Ask Mike

Got a question you’d like me to answer ? Then fire away below! I’ll post a response and may also talk about it on a future podcast or blog article..

If you have something of more personal nature to ask me (not too personal I hope -;) then please use the Contact form instead.

  • Kim

    Hi Mike,

    Are there any resources you recommend for learning about the new construction side of apartment building investing? We own a piece of land and are thinking about building a 21-unit complex on it. Not sure what to expect as far as the timeline goes for returns when starting from scratch like this. Would also love to learn about the best ways to structure things with investors on a more long-term project.

    Thanks!

    Kim

  • Hmm, I don’t know any resources for new construction …

  • Sam Steinmetz

    Hey Mike,

    Love the value you bring to all of us your content is amazing. I got on your spreadsheet for duplexes today for the first time. How do you make sense of the numbers/ returns for the investor and yourself if you barrow the downpayment capitol. Can I customise it or do I need to use the Syndicated Deal Analyser for that? I can see how it would be a no brainer if you were using your own capitol, awesome tool.

    thanks in advance

    Sam

  • HI Sam – thanks for the kind words. The duplex spreadsheet is a very simple spreadsheet, and yes, if you want to do something more sophisticated (like calculating returns for investors), then that’s when the SDA shines. Or yes, you can modify it to do what you want 🙂

  • Quinn Cheung

    Hi Mike (can I call you Mike?). I’ve done flips and have owned MF properties for about 5 years (an 8 unit + a 5 unit). I took a 10 month course on real-estate investing here in Montreal, Canada. I’ve been trying to find the recipe for replacing my 9 to 5 job income with real-estate investing (as you promote vigourously in your podcasts). What you preach in your podcasts may work in the U.S., but VERY difficult to do in Montreal and even outlying areas. With what MF properties cost here vs. their income, there is typically very little to NO cash flow at all from these buildings – the profit only comes from mortgage paydown (so equity) and the theoretical increase in value. With hardly any cash flow at the end of the month, not only do I have to stay at my day job, but when major renos need to be done I have to finance them out of my own pocket (which in fact forces me to keep my day job, doesn’t it?).

    The price vs. revenue problem is compounded by the fact that the laws in Quebec governing landlords/tenants are EXTREMELY biased in favor of tenants due to legistlature that was passed in the 1970’s when there were barely any laws at all and it was the landlords who were abusing tenants. As such, when a tenant stops paying it takes between 3 to 4 months to evict them (which is all lost rent). In one of my worst years, I lost 19% of the annual income in unpaid rent on one building, none of which I will ever see even if I go to court to chase after the tenants because of the laws here.

    I would like to see some concrete examples (the numbers) of properties in areas of the U.S. that allow people to pull out positive cash flow after expenses are paid. I am open to investing in the U.S. if the numbers make better sense than here. Here is one typical example of a property in Montreal an agent sent me this week (all costs and income is per year):
    10 units
    revenue: $75192
    energy cost: $400
    city taxes: $9363
    insurance: $3700
    financing: 2.8% over 25 years
    asking price: $1.3 million
    Are those the kind of numbers that would allow someone to quit their day job? Are there areas in the U.S. where properties are more profitable? Do you think that what you promote on your podcasts only applies to the U.S.?

  • Hi Quinn … I don’t know much about RE investing in Canada, but the way you describe it then, no, it doesn’t appear to be the best place to use real estate to quit your job. I do know of a couple of Canadian investors who are syndicating in the U.S., probably because of the phenomenon you describe. So it might be good to look at the U.S. market. Just keep in mind that “good” deals are still hard to find and won’t just fall into your lap. Good luck!

  • Dan

    Hi Mike.. I have the syndicated deal analyzer.
    I had a question about the Returns Tab.

    I noticed that for overall returns, the acquisition fee is included in Year 1 cashflows.

    If I were to present overall returns to a bank or investor, would it be standard to show the returns that include acquisition fees?

    Thanks!

  • Quinn Cheung

    Thanks very much for the reply! Appreciated!

  • The bank normally only cares about the NOI, not any kinds of acquisition fees.

    In the Returns tab, under “Summary of Combined Cash Flows and Returns” that should only contain the cash flows and not the acquisition fees.

    Please let me know if I’ve got it wrong … thanks!

  • Dan
  • Hmm, yes, now I see what you mean. I could go either way re: this. On the one hand, I as the syndicator want to see the combined TRUE cash flow of the (mine and the investors) and so I may want to see the acquisition fee.

    The bank is not going to look at this tab anyway. They’re more likely to look at the P&L tab because they’re mostly concerned with the debt service coverage ratio.

    I think this one’s a judgment call, but you are free to change it in the SDA.

    Nice find, and I appreciate the discussion!

    Michael

  • Glenn Toler

    Hi Michael,

    I have studied more info about multi-family properties from .
    your site and bigger pockets.

    I am very interested in acquiring multi-family units, and I have come across
    what appears to be a good property…..9 units.

    The question I have for you is the following…..
    the seller has agreed to do a carryback [second mortgage] for 25% of the purchase price.
    I have to come up with the remaining balance of pp and approx. $10,000 in cosmetic improvements
    to the exterior, such as paint, and new screens for windows.

    How likely could I get financing for the remaining balance and repairs, with the owner doing
    a 25% carryback?

    PP: $157,000
    Rehab: $10,000
    Owner Carry: 25% [$41,750]

    Not under contract but negotiating to get under contract within the next 3 days.

    approx.: net income monthly: $2145 before debt service
    rents can be raised because under current market rents for the area.

    Any info you could provide would be greatly appreciated.

    Glenn E. Toler
    GM REAL ESTATE INVESTMENTS, LLC

  • Glenn:

    > How likely could I get financing for the remaining balance and repairs, with the owner doing
    a 25% carryback?

    It depends on two things: (1) your ability to qualify for a loan and (2) if the bank would allow a 2nd mortgage on the property. You might have to ask around til you find a bank that will, but it’s possible.

    HTH – Michael

  • Ivan Terrero

    I have acces to off market deals, but no cash or credit to invest………how can I find a sponsor negotiate a bird dog fee?

  • Dan

    If your deals have enough spread, it shouldn’t be too hard. Put together a spreadsheet with the numbers, zip code or neighborhood, and present it at a local investor meetup or REIA meeting. You should get some bites. Or you can use investor Facebook groups or BiggerPockets, if you want to try to do it online. Or post it here if Michael’s okay with it.

  • Dan

    Thanks! Makes sense.

  • Dan

    Try looking at Mobile Home Parks. The cost per door is lower than SFRs and MFs. So more cashflow for your buck.

  • Ivan Terrero

    Thanks, I will ask Mike for permisssion

  • Why not join the deal maker’s mastermind program? Learn to analyze deals properly and submit deals to me. Here’s more info: http://www.ultimateapartmentinvestingguide.com/mastermind-lto. My partnering requirements are here: http://www.themichaelblank.com/partner

    Looking forward!

  • Tony H.

    Hi Michael!

    i’ve been LOVING the SDA. .. the best spreadsheet out there by far.

    Situation.. . a broker (Marcus & Millichap) approached me with a deal I love and want to move forward with it. It’s in an out-of-state market I’m somewhat familiar with. Thing is, being they brought the deal to me, they will not pay any commission to a broker I bring in to help me. They want to rep both parties. I like the broker, but I feel like I may need someone there on the ground being it’s an out-of-state deal and my first apartment building.. . … you know how it is, the first deal brings a lot of anxiety with it!!

    Question…. is this much of an actual issue? is it really necessary for me to have my own commercial broker on this deal? I have a Prop Mngr who will be able to walk the property as well as an eventual attorney. Can an attorney essentially hold my hand through the deal or do you recommend having a broker onboard?

    Thanks for any advice!

  • No, you don’t need your own broker. In fact, as you noticed, it may actually hurt you since most commercial real estate brokers don’t like sharing their commission.

    Hope that helps!

    Michael

  • Tony H.

    Thanks for that Michael!

    In your opinion, if I didn’t have my own broker, who would be able to advise me on putting the deal together, contingency periods, what to ask for, push back on, etc?

    Is that something in the wheelhouse of a real estate attorney?

    Thnx!!!!

  • Hi Tony – that is all your responsibility -;) Hence all of my free blog posts, podcast, and videos LOL !

  • Tony H.

    Hi Michael. . I’m looking at a deal where we’d purchase a 24 unit bldg’s LLC. This would let us keep the current lower tax payment for the time being. Do you or anyone else have experience with this and has anyone experienced a massive tax increase a few years into the deal?

    Thnx!!

  • that could be a possibility. the main risk in doing that is that you assume any liability of the LLC (whether you know about it or not). Definitely check with your attorney to help you with this. I do like the creativity though!

  • Tony H.

    Great advice Michael. . very good point about inheriting any liability from the previous owner. I’ll get my attny on it. Thn!!

  • Tj Hines

    For a deal that I’m looking to present to investors do I have to figure out the acquisition costs, bank lending fees, closing costs etc. before presenting the deal to investors? Or do I simply leave this out of the summary in SDA and show just the investor returns when presenting the deal?

    If I do I have to show how much acquisition fees are to get more realistic returns, do I gather this information before or after I have the property under contract?

  • These fees are broken down in the “Acquisitions Cost” tab of the SDA excel sheet. You can review and modify them there. They also auto-populate into the Summary tab as “Closing Costs” and are considered in the “Total Member Capital Needed To Close” value.

    The costs have been filled out with rule-of-thumb numbers, but following up to confirm them isn’t a bad idea.

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