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.

  • Hi Alex,
    Yes, the lenders I’ve worked with do non-recourse loans.
    Thanks,
    Michael

  • Alex Picazo

    Are you able to make any intros?

  • Ricardo Yey Lopez

    Thank you

  • Mike, here’s some feedback from one of the lenders I’m building a relationship with:

    We can grant Ken debt financing for 4.75-5.50 over the LIBOR, which would fall in the 6% – 7.40% range today.

    We can’t offer financing until we understand the organizational structure of the ownership entity. We would really like to see Ken have at least 20% ownership interest (25% would be even better) and be the managing member. He needs to make sure he has the authority to make financing decisions when they create the entity.

    Please advise. – Ken

  • kelvin ayres

    hi Michael do you also work with mobile home park investors?

  • Ben Wofford

    Michael,

    I have a couple different questions that cover different topics.

    Question 1: Let’s say you have five investors to fund a deal you found. You find that the equity split would best be 50/50. 50% for the manger and 50% for the investors. Since there are five investors, how should the investors split their 50% equity? I don’t understand this. Does each investor only get 10%?

    My second question is about the Ultimate Apartment Investing Course.

    Question 2: Does the course contain exclusive content that can’t be located outside of the course? I ask this because I’ve noticed you write many informative blog articles that cover just about everything related to multifamily investing.

    Question 3: Last but not least, are you planning on doing a black Friday sale on your products?

    Thanks for your time.

  • Hi Alex – via the Deal Desk (https://www.ultimateapartmentinvestingguide.com/partner/) process we can help connect you with a lender if required.

  • Hi Kenneth – If you are asking about the General Partnership that process is worked out via the Deal Desk process (https://www.ultimateapartmentinvestingguide.com/partner/).
    Thanks,
    Michael

  • Hi Kelvin – At this time we are focused on traditional multi-family apartment buildings.
    Thanks,
    Michael

  • Hi Ben,
    1) Typically the investors, or members, or limited partnership side of the entity would be split based on how much each investor contributed. If they all put in the same amount they would all get an equal percentage of the deal.
    2) The Ultimate Guide course goes a lot deeper on most subjects and there is unique content.
    3) I can’t believe it is almost here! Let me think about a possible sale.
    Regards,
    Michael

  • Anthony Clarizio

    Mike, I received a paid receipt for the Syndicated Desl Analyzer. Where can I download the software?
    Thanks,
    Anthony

  • Thanks, looking forward to it 😉 Ken

  • Hi Anthony,
    You should have received an email but here is the website: https://www.ultimateapartmentinvestingguide.com/syndicated-deal-analyzer-download/.
    Regards,
    Michael

  • Preston Rutherford

    I’d like to syndicate, but I’d ultimately like to hold the asset forever. The best idea that comes to mind is to stick to value add deals in appreciating markets and perform multiple cash-out refinances as I’m able to increase rents, and distribute cashflow to the investors the whole time. Not sure my investors would like to stay attached to the asset for as long, though, so I assume there would need to be a way for the investors to exit the deal. How do you think about this? Any recommendations? How can I reflect this strategy in the SDA?
    Thanks!
    Preston Rutherford

  • Hi Preston,
    I think this strategy is great. Typically, the way agreements are structured is that the investors stay part of the limited ownership of the asset even if their initial capital is returned. This way they are able to continue to receive distributions from the property. You can also take your distributions and pay out your investors, find new investor(s) if somebody wants to exit entirely, etc…
    As for reflecting in the SDA, it is model up until year 10 already. In theory, the NOI would continue to increase a little each year, but the actual distributions might adjust around the time of a refinance. You can start a second SDA for the second 10 year ownership period. Or feel free to modify the SDA – that is why it is in a spreadsheet format to model as you please.
    Regards,
    Michael

  • Preston Rutherford

    Thanks Michael. So, it’s kind of like the secondary offerings in tech startups to give existing members (employees) liquidity without selling the asset (the IPO). Got it. Should have seen the parallels.

  • Preston Rutherford

    I live in Silicon Valley, and would like to invest locally. I know it’s popular to talk negatively about investing in Silicon Valley because achieving cashflow is less obvious. However, with the population and job growth being so good, it seems impossible to ignore. The ‘red light’ and ‘green light’ flags seem to get violated when running Bay Area deals through the SDA. Maybe I just need to make sure I’m acquiring cheap enough or find a way to get an interest only loan to keep the debt service low enough to allow the value add improvements to yield the 15-17% average annual return for investors. Am I on the right track with my line of thinking? Any other things I should be considering? Thanks again.

  • Hi Preston,
    Applicable to any market is the strategy to buy right. Otherwise it puts you in a negative position.
    Interest Only is a good thing and a bad thing. Good because it helps the property cash flow, especially in the early years when renovations / improvements are ongoing. However, longer term, if you are not paying down the loan balance you leave yourself exposed to the possibility of the loan being ‘under water’ as they say. Where if the property value drops below the value of the loan the lender has more risk on the table and they don’t enjoy that.
    Maybe not right in the valley but surrounding areas within a few hours drive might yield returns that would be aligned with what is in the Syndicated Deal Analyzer. But those can be adjusted to meet the returns expectations of your investors as well. That is the benefit of the SDA – you have complete control to adjust as you see fit!
    Regards,
    Michael

  • Jeffrey D. Nelson

    Hello Michael. Have a Problem/Opportunity. Have a 90 Unit Under Contract. 100% Occupied and $100 – $150 below Market Rents. CAP in the Low 11% range. The Major Problem is Very Poor Records. Currently have 90% of the Leases and can probably get the others. Rest of the Records are basically worthless. The Question is what to do next, Proceed with Further Due Diligence or Walk Away? Thank You.

  • Hi Jeffrey,
    Great question! This can be a both a blessing and curse. Usually there are some good deals to be found from self managed properties. Uncovering those deals can be a challenge as you’ve encountered!
    You need to be upfront with the seller/broker. You need to substantiate the Seller’s income and expense claims, otherwise there is more risk and the price should be reduced. Now you might need to monitor the records for 6 months, or obtain seller guarantee of rental income in the contract, or structure a seller credit from the beginning maybe that would reduce your risk. This will be a problem for anybody that tries to buy the property. You can already deep into the weeds it sounds like so from the Seller/Broker’s position you are more of a sure bet than somebody new. But the risk needs to be properly compensated.
    At the worst, you learn how the property is managed over 6 months so you are that much more intimate with the operations when you do finally take over the property.
    Keep in contact. Curious to find out how this turns out for you!
    Regards,
    Michael

  • Matt Moreau

    Hey Mike,

    About to close on a 8 unit in Michigan. It consists of (2) separately parceled 4 unit buildings that sit adjacent to each other. Who would you recommend for insurance?

  • Matt Moreau

    Hey Mike,

    About to close on a 8 unit in Michigan. It consists of (2) separately parceled 4 unit buildings that sit adjacent to each other. Who would you recommend for insurance?

  • Matt Moreau

    Hey Mike,

    About to close on a 8 unit in Michigan. It consists of (2) separately parceled 4 unit buildings that sit adjacent to each other. Who would you recommend for insurance?

  • Matt Moreau

    Hey Mike,

    About to close on a 8 unit in Michigan. It consists of (2) separately parceled 4 unit buildings that sit adjacent to each other. Who would you recommend for insurance?

  • Matt Moreau

    Hey Mike,

    About to close on a 8 unit in Michigan. It consists of (2) separately parceled 4 unit buildings that sit adjacent to each other. Who would you recommend for insurance?

  • Hi Matt,
    I don’t have recommendations for insurance but ask the broker or a property manager as I’d think they’d have some connections. Also calling local insurance companies is a great way to start building relationships on your own.
    Congrats on the 8 units!
    Michael

  • George Michael

    Hey Mike,

    I’m getting into the multifamily business and looking up some deals as we speak. My question is what is an average you want to spend on repairs for each unit?

  • Hi George,
    This determination is all based on the Asset, and its comparables in the market. We don’t want to own junk, but we also don’t want to over-improve properties. I would suggest between $3,000 to $5,000 will allow an investor to improve one unit’s interiors provided there is no major damage or deferred maintenance. I would call this an improvements budget.
    Specifically for repairs I would suggest working with a qualified property manager and contractor to help determine what might be required at a specific asset.
    I know this isn’t a specific number but there are a lot of variables at play and each Asset needs to be inspected and assessed individually.
    Regards,
    Michael

  • Hi Mike,

    What’s the process and strategy when talking to a broker to communicate to the out of state multifamily owner that seller financing and/or a master lease might be a way to get a deal resolved. Should we execute the option later how do we secure and reward the broker when that happens?

  • Hi Kenneth,
    I think you need to understand the Seller’s true objectives with the sale of a property. Do they just want out and move into something else? Retire? Maintain an income stream? As for timing, you can offer it up front or negotiate into it throughout discovery and due diligence. Depending on what happens, compensating the broker would lead to long term benefits. If it is some form of out-right sale then the broker would most likely be compensated by the Seller. If more of a lease situation then spiffing the broker something now and then when the sale completes would be something to keep the broker in your favor.
    Regards,
    Michael

  • Ben Wofford

    Happy 2018 Michael. I have a question for you.

    What method do you use for calculating the cap rate at resale? From my understanding, there is no clear cut formula for this, so how do you arrive at a number? Do you have any content to help me understand this metric further?

  • Hi Ben,
    By default we add 0.5 to the purchase cap rate. But that also needs to be realistic with the market. Speaking to brokers, property managers, etc… can all provide intel into cap rate. Also, a property tax consultant or the local appraisal district might be able to provide local cap rates from a property tax perspective. That doesn’t mean a broker/seller won’t believe you but you’ve also got to setup your buying criteria to ensure you meet investor returns.
    Regards,
    Michael

  • Chris G.

    Hi Michael,
    When searching for a multi family property is it better to have more 2 bedroom units than 1 bedroom? Is there a mix you feel works best?

    Thanks,
    Chris

  • Hi Chris,
    Not necessarily, and as is typical with real estate it is all based on location, location, location. Once you underwrite a deal and you think it might work for your investment criteria, you should perform some market research to see what your competition might have in terms of apartments. That is the bigger constraint. And if the market has changed since properties were built, does the local employment base support that size of apartment.
    In general it is good to have some kind of mix as it reduces risk but there is no rule to say whether a certain mix is better than another.
    Regards,
    Michael

  • Eric Chu

    Michael,
    I’m based in Southern California but would like to invest outside of CA since the returns are better. However, not sure where to look and how to decide where to look. Is there any particular strategy that you can recommend in locating markets for multi-family in different parts of the country? Any resources to determine where the best cash-on-cash areas are located? I’ve heard that Houston and Atlanta are good, but that’s based on hearsay, looking for something that actually shows numbers, like population or job growth areas…
    thanks in advance

  • Hi Eric,
    There are multiple data aggregation services, from some of the national brokerages to more regional/local brokers. Marcus & Millichap, IRR, NAR, and Milken are the big names. Even googling specific locations/regions for their population growth, job growth, etc… is helpful. I’m not aware of a master list that shows the MSAs with numerous quantitative analysis. Identifying Cap Rates in the desired markets is probably your best bet for cash on cash returns. I do cover this topic more in depth in the Ultimate Guide to Apartment Building Investing.
    Regards,
    Michael

  • MICHAEL ANTONIO

    Hello Michael,

    I have really enjoyed your program. It’s put me in 100% confidence that I can and will make this happen! I am working on finding my first deal as we speak. I am currently working with a coach who I signed up with prior to finding you and your program. I am hoping to utilize the knowledge I am getting from you both to make this happen. Things are progressing but I would like to pick up the pace. I have a few properties I am analyzing right now but of course I still have some confidence issues with my analysis. One of the biggest challenges for me is I am a Canadian citizen living in Canada but looking to invest in the United States. I know there are a few hurdles for me but it can still happen. I am wondering if you have coached a Canadian and are familiar with the road blocks that I will face? I have one particular property that I am having issues making a proper analysis on and was wondering if the Deal Maker’s Mastermind would be a good avenue for me to get some assistance? Any suggestions based on what I’ve told you would be greatly appreciated.

    I can’t thank you enough for putting your program together. It was the missing link for me.

    Best Regards

  • Hey Michael, new question: is it legal or/and advisable to send first contact potential private investors (let’s say I met them on Bigger Pockets or LinkedIn as an example) details about any of our deals before they have signed into our form and accepted our terms where we capurtues a few basic infos on the “investor” in order to record proof of first Contact and find out if he/she is accredited? Please advise. Thanks.

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