There are a lot of ways to finance a multifamily property. Somehow it depends on what you are looking for.
In today’s episode of Passive Wealth Show, Bill Fairman, Wendy Sweet, and Jonathan Davis of Carolina Capital Management will answer the “Ugly Question” of the day:
“How Can I Finance A Multifamily Property for 900k?”
Timestamp:
0:01 – “Do you think about financing multi-family properties?”
0:24 – Introduction
0:57 – https://www.CarolinaHardMoney.com
1:56 - Jonathan’s Project in Augusta, Georgia
8:40 – Breaking News
11:34 – Ugly Question: “How Can I Finance A Multifamily Property for 900k?”
12:24 – How Jonathan set up the townhome.
16:21 - Why is it better to go for a larger scale of Multifamily Units than the smaller ones.
21:26 - Get your private financing people line-up.
24:35 – Wednesday With Wendy: https://calendly.com/wendysweet/wednesdays-with-wendy?month=2021-05
Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the "Small Builder" borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and "Ground-up Construction Loans" for investors only in NC, SC, GA, VA, and TN (some areas of FL, as well).
As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.
Subscribe:
Visit our website:
YouTube Channel:
Facebook:
Listen to our Podcast:
--------------------
Bill Fairman (00:01):
Hello Bill Fairman, Wendy Sweet and Jonathan Davis. So have you guys ever wondered about financing, multifamily properties that and so much more right after this?
Wendy Sweet (00:25):
Okay. That's my payment.
Bill Fairman (00:26):
We're now a home improvement store.
Wendy Sweet (00:33):
And that's right. Cause, that's who we are.
Bill Fairman (00:33):
We're DIY'ers. Welcome to The Passive Wealth Show. This is the breaking news and the answer, an ugly question segment of our broadcast today. Again, I'm bill Fairman this is Wendy Sweet and Jonathan Davis. We are Carolina Capital Management. We make loans in the Southeast to real estate investors. If you are a real estate investor and you're looking for a loan, go to our website, www.CarolinaHardMoney.com. Click on the apply now tab. If you're a passive investor, looking for passive returns, go to that same website and click on the accredited investor tab. Don't forget to like share subscribe, follow us.
Jonathan Davis (01:18):
Hit the bell.
Wendy Sweet (01:19):
Like us, tell your friends.
Bill Fairman (01:21):
Well, I don't know about your close friends.
Jonathan Davis (01:23):
They're just acquaintances.
Bill Fairman (01:28):
So how's it going?
Wendy Sweet (01:30):
It's going really well for me. Thank you for asking. How about you Jonathan?
Jonathan Davis (01:34):
Any better? I couldn't stand it.
Wendy Sweet (01:39):
And yet you are standing.
Bill Fairman (01:39):
Well, I don't know if you guys have noticed, but we've removed the chairs from our studio because.
Wendy Sweet (01:45):
Billy kept falling asleep. we have to poke him to wake him up.
Bill Fairman (01:51):
I was afraid it was going to fall off. I'm afraid of Heights.
Wendy Sweet (01:54):
That would be a long fall cause it's a tall stool.
Bill Fairman (01:56):
Well, before we get started, I want to do some, what's his name over here, Jonathan so kudos. We are financing a project in I guess in Georgia. Do you want to talk about it real quick? How should we throw up a graphic?
Jonathan Davis (02:15):
Sure, So we have been working on a project in Augusta, Georgia. It is 44 townhome unit. We just broke ground yesterday. So all of the infrastructure, roads, curbs, gutters, you know, storm water, all that fun stuff. Just got put in. So we are.
Wendy Sweet (02:39):
Horizontal is what we call it.
Jonathan Davis (02:39):
The horizontal so we are now ready to go vertical. So we had a ground-breaking ceremony, the, the mayor of Augusta mayor Hardie Davis was there with us too.
Wendy Sweet (02:54):
He's on the end.
Jonathan Davis (02:56):
He's the one wearing the tie and then the developer, Which is Mr. Oscar Jesse, he's in the middle there. And then you see me in the blue shirt.
Wendy Sweet (03:06):
Cool. As a cucumber.
Jonathan Davis (03:09):
But yeah, we did a great ground breaking ceremony. We had, I think it was close to a hundred people there.
Wendy Sweet (03:16):
That's amazing.
Jonathan Davis (03:17):
You know, it was a great time.
Wendy Sweet (03:17):
And it's affordable housing too and that's, what's so cool about it.
Jonathan Davis (03:22):
That's the beautiful thing. So if you look at the area where it's 44 units that we're going to put in and it's three miles from the major highway, and then it's a little less than six miles from the military base there and what makes it great is it's affordable housing and they're adding 200,000 jobs over the next, you know, I don't know how many years to that military base for cybersecurity.
Wendy Sweet (03:48):
Oh, wow.
Jonathan Davis (03:49):
So there's going to be a lot of housing needs in that area and yeah, I mean, I think the house or the town start out at 169 and that's a 1700 square foot, three bedroom, two bath.
Wendy Sweet (04:01):
Wow. That's amazing.
Bill Fairman (04:04):
It's so amazing. They can get that price.
Wendy Sweet (04:06):
And then still on what you said about the wood yesterday, because my first thought was, wow, the cost is going to be higher than when he started the loan, which was over six months ago. Right.
Jonathan Davis (04:16):
It was so such a blessing. So him and I are, Mr. Jesse was, He and we're talking. And he was telling me that he has actually come in $4,000 under budget for his lumber.
Wendy Sweet (04:28):
That's amazing.
Jonathan Davis (04:29):
Which I don't know if I can, if anyone else can say that.
Bill Fairman (04:33):
We're assuming that it's already been purchased and delivered that price could go up.
Wendy Sweet (04:40):
That's true.
Bill Fairman (04:40):
While we wait, we have a little video.
Wendy Sweet (04:43):
Okay, and then I want to talk about the lumber a little bit.
Jonathan Davis (04:49):
All right. Hey guys, I'm here at Orchard Landing with Mr. Jesse. he is the developer on this project and just want to hear from him about about this project and what's going on and what we can see in the future.
Oscar Jesse (05:03):
Well, we have 44 units right here with 7.8 acres of land in the heart of Augusta were looking to start the asking price off on these particular units at 169, which is still below 10% below the market value.
Jonathan Davis (05:21):
That's affordable housing and we love affordable housing.
Oscar Jesse (05:23):
Affordable houses. So we actually have six contracts ready to go pre-sales and we haven't even broken ground yet.
Jonathan Davis (05:31):
That's a amazing.
Oscar Jesse (05:31):
So, you cannot build housing fast enough here in town.
Jonathan Davis (05:36):
Yeah, that's great.
Oscar Jesse (05:37):
So we're looking forward to actually breaking ground, which will be coming up here in the next couple of weeks. Once we get the signatures off all the development infrastructure is already put in and we want to thank the guys from Carolina Hard Money for looking out for us, trusting us and believing in us for this particular project. And we're looking forward to doing business with these guys and all you guys there watching here in the near future.
Jonathan Davis (06:04):
Excellent, good partnerships, that's what it's all about.
Oscar Jesse (06:07):
Yeah, definitely.
Wendy Sweet (06:09):
That's awesome. I, you know, we were talking about wood and I was had somebody send me, actually, I might have gotten this off of Facebook finance@yahoo.com. So that here it was a long article, but they were talking about how they're expecting would to continue to increase in pricing. And I wasn't really wanted to read and I hate to just read straight, but I'm going to anyway it says the supply and demand mismatch is largely a result of the pandemic at the same time that state mandated lockdowns caused mills to halt production board quarantining Americans were rushing to Home Depot and Lowe's to buy materials for the, do it yourself projects. I mean, that was the busiest place you could go to when it really first occurred.
Jonathan Davis (07:00):
Don't go to church, but make sure to attend to Home Depot.
Wendy Sweet (07:01):
That's right. It caused the inventory to plummet. It only got worse from there. Recession induced record, low interest rates called a housing, boom caused a housing boom, and now new housing starts hit their highest level since 2006. And of course new homes are requiring a lot more lumber exasperating, the shortest shortage. And it says on the supply side, lumber production is finally rebounding. Wood production hit a 13 year high, but that can only do so much because the mills are limited as to what they can do. They actually had followed this up too. I thought this was kind of interesting. It says the CEO of deacon lumber, his name is Stinson Dean. He told Fortune Magazine on Monday that soaring lumber prices soaring lumber futures contracts, including for months as far away as November signal that lumber prices will be elevated for quite some time for prices to correct.
Wendy Sweet (08:10):
We're going to have to have a cool-down in the market and building, which we don't see any time soon, but it is saying that, you know, everything kind of tends to slow down a little in the fall and that may be in the fall. We'll see it slight reduction of new builds. So it'll be able to catch back up again. So it was a series of unfortunate events that got us to this position.
Bill Fairman (08:33):
So, needless to say limited inventory is still going to remain limited.
Wendy Sweet (08:39):
That's right.
Bill Fairman (08:40):
We might as well go ahead and get into our breaking news.
Bill Fairman (08:57):
Okay. So let's talk about employment numbers. They came in today a little higher than expected, so the unemployment new claims 545, they were expecting somewhere in the 530, but you know what? It's not that big a deal. It's pretty close. Mortgage applications are up 1.9, 2%.
Wendy Sweet (09:23):
That's interesting.
Bill Fairman (09:24):
And well rates are below 3% again. So more refinancing and stuff . It's not necessarily because they're buying new stuff because there's not a lot of new stuff.
Wendy Sweet (09:33):
I can't think there's anybody out there that hasn't been refinanced yet. It's amazing.
Bill Fairman (09:36):
And our first quarter GDP number was really beat expectations, 6.45% first quarter.
Wendy Sweet (09:49):
It's a big number now.
Bill Fairman (09:49):
So another thing I heard the other day, we're talking about lumber. Well, another business that was hit hard during the pandemic was the rental car business. No one was traveling.
Wendy Sweet (10:00):
Right.
Bill Fairman (10:00):
So what did they do? They sold off a bunch of their inventory now that people are starting to get out there again, they're showing rental car prices. Some of them are charging a thousand dollars a day. They have no cars and Oh, by the way a bunch of the automakers have paused production because they can't get enough chips in their new cars and used cars are now starting to skyrocket in price. There's a shortage of inventory in the car business.
Jonathan Davis (10:35):
You know what's interesting on that, just my dad called me a couple of weeks ago and was like, it's the strangest thing, I just paid the taxes on my truck. And he's like, and the value on the taxes went up from last year. So they were actually higher than they were.
Bill Fairman (10:54):
Depreciating assets.
Jonathan Davis (10:55):
I thought it was supposed to go down.
Wendy Sweet (10:57):
That is really unusual.
Bill Fairman (10:58):
Well, governments are going to try and get their money any way they can. And that's, that's another thing I guarantee you States now most States, at least I know North Carolina, for example, municipalities have they have to reassess their property values. At least every five. I guarantee you, there's going to be a lot of municipalities reassessing right now, foregoing the five years, just to make sure that they can get those values up and get some more tax revenue coming in strike while the iron is hot.
Wendy Sweet (11:32):
And it is hot for sure.
Bill Fairman (11:34):
So our ugly question, and I'm not going to go into it because I almost forgot we have graphics for The Ugly Question.
Wendy Sweet (11:40):
That's right.
Bill Fairman (11:40):
Sometimes I get a little over my skis.
Jonathan Davis (11:55):
How can I finance a multi-family property for 900,000? Get it under contract for 1.8 million.
Bill Fairman (12:08):
I'm not sure I know the entire question here, but there's lots of different ways to finance multifamily. What is it that you're looking for? Is it a value add? Are you getting something that's already cashflow and then you're not adding anything to it, but your name on the deed.
Wendy Sweet (12:25):
Let's talk about how you set up the townhome financing. It's multifamily. He's not keeping it.
Jonathan Davis (12:33):
He's selling it off.
Wendy Sweet (12:36):
But they kind of still work the same, but the exit is a little different, but something a little bit about how that was set up.
Jonathan Davis (12:44):
Well, so that particular loan the way that we have it worked out right now, is we financed the horizontal development, which was the storm water roads, curbs you know, all the stretch, all the infrastructure, all the electrical sewer, everything in there.
Bill Fairman (13:03):
And you already own the land, right.
Jonathan Davis (13:04):
And you already own the land. And then we also included in there the financing for the first six units on the construction side. So that's what, so we have a lien on all the acreage with 44 lots, and then we're going to do, they're going to start the first six, which if you heard the video are, are already pre-sold.
Jonathan Davis (13:26):
So that's how we have that. And then we have a release schedule for those, when each one sells they are released from the property or the loan for whatever we determined that the, we have determined.
Wendy Sweet (13:38):
That you didn't own the land. Would we have financed a portion of the land?
Jonathan Davis (13:42):
Yes, we would have. Yeah. And it depends. I mean, it all comes down to a loan to cost ratio. So sometimes we can finance more than 50% of the land. Sometimes we can finance you know, up to probably 80 or 90% of it. If the loan to cost works out. Most of the time you're going to see lenders do somewhere around the 50% Mark.
Wendy Sweet (14:06):
Of the land.
Jonathan Davis (14:08):
Of the land of the land part to equal out to whatever their loan to cost is. And usually it's somewhere between 80 and 90.
Wendy Sweet (14:15):
Now, does that land cost based on the purchase price or?
Jonathan Davis (14:19):
On the purchase price, not the value.
Wendy Sweet (14:20):
Okay.
Jonathan Davis (14:22):
Yeah. So yeah, it's, you know, one of the things we look at, at land is you know, sadly it's worth what someone paid for it.
Wendy Sweet (14:29):
That's right.
Jonathan Davis (14:31):
You know, that's. You know, but as we do improvements, then it becomes worth more. So, you know, you know, seven acres of raw land is worth whatever you paid for it. But when you add in all the infrastructure, it's worth a lot more now.
Wendy Sweet (14:43):
That's right, now on my Wednesday with Wendy called one of them yesterday. We were talking, you know, he was wanting to get a little into multifamily, he kept thinking he just wanted to do five and eight unit projects, because he's worried about the zeros.
Bill Fairman (15:00):
Right.
Wendy Sweet (15:00):
You know, at the end of the cost, and.
Jonathan Davis (15:01):
Those are some of the five to eight or some of the hardest units to finance.
Wendy Sweet (15:05):
There you go.
Jonathan Davis (15:05):
They really are.
Wendy Sweet (15:09):
Because the larger units, it's not about the zeros. It's really about that. It's a numbers game that either works, or it doesn't, and they're not really underwriting totally based on you, the barrower, they're really underwriting based on the project.
Jonathan Davis (15:22):
Yeah. I mean, when you get over, let's say, I don't know, 10 might be a little too small, but you know, somewhere over, you know, 10 to 15 and up, you get into what's called forced depreciation. Now we actually have a, we have like a project that we can force appreciation. We can increase the value based on what we do and the rents that we can force up. When you get lower than that, it's really difficult to force appreciation because you don't have enough units to really see a sizeable increase. So then it becomes it's, but then you can't really value it on a sales comparison approach either, because five to eight units that makes up like half a percent of the housing,
Bill Fairman (16:09):
Yeah. You can't find enough comps.
Jonathan Davis (16:11):
You can't find enough comps. to figure out what the value is. So it's, it's a tough area to be in for that kind of unit, but we're closing one in the next two weeks. So,
Wendy Sweet (16:21):
Yeah.
Bill Fairman (16:21):
And the, when you're doing smaller, multi-family, the cost are the same to underwrite it, appraise it. I mean, if you had a 300 unit apartment building, you're going to pay pretty much the same amount for the appraisal as your five unit, because it's still a commercial appraiser.
Jonathan Davis (16:40):
We just got a quote for a 10 unit apartment to get appraised almost four grand.
Wendy Sweet (16:48):
Wow.
Jonathan Davis (16:48):
And that's the same price as a 56 unit that we had appraised. So, you know.
Wendy Sweet (16:53):
And they had to fill out the same form.
Bill Fairman (16:55):
And yeah, I get that. You're like, you get scared when you have all these extra zeros in there, however, what it costs per door to operate get smaller and smaller, the larger number of units you have.
Wendy Sweet (17:12):
That's right.
Bill Fairman (17:12):
Because you're maintaining all under one roof, you're collecting all under one roof. It just, if you have to hire management to run a hundred unit place it's going to be, how do I put this? It's going to cost you more per door to have somebody manage a hundred than it is to manage 400.
Wendy Sweet (17:37):
That's right.
Jonathan Davis (17:37):
For sure.
Wendy Sweet (17:39):
So your scale is much better if you're doing the larger ones. The other thing too, is finding people that will lend them.
Jonathan Davis (17:48):
Yeah. The smaller ones. Yeah.
Bill Fairman (17:50):
There's a gap between the big ones, and the very little ones.
Wendy Sweet (17:54):
Yeah. So five to 10 units, I'm saying they're really going to the smaller local banks, smaller, they don't go to commercial .
Jonathan Davis (17:59):
They're going to, like, like what I would call mom and pop, like self-directed IRA, private lenders are doing them. Local credit unions are doing them. And one of the issues.
Wendy Sweet (18:11):
In the long-term side.
Jonathan Davis (18:12):
In the long-term the issue is like trying to get financing for those from a credit union or a bank to start out with. Most of them are owned by mom and pops that, you know, they don't probably keep the best records. So you don't have all this trailing information to hand over to your bank so that they can, you know, quantify the, you know, the NOI, the Net Operating Income. So it's tough for them to understand that.
Bill Fairman (18:40):
Well, I do like seeing that credit unions are starting to get involved in some larger projects, but like anybody else they're trying to spread the risk. So you'll end up with two, three, maybe four different credit unions. We'll all go in together and finance a piece of a project. It takes a little more work, but if you find the one credit union that wants to do it, they're going to be your cheerleader anyway, for the project.
Wendy Sweet (19:08):
Yeah. That's true. I mean, to get, I guess, maybe to the heart of that question, a $900,000 multifamily, I mean, depending on where you are, I mean, not a hundred thousand, if your purchase, if that's your purchase price in our area, that's probably going to be a.
Wendy Sweet (19:25):
20, 30 unit.
Jonathan Davis (19:27):
I don't even know. I'd say probably between 20 and 8, and 20 would be the max somewhere in there, 8 to 20 would be kind of what that range would be. And then, you know, does it need rehab more than likely it does. When you really getting units that small, it's not one or two freestanding buildings that are comprised of multiple units. Usually it's a, quadplex on this parcel, a duplex on this parcel. It gets a little long. Yeah. So it's tough. But like I said, we are, we're doing a five, I think it's five or six. I think It's a five unit we're closing in two weeks.
Wendy Sweet (20:06):
Here in Rock Hill.
Jonathan Davis (20:08):
Here in Rock Hill, yep. And we're closing it because a larger national lender couldn't do it or couldn't do it fast enough.
Wendy Sweet (20:15):
Yeah.
Bill Fairman (20:16):
Yeah. Like I said, that's the problem is things kind of fall into that. What did we like to call that Medicare donut hole. Where, most financial institutions don't want to get into the smaller ones, because they're still doing the same amount of work that they do for a larger broad, and they don't want the fewer zeros. They'd rather have the bigger zeros.
Wendy Sweet (20:42):
That's right.
Bill Fairman (20:42):
So don't be afraid to go after something bigger. I will say this, if you have no experience in operating a multifamily, and you're going to dive into, you know, a hundred units or more, that may cause you a little problem getting the long-term financial.
Wendy Sweet (21:00):
Partner with somebody who has experience.
Bill Fairman (21:01):
Because they want to see that you have experience doing this. And it's not the same as owning a multi door portfolio of single family homes. They want to compare apples to apples. So if you can get a 50 unit and then another 50 unit later and build your way up you're more likely to get long-term financing have more choices on the long term.
Wendy Sweet (21:25):
Yeah. And it's a good opportunity too, to get your private financing lined up caresses. This is where you need to be, you know, attending stuff like the Quest Mixers Online, or any, or American IRA, anything they're putting on, anything that IRA companies are putting on that side you're going to connect with people that have self-directed IRAs that are a little more educated, understand some of the long-term bigger deals so have, you know, four or five lenders that are willing to go in together and finance it for you.
Jonathan Davis (21:59):
Yeah. I mean, we have some borrowers that we've worked with for, I think, closing in on four years now. And we gave them their first multifamily loan and that was on a 56 unit apartment. Less than four years later, they own, I think it's somewhere around 500 doors now. So you know, it can definitely be done and they can be done very quickly. Or at least I think that's quickly to amass 400 , 500 doors. And where they started was, you know, around that 50 unit Mark, and they started with private money or hard money, you know, whatever you want to call it. And that's, in my opinion, I'm biased, but that's probably the best place to start. You know.
Bill Fairman (22:43):
You listen to your lender when they give you suggestions. Like if someone offers you top dollar on it before you finish it, and then you say, no, I think I can get more for it when it's finished. And then you end up getting a little bit less, anyway it's finished and you have to pay a realtor fee.
Jonathan Davis (23:01):
Well, and then also, you know, if we're talking about great stories, listen to your lender, when they say Hey, before you close that, let's get tenant estoppels. So,
Wendy Sweet (23:10):
Talk about what that is.
Jonathan Davis (23:12):
If the leases if there's long-term leases, you know, 12 months, 6 months, whatever it is two years, and they predate the mortgage and you there's a current issue with the lease holder against the landlord, then that is transferrable upon sale.
Wendy Sweet (23:33):
To the new landlord.
Jonathan Davis (23:33):
To the new landlord.
Wendy Sweet (23:37):
So inheriting problems.
Wendy Sweet (23:37):
Inheriting problems. So what a tenant estoppel is, it says, Hey, you are certifying that there are no outstanding issues on your lease.
Bill Fairman (23:47):
And the toilet is still not clogged.
Jonathan Davis (23:51):
And so I had some of our customer or borrowers do that. And that was probably last year, they called me and said, I am so glad, you know, it was pain in our butt to get those, but I'm so glad you did, because there was an issue that came up with it. And one of our tenants tried to Sue us and we just handed that tenant to stop all over to the judge and said, they told us everything was good and case dismissed. That's a good thing.
Bill Fairman (24:18):
Yes, we are a litigious society, so.
Wendy Sweet (24:23):
They were.
Bill Fairman (24:23):
That's right. So why can't I say cover your butt.
Wendy Sweet (24:26):
Yeah.
Bill Fairman (24:26):
CYA. Okay. we are hitting the bottom of the hour. Thank you so much for joining us. I want to talk about Wednesday with Wendy. I don't know why it's so hard to say that.
Wendy Sweet (24:41):
It is hard to say it.
Bill Fairman (24:41):
So Wendy offers free mentorship eventually she'll be charging us for it. Just kidding, anyway she's backed up with appointments probably at least two months.
Wendy Sweet (24:55):
Actually I got some maze open.
Bill Fairman (24:58):
So if you're not going on vacation set up a time to talk to Wendy .
Wendy Sweet (25:03):
Yeah.
Bill Fairman (25:03):
And what else? We don't have any other events coming up do we?
Wendy Sweet (25:08):
No, not yet.
Wendy Sweet (25:08):
Except for our next show.
Wendy Sweet (25:10):
Well, I'm speaking in Greenville
Bill Fairman (25:11):
In a few minutes.
Wendy Sweet (25:11):
And on the Greenville South Carolina's main.
Bill Fairman (25:16):
Okay. So that'd be the upstate.
Wendy Sweet (25:17):
Creia.
Bill Fairman (25:19):
Creia upstate, Anyway in Greenville, South Carolina. And where else would they?
Wendy Sweet (25:27):
I think it's May 17th. I knew you were going to ask me that.
Bill Fairman (25:31):
All right, listen, it's been a great show. Thank you guys for joining us. This is the Passive Wealth Show. We are Carolina Capital Management, and we are lenders in the Southeast for real estate investors. If you're interested in borrowing money from us, go to www.CarolinaHardMoney.com. Click on the apply now tab, if you're a credited investor and you're looking for passive returns, click on the accredited investor tab. Don't forget to subscribe, like share, hit the bell. And our next show starts in a few minutes. So if you got time, check us out, have a great day.
No comments:
Post a Comment