buildings are the logical step up for most single-family home investors. And apartments are where many of the “big boys” play.

In a low interest rate world, the cash flows on multi-family properties has attracted gobs of capital…creating a many funding options, but also a lot of competition for viable deals.

In this episode, we visit with a multi-family lender, investor and syndicator to discover what he sees…and what he’s doing…in one of the hottest apartment markets in the U.S.

Taking part in this apparition of The Real Estate Guys™ radio show:

  • Your A-class host, Robert Helms
  • His C-class co-host, Russell Gray
  • Our multi-faceted special guest, Michael Becker

 

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Apparently Apartment are Appealing

 

Except for an under cheek sneak rate hike of 25 basis points back in December, the Fed hasn’t been able to pry interest rates off the floor in nearly 8 years.

Since the depths of the Great Recession, investors have been faced with taking their hard earned funds into the Wall Street casinos…OR…putting them into hardly earning savings accounts and bonds.

Once the dust settled after the mortgage bomb went off, apartments emerged as one of the most appealing asset classes…for lenders, investors and institutions.  So much so that gazillions of dollars poured into the space…pushing prices UP and cap rates (yield on capital) DOWN.

In spite of that, apartments remain a VERY high demand product type….especially in the right markets.

 

Apartment Lending Today is as Good as It Gets

 

Assuming your definition of “good” isn’t indiscriminately lending to unqualified borrowers against poorly performing over-priced properties in pathetic markets (say that fast 10 times…that, that, that, that, that, that…..)

Michael Becker says lending today is as good as you can get.  And that’s GREAT news for serious investors.

Becker reminds us that 8 years ago, in the wake of the meltdown, banks were effectively in the fetal position licking their wounds.  They weren’t interested in lending.  They just wanted to survive.

Today, regional and community banks are actively engaged in commercial real estate lending.  Fannie and Freddie have HUGE bucket of over $30 billion to place this year.  And even paper asset investors are beginning to have an appetite for CMBS (Commercial Mortgage Backed Securities) again.

That’s all AWESOME…because funding is the fuel that powers your portfolio.  It’s hard to go very fast without it.

 

How To Qualify for an Apartment Loan

 

The first thing to understand when it comes to apartment loans is that it’s all about the DEAL.  Well, at least mostly.

The lender knows the payments are coming from the operations and not from your personal paycheck.  Whew!

So the lender will take a good look at the property and especially the income and expenses.  If there’s plenty there, getting the loan will be a LOT easier.

But YOU still matter.

The lender wants to know you know how to operate an apartment building.  So EXPERIENCE really matters.

Now, just like your first job, you may wonder how do your get your first deal if you have to be experienced.  After all, if this is your first deal, then by definition you have no experience.

Sounds like a Catch-22.  And it is.  Sort of.

The secret is to partner with someone experienced so you get a deal on your resume.  Then, “Voila!”…you’re experienced.

It’s not rocket surgery.  But you do have to know someone who’ll help you lose your apartment investing virginity.

 

What Are the Risks of Investing in Apartments?

 

Big question.  The short answer is not knowing what you’re doing.  That’s why the lenders want to see experience.

But even when you KNOW what you’re doing as an “operator”, you also need to make sure you’re structured to weather stormy weather.  And we’re not talking monsoons or hailstorms.  More like financial earthquakes.

So our chat with Becker reminded us of some brilliance we penned in Equity Happens

“Cash Flow Controls and Reserves Preserve”

It’s really common sense.  But when an asset class gets hot, price speculation is SO much more exciting than boring cash flow.  And who likes to sit on piles of idle cash for a rainy day?

But sufficient “debt coverage ratio”…a fancy term for Net Operating Income (Gross Rents less Operating Expenses before Debt Service) being MORE than the mortgage payment is not just required…but a good idea.  Lenders usually want about 20% more…or more.  And so should you.

But besides having enough cash flow to comfortably pay the mortgage, it’s important to have enough cash reserves to handle unexpected capital expenses…like a new roof, sewer or parking lot.

After all, if you can’t maintain the property, you’ll lose tenants…and income.  And if you REALLY neglect the property, the regulators might come shut you down completely.  That would be bad.

 

Always Have a Plan A, B and C

 

Real estate investors tend to be optimists.  We buy properties because we expect things to go well.  Otherwise, why would we bother?

And most of the time, most things go pretty well.  At least well enough to manage.  And many of the problems are things we can control…or substantially influence.

But sometimes stuff just happens that’s hard to deal with and outside our control.  So in addition to adequate cash flow and reserves, it’s a smart idea to have more than one plan for the property.

As a rule of thumb, you should never get into a deal…or structure a deal…so you don’t have at LEAST two ways out.  Call them Plan A and Plan B.  And tossing in a Plan C is usually a good idea too.

For example…since we’re on the topic of financing…based on today’s climate (stupid low interest rates) it’s wise to lock in as LONG as possible.  Even if you’re plan is to pump up the rents and refinance out all your new equity or sell to the highest bidder in a couple of years.

What if interest rates rise and there are no good loans available to both you or your potential buyer?  Are you prepared (Plan B) to stay in the deal and ride out the storm?  You should be.

And if you’re syndicating (raising money from private investors) and the property’s doing great (good job!), it can be REALLY tempting to highlight your brilliant investing skills and cut all your investors big, fat checks.

But this drains your cash reserves, and if you fit a speed bump on that rocky road to riches, a little cash can smooth things out.  If you don’t have it, then you might need to make a dreaded “cash call” on your investors.  Yuck.  That’s no fun.

What IS fun is listening to a smart and accomplished guy like Michael Becker talk about how he went from small time to medium large time in just a few years.  Over 3,000 doors and counting.

Now THAT sounds like a good plan!

 

More From The Real Estate Guys™…

 

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.

Keys to Investing Success Mastery with the Legendary Brian Tracy

Brian Tracy created Success Mastery Academy to share his time tested principles of success

Overview

Special guest Brian Tracy is a legend in personal and professional development training. In a prolific career spanning decades, Brian has trained millions of entrepreneurs, investors, small business owners and corporate professionals.

Brian’s enduring appeal can be summed up in one word: effective. Quite simply, his stuff strikes the important balance between inspiration and practical how-to.

And because personal effectiveness is a huge part of successful real estate investing, we’re excited to have Brian as our special guest for this episode.

Manning the microphones for this masterful edition of The Real Estate Guys™ radio show:

  • Your master of ceremonies host, Robert Helms
  • His master of nothing co-host, Russell Gray
  • Our master of success guest, Brian Tracy

 

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Subscribe

Broadcasting since 1997 with over 300 episodes on iTunes!

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When you give us a positive review on iTunes you help us continue to bring you high caliber guests and attract new listeners. It’s easy and takes just a minute! (Don’t know how? Follow these instructions.)  Thanks!


 

“Mastering others is strength.  Mastering yourself is true power.” – Lao Tzu

When it comes to success, few people in modern times have had as much impact as the legendary Brian Tracy.

A best-selling author, entrepreneur, professional speaker and success expert…what many people don’t know about Brian is he also has quite a background in real estate.

In fact, way back when Robert Helms was in the formative stages of his real estate career, he heard Brian talk about being involved in over $100 million of real estate development.  Back then, $100 million seemed like a HUGE amount.

Little did either of them know at the time what the future would hold for Robert…or that one day he and Brian would become friends.  And now today, Robert is speaking at the 20th anniversary of Brian Tracy’s Success Master Academy in Dallas on May 13-15, 2016!

Investing Mastery Starts with Success Mastery

Our magic formula for success is V + K + D = EA.

V is for Vision.  We say when you have clarity of vision, strategy and tactics become evident.  Put another way, when you can see the cover of jigsaw puzzle box, it’s easier to figure out where the pieces go.

Most of have a vision.  We have a pretty good idea what we want our lives to look like.  When we have that, it’s easier to decide what our portfolio needs to look like to support it.

Again, the more CLEAR you are on both counts, the more more likely you’ll make good choices between what to put in…and what to leave out.

But there’s more to success than Vision.  You also need…

K for Knowledge.  Knowing WHAT you want…or what OUTCOMES you want…is very different from knowing HOW to get there.  It’s great to be motivated.  But you also have to have practical, tactical know-how.

So Knowledge is just as essential as Vision.

The good news is we live in the information age.  The know-how to do almost anything is right in the palm of your hand.

But if knowledge is ubiquitous, then why doesn’t EVERYONE succeed?

It comes down to…

D for Discipline.  And this is REALLY the key.

Sure, Vision and Knowledge are VERY important.  But without the discipline to actually DO what’s needed…nothing happens.  Knowing and not doing is the same as not knowing.

But when you can put Vision together with Knowledge and the Discipline to go do it, you get…

EA for Effective Action.

This formula really applies to ANY area of achievement.  So when you’re not producing the results you want, ask yourself if you’re clear.  Would you recognize success if it was standing right in front of you?  Do you know what “success” looks like?

Do you know what needs to be done to achieve your goals?  Do you have the knowledge?  Do you know who to ask or hire?

If you’re know what you want and you know how to get it, then all that’s left is doing it.  Easy, right?

Not always.  Think about all the people who want six-pack abs.  They know what it looks like.  They know how to do it.  But do they have the DISCIPLINE?  Most don’t.  That’s why doing it so special.

The same is true with your investing.

 

Feed Your Mind Great Ideas and Mingle with Great People

It may sound a little kooky, but how you talk to yourself matters.  Rich Dad Advisor Blair Singer calls it your “little voice”.

You can encourage yourself or demean yourself.  It’s a choice and a discipline.

Of course, a huge shortcut is to spend time hanging around with, listening to and talking with successful people.  Especially those who are successfully doing what you want to do.  That’s because you pick up both attitudes and knowledge…at the same time!  What a shortcut!

It’s why we’re so committed to attending, producing and promoting LIVE events.  They’re great ways to get into real world relationships with great people.

How do you know the people at a live event are a cut above?

Because they’re THERE.

Think about it…

For every great person who shows up at a live event…overcoming the barriers to entry like travel, expenses, tuition, time away…there are hundreds of people whose little voice talks them OUT of it.

I can’t afford it” or “What if it’s no good?” or “I’ll probably never follow through anyway…so why bother?

That’s loser talk.  And the good news is those people seldom show up at a properly priced live event.  So the chances are good you’ll meet a disproportionate number of positive, high achieving interesting people…simply because there are more of them in the room.

Brian Tracy has been the attraction to bring millions of high achievers together over the last few decades.  We’re excited he’s doing it again in Dallas on May 13-15, 2016.  We’re going to be there.  We hope YOU are there too!

Remember:  You’re always just one great idea or relationship away from hitting a new high in your business or investing.  But great ideas and people seldom interrupt you.  You need to seek them out.

More From The Real Estate Guys™…

 

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.