Masters Underwriting Deals & Acquisitions, Feb 25th, 2025

Summary

In this detailed meeting led by Massive Capital, teams analyze multiple real estate deals focusing on underwriting, value-add strategies, and negotiation tactics. The session discusses various properties, identifying operational improvements and market position to enhance investment returns. Experts provide insights on interest rates, cap rates, and the importance of location and utilities in real estate investments. Participants are encouraged to actively engage with brokers and refine strategies based on market feedback. A comprehensive approach to financial metrics like IRR and expense ratios helps shape upcoming decisions.

Highlights

• Understanding the importance of detailed underwriting and market analysis in real estate investments 📊
• Key discussions on operational improvements and potential value-additions to properties 🏢
• Strategic insights shared on interest rates, cap rates, and refinancing tactics 🔄
• Experts emphasize the significance of location and utility management in deals 🌍
• Encouragement for teams to actively engage with brokers and evaluate market feedback 🎯

Key Takeaways

• Detailed underwriting is crucial for assessing property value and potential 🌟
• Operational improvements can significantly increase property value and investor returns 💼
• Interest rates and cap rates are vital in shaping real estate investment strategies 📉
• Understanding local market conditions is essential for successful property negotiations 📈
• Engaging with brokers and market feedback is a key component of strategic adjustments 🔍

Overview

In this insightful session by Massive Capital, the focus was placed on mastering the art of underwriting and deal acquisition in the real estate sector. Participants engaged deeply with the nuances of property evaluation, assessing various metrics such as interest rates, expense ratios, and refinancing strategies. The significance of understanding the market landscape, and the potential for operational improvements to enhance property value, was heavily emphasized.

The meeting included dynamic discussions around specific properties and their investment potential. Teams explored strategies for value-additions, considering factors like location, unit upgrades, and utility management. The conversation highlighted the complex interplay between these elements and how they affect the overall profitability of real estate investments.

Participants were encouraged to take proactive steps in engaging with market trends and broker feedback. Such interactions are seen as crucial for refining investment strategies and achieving desired financial outcomes. The emphasis on real-world applications of financial metrics further solidified the practical nature of the session, equipping attendees with robust tools for their future projects.

Chapters

• 00:00 - 01:30: Introduction and Initial Updates The chapter discusses initial updates and mentions about a person who landed an hour ago and is expected not to be present for the day, though there's a possibility of a brief return. There is a backup for him. Discussion also includes teams from multifamily two and Austin having some deals to review, and being open to additional questions. Additionally, the mention of getting some likes on LinkedIn is included.
• 01:30 - 33:00: Detailed Underwriting Discussion The chapter opens with a morning greeting between the speakers, setting a polite and friendly tone. They exchange pleasantries, ensuring both parties are in a good mindset for the discussion ahead. The conversation then shifts quickly to the main topic at hand, which is Vella. One of the speakers notes their intention to document or take notes, which indicates the start of a detailed underwriting discussion or analysis about Vella. The brief interaction highlights the commencement of a focused working session.
• 33:00 - 46:00: Multifamily Two Team Presentation The chapter begins with a presentation scheduled at 9:05 AM, where the Austin team is expected to share their insights or updates. The atmosphere appears to be informal and perhaps slightly tense, as suggested by the conversational tone and expressions of uncertainty like 'if I don’t like it, I don’t know, that’s just me'.
• 46:00 - 59:00: Waterford Apartment Discussion The chapter titled 'Waterford Apartment Discussion' starts with a lively online meeting, where there appears to be some technical difficulties with participants needing to mute and unmute themselves. The setting is within a multifamily residential investment boot camp, specifically targeting the Waterford Apartment complex. The narrative indicates progression into the fourth week of this program, mentioning the successful submission of a Letter of Intent (LOI) for acquiring a 136-unit apartment complex in northeast San Antonio. This decision and subsequent actions seem to be a key focus of the chapter, implying progress and active engagement by those involved.
• 59:00 - 66:00: Final Comments and Wrap-Up The chapter discusses the successful identification and submission of a Letter of Intent (LOI) for a deal by Rio and the team. The seller, who is both the owner and broker of the asset, is currently reviewing the LOI, and the team is looking forward to starting negotiations. Pana, the primary contact, is mentioned in this context. The team reflects on their achievements and expresses enthusiasm for the negotiation phase.

Masters Underwriting Deals & Acquisitions, Feb 25th, 2025 Transcription

• 00:00 - 00:30 he landed about an hour ago he's going to run that he's not going to be here today he might swing back for a little bit um his backup so that's all and I think uh the multi family two team and Austin team you guys have some deals we review and I'll take on any other questions you may have you all right looks like LinkedIn I'm getting some lights
• 00:30 - 01:00 good morning sh morning how are you good how are you good good good you mind if we look at Vella this morning I'm I'm writing it down
• 01:00 - 01:30 all right so 905 will kick it off and uh Austin team what do you guys have to share morning Shan yes uh good morning how it is if I don't like it I'm I don't know that's just me
• 01:30 - 02:00 cly curly mute yourself curly mute yourself okay I'm sorry good morning sh this is Austin multif family boot camp we've got uh we we just wrapped up we just wrapped up week three and uh of course this is week four we did go ahead and submit an Loi for 136 uh complex in northeast San Antonio called
• 02:00 - 02:30 Rio at 16004 um team did an awesome job we got the deal identified we submitted an Loi on on Sunday and we're looking they're digesting it right now we're looking forward to uh starting negotiation and hearing back from that seller who also just happens to be an owner he's an owner and a broker of the asset so the team did awesome and we're very excited so Pana is here Pana is our primary
• 02:30 - 03:00 underwriter and so we were going to just see if we could walk through we have done a detailed underwriting and uh we just wanted to get another pass through with y'all's feedback so pan sounds good take it away I'm gonna share my screen give me a sec so sh you know just to give you a quick background we um did the review of this deal with Sanjay uh in one of our Mee meetings like you know we took all
• 03:00 - 03:30 his input and feedback and we plugged all those numbers but you know there were a few other questions that popped up uh after like we did the review so we just want to run it by the team one more time here to see like you know if all the variables you know have been input correctly um so the people you know who are looking at it for the first time probably you looking at it for the first time let me give you a quick uh uh
• 03:30 - 04:00 background or a quick synopsis on like you know what exactly we walked through um so this is the deal that as Tom mentioned this is 14 n this is Rio at 1604 vintage is 1984 the unit count is 132 uh the asking price um by the broker and the owner is 22 A5 uh asking price per unit is 170 uh we are offering
• 04:00 - 04:30 uh we just put a letter of intent like you know where we asked for 152 which is 67% discount at what the ask is um the unit the purchase price per unit is 115 down payment is 25% um that you know after doing like you know all these math that sits out there um Allin project amount is 17 million a little over 17 and the all-in price per unit is 129
• 04:30 - 05:00 the equity stack uh with the down payment acquisition fee closing cost and all of those things uh the total Equity raise is little over you know $5 million um one thing you know that we wanted to run by you was uh you know this is going to be a bridge de um you know for a two years uh this is the numbers like you know that we discussed with the uh Sanjay the last time when we spoke 25% down payment rate of 8 82%
• 05:00 - 05:30 interest only months 24 um all of that and then comes like the refi after two years we put an interest rate of 6% uh for the refi so wanted to verify and validate this number with you uh is the 6% interest and the other number I wanted to uh validate with use the cap rate at the refinance so this property when we did the underwriting we did at
• 05:30 - 06:00 the cap rate of 6.5 right so IFI cap rate doesn't sound that bad at all six and a quarter six and a half somewhere in there we'll be okay loan to value I could I know see theoretical Max up to 75% it's going to ball down to dscr rate yeah 57 to 6.25 that's the range I could drive with n know6 uh my question just by looking at
• 06:00 - 06:30 that would be 24 months because to finish the refi at 24 months what we're saying is that we'll be done with the business plan in year and a half then we can trigger the loan in month number 18 or 19 or so or let's say month number 19 or 18 then you get three months to do the closing so month number 24 refi is closed so the setup looks okay it's a closer to the reality don't know the absolute reality but I could jve with the storyline but I will have a little
• 06:30 - 07:00 you know question mark about the uh 24mth of refi timeline rather the 36 months we'll understand that as you look into the p&l as you go okay all right so from let's move over to pnl uh I again like you know had a couple of questions here you know based on the T12 that we received um the this is this is again like 1984 vintage uh property in San Antonio U the expense ratio you know if you look at the
• 07:00 - 07:30 existing expense ratio from the T12 it comes at around like you know 47% right so which is kind of you know based on what we have learned from you all like you know for a property of this vage it should be around 50 55% right so that was you know one thing that was a concern you know that got raised within the team that the expense ratio of like you know 47% and it's decreasing over the period of five years
• 07:30 - 08:00 like you know so that was a we bit of a concern so wanted to bring it to your attention here and get your uh input and feedback let's let's continue with it so I'm looking at the red IQ little bit more okay so we have 18% down to 15% down to 133% my automatic question is uh 133% what's the bias for 13% what should stabil ized because by definition
• 08:00 - 08:30 stabilized property it's at a 12% uh you know occupancy and it goes up to about 90 91% so your concern like you know if I got that right is here uh 13% right is that what you're saying Char like yes 13 seems to be a little bit more on the high end it's I mean what was your assumption going into that you know uh thing is it because of the market because of the property that you know with think we're not going to get more
• 08:30 - 09:00 than 133% so this is how we underwrote you know we just uh you know looked at all the comparables uh the vacancy was uh you know his the forecast of the vacancy was at 15% right so we took that number into consideration and we said okay like you know if it is historical and the forecast is 15 then uh we can aim for 13 so so that's great yeah so sh like you know one question on the
• 09:00 - 09:30 uh does the property has to be at a certain occupancy level to go for uh refinance yes at a minimum it needs to be 88% given on the Vintage ideally they would like to see above a 90 handle so as on that note you have to say hey we I know year three or year two and it to be the 12 Mark if not lower otherwise refile will be a challenge
• 09:30 - 10:00 that's why I was asking okay if you underwrite a 13% then we underwriting going a bridge that forever got it okay so that was one thing and the other thing the question like you know we had you know I just made some changes here when we you know reviewed this thing with Sanjay you know he said like the annual rent escalator for the year one you know he he said like you know we should have ated about 10% um and we were just not like you
• 10:00 - 10:30 know feeling you know very confident like you know that if we if we do it at the 10% whether we will be able to get to that performer like you know in year one so I just wanted to again like you know get some feedback from folks here to see if this makes sense you know uh the annual rent escalator can I can I ask where the vacancy number of 133% came from was that from like a a an area wide like a
• 10:30 - 11:00 coar report or is that our number on this property that came from CoStar ransy okay so that's an areawide so 15% is what's average for the area that is correct okay thank you so what I would say if I have to take a look at it we have to ask the question oh okay sorry before I get to the question Revenue that's there fine can you talk a little bit about about the expand row number 15 and 16 a little
• 11:00 - 11:30 bit and then we'll work our way down so row row number 15 is the expense reimbursement you know this is where um all the um expenses charge back to the tenants on pest control on you know on the cable services on the rubs water so this is the income like you know that is it is in the expense line but this is getting charged back to the uh
• 11:30 - 12:00 tenants and this is the number yeah we got back from the T12 and uh the other residential income uh that is [Music] coming from here which is the trash income past control cable internet fee uh so this is all the other income that is coming in okay so let's go back to the pnl
• 12:00 - 12:30 um so if the other revenue is has the cable has the bill back then what is the expense reimbursement so take a look at or are you taking $400,000 put down a little bit yeah no down a little bit sorry sorry down a little bit more a little bit more all right right there right there row 57 so what we're saying is that again as an I'm just poking a hole as an underwriter we have to know the
• 12:30 - 13:00 assumptions that we're making why we're making and where we allocating the cost so in this particular case we have $300,000 of mapped income that currently seller is um charging or making so in our underwriting what we're saying that yes we're going to get that at a minimum plus a little more and I could see the washer dryer fee is one of the ways you can improve that whole cost right so that's there now now now you got to ask
• 13:00 - 13:30 the question where is my other go up a little bit more please this 300 Maps into go up a little bit more okay that 300 Maps into row number 80 C sorry C11 yes but then you got to know what that additional 130 looks like is it utilities that's what you're saying uh probably because I don't see there yeah I don't see the utilities
• 13:30 - 14:00 here uh wouldn't it be the rubs isn't that re Sol rubs alone cor that's correct okay okay so now back to the Pino uh so on the revenue side so as underwriting we got to ask hey that $300,000 I understand how the seller is making it so I think we can make it and I'm going to also keep existing r on the same so more or less I'm in the same stuff one thing uh one thing kind of
• 14:00 - 14:30 stuck out in one number 16 there's $27,000 of washer and and dryer and this property is how many units I forgot 132 okay so 132 uh so you got so you charging quite a bit right if think about it there 80 80 of them that have that have washer dryers now correct that is correct 82 of them have washer and dryer uh and the 50 of them have the hookups and we intend to put uh
• 14:30 - 15:00 you know those 50 to be equipped with a washer and dryer so that we can charge that extra premium for the washer and d and as of now they're not charging anything sorry say that again as of now are they uh charging anything or they're not they they are they are charging they are charging if you look at it here they are charging for the 80 units like you know that they currently have okay oh 0 so so we are putting in like
• 15:00 - 15:30 you know in the rest of the you know the 50 units to yeah okay times 50 time 12 okay I see how did you get that $27,000 yeah so that model assumes this model Revenue side assumes that 100% of the tenant base will have washer dryer by the time year one ends correct okay
• 15:30 - 16:00 cool that's a big assumption but just on a capex plan make sure you have that tied up okay that's good okay let's get on to the cost uh talk a little bit about taxes uh what's the appraisal value today on the county ver says what your offer prices so the price value is uh where is that column very put
• 16:00 - 16:30 it oh here it is so the current CAD value is 15 and this is the current property tax and the property tax is at 2.29% and $15 million CAD value and what is the offer Loi I say that again the LOI is how much uh 152 okay okay so value our Buy price
• 16:30 - 17:00 more or less the same we shouldn't expect CH taxes to change a whole lot so more or less we're fine so go back to your p&l I could see the storyline that hey current tax is 342 we'll end up paying a version of that we're fine have everybody seen that though if our price will be $20 million then our CAD value will be $15 million then we'll adjust this tax line for $20 million not for what we have okay that's good uh insurance I think it's fine
• 17:00 - 17:30 we're getting $ 11 $1,200 a unit anyway so that's good electrical usage okay uh so you're assuming it's a okay which is good this is not all bills paid right no this is through reps okay great all right and then we have water where's the water line water is quite a bit it's about $900 a
• 17:30 - 18:00 unit $900 unit wow they use a lot of water does how many pools does he have just one pool one and square footage about 800 the square footage is 1242 oh that's why those are big on okay that makes sense okay that sounds good I know $55 $60 a unit that's your typically while we do the water uh this
• 18:00 - 18:30 one have larger units you got more bathroom you had a $10 more dollars with it I could drive with it fine that sounds good hey sh this is Al Hey next repair cost looks pretty low repair maintenance is very very low so something we have to adjust there I think look at number 30 roow number 30 you went a little bit extra F well taken I was I was I was getting there okay yes so we'll get to it 100% okay
• 18:30 - 19:00 okay so let's thank you so let's kind of go through that so on the water and sore line we have $118,000 uh to give me just a second I'm looking at the water sore line okay so if you look at the T12 you're going to see a slowly gradual movement where used to be $50 $60 then $780 then at one time hit 90 than 80 so in your capex plan you should do a conservation study uh just as an asteris
• 19:00 - 19:30 okay okay that way if there's a Lecky faucet things like that you can spend 20 225,000 reduce the water expense by 15 20 grand So within a year year and a half you get your money back and then you add value to the stuff so uh yeah so if you look at the monthly trend on the water side it is fluctuating a little bit more and then but uh the tailent of the year it stayed continuously above $75 80 a month so okay so this is good so sh where exactly you're looking at
• 19:30 - 20:00 are you in red IQ yeah okay in a red IQ under operating statement uh cash flow then you adjust it for month and and you'll see that when when do we do a when do we do a water conservation study during due diligence or do we wait on that we wait on okay once you close yeah we could do a study I mean look it depends right if that's a major asset and we know that water has some leaks got two pools yeah let's just knock it
• 20:00 - 20:30 out as a part of the DD and then we canot go right absolutely no problem $1,500 just to study it's not going to go wrong with it if we believe but in this case what it seems to be it is worth doing it for free anyways there two or three vendors they'll come out and do it for free good part of the DD and we knock it out that way you have it I'm not paying the seller for it this is ours to keep down the way if you have to exercise all right okay so we're going
• 20:30 - 21:00 through that for the Horizon when we bought the asset it was fine and then last four or five months or so water bill is going up and then we brought in the water conservation study based on that analysis it was okay but then Still Water build was going up then we identified there was some leak in a couple of the buildings going up now we're going to fix the leak and bring it down and that's that's money into the dra M flashing the money into the toilet that's exactly the case baby girl all right let's go down to the property management 3.5 that's fine now this is a
• 21:00 - 21:30 $15 million deal once you get the LOI which is okay what after you oops uh Martin you want to go on mute for a second appreciate it are you talking to [Laughter] me I had to find a way to mute okay thank you uh on that note uh if whenever they give us a feedback on the LOI what we need to do we need to go talk to the
• 21:30 - 22:00 property management company and have them underwrite this independently and factor that into the performa then we make the PSI to let you know okay but it looks good for now all right reps maintenance yeah let's talk about that apparently there was an issue with this there is there is an issue with that it is too low 190 divide by two we're going to spend eight n bucks I mean you know like a 10 bucks I
• 22:00 - 22:30 $89 unit per month that's low I would love to have it but I just not going to have it at some point SE form so okay that's that's there uh admin do you know what the admin Intel is what's the admin is so um so there was like you know personal and administrative you know that was kind of mixed all in you know when we you know got the T12 there were like lot
• 22:30 - 23:00 of categories in there under administrative and personal it was kind of mixed you know uh it both of these Administration and personal include um um the cost of it count the yeah the cost the cost of leasing agents like you know property managers um what else was there Joe like you know you you looked at it there was like in in the first T12 we received
• 23:00 - 23:30 they did break out administrative it's all payroll it's all headcount they have six head counts okay okay how about the Personnel what the difference between those two so let me um so this is all was included under payroll expenses um then this is this comes to the General repairs and this is the
• 23:30 - 24:00 administrative expenses that they had okay I could see The Bu internet that's been informed renters liability we okay I I don't know what's that we have to go take a look at that one oh do they sell libr insurance as
• 24:00 - 24:30 well probably that okay okay so I could see the admin expense and where is the Personnel again could you go up to Personnel these are the payroll expenses okay okay let's let's go back to the p&l
• 24:30 - 25:00 for a second so what what they're doing is that they have a cable contract uh that they have a Master Lease uh for the whole property the cable company has and then they're turning around selling that by unit with a markup and that's where some of the reimbursement coming through so part of the due diligence process we got to go read the cable contract to make sure that we're not living any money on the table okay so that's there let's the homework
• 25:00 - 25:30 on that one Personnel is fine but advertising is okay landscape ground is fine but I'm going back to what Al was mentioning the repairs and maintenance it just low right I like what s is said I think it needs to be triple almost if you kind of go with that if you just type in $75,000 just for now see what happens there okay that to me makes makes a little bit more
• 25:30 - 26:00 sense for a couple of things uh what the Vintage of this property 84 okay it's 84 and we're running the project at a 50% opx ratio to me it's a very tight operations so there's something that we have it's not quite the because look uh best you're going to get this one on a 250 plus units where you get operational efficiency personal efficiency maintenance scre efficiency smaller
• 26:00 - 26:30 units a little bit more pricey so I would like to see this one it's around you know 50 handle for Opex ratio so with the plug you have that Opex ratio as you kind of go through so it is getting better version of it okay now year three and four I'm at a 47% year five I'm at a 47% that is like you're getting a best in the class operations I just want to kind of let you know a little bit more how operations we're looking at it okay that's good let's scroll down a little
• 26:30 - 27:00 bit more capex Reserve 1250 is fine pretty standard row number 46 46 we have $7,000 plugged in for accounting makes sense uh scroll down down down down okay this is where you got to pay attention to 61 we underwrote that at a seven pref and we have a shortfall pretty heavily because project is pretty skinny right the cash flow is skinny as you going to come about uh so let's scroll down a
• 27:00 - 27:30 little more look at the dscr 1.25 fine okay okay so a79 you see it a79 or a80 actual on the left side or left our going in cap rate about 7.8 and our purchase cap rate is about 7even which is the after cap
• 27:30 - 28:00 if we can get anything at that six six and a half seven Cap all in great buy okay going in price is great makes sense now if I look at the other side where I have a debt coverage 1.1 to 1.3 year one is very skinny so we have to do either we have to raise more money to cover the shortfall or that is the business plan because if you take a look at the 61 it doesn't catch
• 28:00 - 28:30 up okay so as a part of this execution process we're going to come back if the whenever the Lo comes back if they actually yes we could really hone in and SL up make sure our execution timeline execution delivery for 18 months is very clear right that we know what we're going to do because I have a dscr 1.1 right 1.3 1.5 is it's great now what I don't know can it go up all the way oh
• 28:30 - 29:00 anybody else if you guys have any question please let me know and I'll go through this session this this part a little bit quick year three if you go up and can you make the economic vacancy to eight please yeah eight yes that means we have to be at 88% to get any any agency that now go back to dashboard and please change that refi to year three see what happens
• 29:00 - 29:30 all right so yes we dropped a little bit because we're giving the money back down the way uh then we kind of go uh but all in all I mean to me a good starting point the project is touching LP is touching 19% and then you know this project level is 23% there's some fine taining to it and scroll down okay this is good here one of the thing that we see here row 45 see 45 our offer price is 93 bucks a square
• 29:30 - 30:00 foot and square fit and then we have all in after capex 105 the 1% rule which is our price is $105 a square foot right our rent is doll four 1% wool can of applies and this is the class B so it's okay uh profor the you know rent is going to be16 and performance sale price is 29 so and if you go down it says rent as
• 30:00 - 30:30 is to sell we're increasing the rent by 5% so the work is going to take to increase the rent it is it is it is pretty healthy amount uh value increase 43% and then V means every dollar we brought in how much profit we created for the sponsor K to me it's a very Co kpi to measure it because that's where it shows return effort that if I bring in a if we raise
• 30:30 - 31:00 a dollar and then we go to five years or to work how much value are we creating is it worth doing 50% is pretty good number to me after paying everything else that you going to go through so and price increase from AIS to 2B it's about 43% so all you know at this uh the bottom row 52 to 55 it tells us how much work that is involved to turn an asset around so this one it's a midsize work
• 31:00 - 31:30 it's not heavy lifting it's not a run meting it has a decent amount of work but the upsides are pretty good as well so to me it's good now if you ask me uh but as we get the you know Loi feedback back if the feedback is a version of yes then you guys should engage the property management company have them under right independently and then take that into the consideration update this performa and then we
• 31:30 - 32:00 push PSI does it make sense good job good job guys this is good one good question this time on the p&l for um Alo had suggested in the chat the repair and maintenance bump to you know somewhere between 400 and 600 per unit per year what would you suggest on that that line item as far this is an assumption as it kind of went in uh so it is okay for me we haven't walked the properties yet as you walk it we will adjust ideally what
• 32:00 - 32:30 you're going to have you're have a heat map on your hand with 23 units on the hit map and then in the map it's going to tell us how many units are the worst that we have to do complete value ad how many units are closer to where we at and then based on that you kind of come back and optimize theob okay but in a in a typically just to turn the unit which is you we come back mop the floor do the and know uh carpet do some paintings and
• 32:30 - 33:00 touchup still cost you 700 bucks 2,000 bucks so it's not bad all thank you okay cool all right uh capex yeah it's it's a pretty healthy amount of capex yeah so it looks good to me okay so are you guys good so overall good underwriting it's a really good underwriting for a team uh recently joined so really impressed good job on the LOI and just keep sending Lois as you go and now again going back L is fun time right like L is saying I'm
• 33:00 - 33:30 ready to buy if you give me the price and the moment they say give me another Loi it's going to get real we'll tighten up the whole team then we'll run through the property management we'll get into the sponsor some responsibilities really quick Shar quick question I'm sorry yes sir yeah last question for me Mr Joe um do you recommend that we bump the capital raise from 5.1 to six so that we have enough for your point earlier in that
• 33:30 - 34:00 call so to me it depends ideally I would like to raise uh raise less uh for a deal at this size uh why that is the cheapest money you can borrow Capital raising is the most expensive money you can borrow and we have to design a good one that fits the project keeps it healthy and still allows us to run the project so and I would say yes the
• 34:00 - 34:30 project needs to be healthy it needs to be well funded but at the same time not too funded because every time we borrow someone we're promising a 20% return right thank you good okay great thank you I'm going to switch it to multif family two team who's going to go from that team I'll share my screen awesome that was a good under
• 34:30 - 35:00 writing can you see my screen it's coming up yes ma'am uh if you zoom out a little bit we see the uh pnl here3 oh here we [Music] go okay so um average rent 12:30 this is
• 35:00 - 35:30 a multif family let me go back to the this is in ulis Texas um 150 unit average price currently is 1230 150 units um average ass per door 106 and this is we don't have a whisper price at this point um so I I can't really remember where the 16 million I feel like this
• 35:30 - 36:00 came up in our early conversations um so this isn't really like a firm ass price but the expenses are 9,539 uh starting cap rate 5.3 and then potential rent this doesn't include like the other income
• 36:00 - 36:30 um I guess what information do you want me to share because I'm based on what I ran I I just feel like like I got a negative irr so I was like I just something's off but I don't know you are mute I can't hear you
• 36:30 - 37:00 sh sorry about that thank you I was like I was talking okay okay cool so uh in um at least for now for next six months or so if a product goes to Market they must have a uh wher price okay if there's no wher price you just tell the broker hey under writing hundreds whenever you have it let me know I'll spend my time otherwise you can have your product right because by by by definition I'm here to sell right so everybody should have a whisper price and I'm I'm kind of
• 37:00 - 37:30 polarizing that just to kind of get your frame of mind going uh but on that note everybody should have a and a whisper price and then in the whisper price let's see you get a whisper price let's assume the whisper price is $60 million now and then the question that you're asking how do I back of the envelope underwrite right go through the whole thing and I canot go so I'll give you my version of it uh the first question I ask if you go on to the dashboard bottom left
• 37:30 - 38:00 that uh row 45 to 50 to me is okay what's the Vintage of this property uh this is 1971 the older proper all bills paid all bills paid uh no there's robes okay no rubs means I'm building back but uh utilities who pays first the elect we pay okay and then we're reimbursed but they do get a little bit more they are taking
• 38:00 - 38:30 a little bit more back than they're actually um you know what I'm saying that's actually Co so I want all of you guys just for sake of the conversation to think and to believe energy transition is absolutely real things are getting hotter and AC bills are going up and systems gets inefficient as it ages so if whenever we get into a property that we are paying the electrical bills we are putting ourself in the path of
• 38:30 - 39:00 decent amount of uncontrollable expense I don't know what the temperature looks like I I mean how temperature temperature it is is but from the purely from the data perspective everybody who's paying utilities our cost is going up and then uh with this government we're going to D regulate quite a bit and electrical bills in the state of Texas was cheaper it was regulated by sorry will deregulated but now it's going to go even more expensive uh starting I think
• 39:00 - 39:30 Q3 Q4 this year so ideally you don't want to be in a critical path of those kind of uncontrollable expenses unless it's a slam down deal you come in you in and out in two three months not it's like just a broken deal things are falling apart on do so inherently I recommend all bills paid smaller units are fine for 100 plus other units yeah right so back of the envelope not even worth entertaining on top of that they're saying they don't have you know whisper price right okay so now
• 39:30 - 40:00 uh it's then the second thing is uh if this go down a little bit more okay all in we are paying just the asking price is what $97 so $122 right yeah and then rent is $145 yeah is that right okay so so that seems to be okay to me because 1% I get a 1.2% or so mhm that's a healthy amount
• 40:00 - 40:30 to get started if I get the price we're thinking or your price what you're thinking is right it's not wrong right and then we have to come back and see how we are doing the p&l so back of the envelope on one side price is okay that you're going in price but on the other side it's as utilities that you are paying for it it's a 1960 1970s product who old and so between those two
• 40:30 - 41:00 it get St I'm in a side of it's not even worth doing it this irr would be a red flag too definitely let them so on a Class C you want to hit the 20 Mark you have to clearly hit the 20 Mark 22 23 IR at the project level and if you scroll up a little bit more you need to hit um about 19 20 RR on the lp level at the first pass and then as you find gets over 20 but unless we give LPS more than 20 it's
• 41:00 - 41:30 not going to work okay they're not going to I mean I mean as a investor uh you know 20 is the one that that you want to go H it that otherwise you'll be top race in today's market abely your got fields are right I'm just trying to quantify your gut Fields as you can go yeah okay uh scroll up a little bit more so for everyone uh so this is a stabilized debt right that's what you're thinking uh yes well so this is free and clear their
• 41:30 - 42:00 property currently so that's why I assume I mean it could be free and clear but for us we're taking a loan right yeah right yeah the occupancy is high so that's why yes perfectly fine I'm looking at the red IQ as well they have done a good job lowering the vacancy down so occupancy is high makes sense uh two years refi that's too short yeah for everyone 24 months goes out the door quick the 36 months will be standard to
• 42:00 - 42:30 do if you ask me okay yeah that even BR it down but yeah so deal is I would say reply back to that hey you look at it it doesn't piss a out at all let me know when the price drops okay that's I have a question yese this is Andrew before we move on the AL if the electricity or the utilities are allocated that still means all bills paid correct let me okay thank you so follow
• 42:30 - 43:00 the money uh if the question we got to ask if the electrical submeters or Master Meter uh the submeters means each of the unit has a meter by itself and they pay their own bill just like buying a house right I moved in as a tenant I call center point I get my bill versus Master Meter which is one you know meter for the whole complex as as soon as it's the Master Meter the the te who cuts the check first is the
• 43:00 - 43:30 ownership and then we build back okay now there are two things money I pay money I collect in between money is stuck if the bill is $300,000 then I'm paying first $300,000 and I'm then trying to collect $300,000 have a working capital stuck in the middle and then what if I don't connect I mean I don't collect and on top of that what if there is an unpay uh or non paying tenant that not only they're
• 43:30 - 44:00 paying my bills but also I'm paying for the water and electrical like it's like a triple whing right no R up everything so all in all in today's priz why taking the bullet if I don't have to that makes sense okay thank you thanks good question this is great so life is tough already I want to make life a little bit more easier so let's just take the easy path for time beings that we have then as he comes so you go but on this one though go back and just
• 44:00 - 44:30 ask the seller I mean just drop a note hey what's going on just play with it okay okay thank you any other question on this one okay uh oh I guess we looked at the VF okay thank you so uh Waterford Cynthia you want to show yes you want go over thank you and I'm assuming no more questions on this one and Jean G you're still sharing oh if we
• 44:30 - 45:00 stop sharing then then we can kind of go into the other one hold on let me oh there we go and Shar can you see my screen yes ma'am
• 45:00 - 45:30 okay so for this one um Waterford apartment homes uh it is uh located in the uh North Dallas area near um Preston Hollow Village in the heart of North Dallas it's neighboring uh 1 million million doll homes it's surrounded by uh top employers and it's also located near um the uh Dallas Lovefield Airport and the tenants uh that have uh are part of
• 45:30 - 46:00 this uh complex have a medium income of 71,000 so I did initially review uh the napkin with um Sanjay to get some feedback on it and um the feedback that I had got was uh that um we need to lower the um offer price to at least 12 million to get the irr closer to 20% and so he was going to provide me some more uh details to uh give back to the
• 46:00 - 46:30 broker because if where we're sitting at now we're kind of off off the ballpark with their asking price of 17 million so is there any particular place that you would like for me to go to okay for this one so 17 million 144 okay okay let's let's walk us through here so the asking price is 17 million uh number of doors is 144 uh the current uh monthly grent per
• 46:30 - 47:00 door is uh 1,108 uh the average Market rent per door is 1,96 uh we have a 50% expense ratio and here uh we see the income is 1 million 959 m378 and our expenses are sitting at 98 8,214 okay I'm thinking I'm thinking app price okay so my my ballpark number
• 47:00 - 47:30 they're asking for $17 million which is about $210 a square foot right and it is also a $9 million uh assumable loan as well on it so it's another piece of information so and me's see on that note this it fully occupied and the rent is around $2 um a190 $1.95 so this is what vintage again 19
• 47:30 - 48:00 it was built in 1976 so it's a solid location at least it's a you know age perspective it's a c age building on a b location it's a good example of I know that they asking price is $210 and their rent is around $1995 that means they're not that far off they're off but not that far off right
• 48:00 - 48:30 and then we have to look at the p&l and ask the question what else we got to do to do the value on that note utilities who's paying for the electrical it is um individual um meter can you see the PDF that's up now indiv I'm send Exel oh stuff [Music]
• 48:30 - 49:00 sh okay so it's individually I Meed for the electric that check so location checks out util check out price is broker is going to get within 10 15% of whatever the price is and so we have to come back and ask the question what is the value yet operationally for this project right what is the angle is it like the
• 49:00 - 49:30 last property we took a look at it the value ad for the S2 asset was operational value yet they are running at a 15 16% occupancy oh sorry vacancy we're going to bump it up to 13 14% then will make the product beautiful at a little more price this one in in in your mind what is the operational value at which you can think of just a sec trying to bring up the Exel
• 49:30 - 50:00 and you have the most recent data for this one right the I do yeah yeah location checks out let me see
• 50:00 - 50:30 something you can see then I'll share my R quickly on this now it is saying that there is some value add in the ability
• 50:30 - 51:00 to um let's see says market rate uh competitors is 180 per unit uh they renovated units uh 124 premium over Classics so we can upgrade some units uh on renewal or vacancy uh in that area um says 55 units are primed for formal interior uh
• 51:00 - 51:30 renovation program and there's also a uh washer dryer equipment and units where we can also get some value ads from that and also internet both cable internet package those were the uh three value ads for this property yeah it said install washer and dryer equipment remaining 110 units with connections $40 per month uh 27 additional units with equipment
• 51:30 - 52:00 provided so that makes sense that goes to the typical narrative where when you're asking for the premium price you're saying push the uh push the rent push the rent push the rent right that's that's all they're saying okay got it so go thank you anything else DED or are we good that's it that's it okay all right right so and what was the offer price right now we're 17 to okay
• 52:00 - 52:30 17 as okay we're not going to get so here in this case it's a operational value ad purely from the rent Arbitrage what they're saying is that if you pay me 156 million you have a good property in a good location everything is good and guess what your property is about $50 to $0000 cheaper than the others you bring it back to them and once you bring up the revenue you pay me a premium for it that's all the same is that you
• 52:30 - 53:00 understanding as well yes cool awesome so I will go back to the now um let me show you on the red IQ how I would have and how I would kind of couple this one and that one so on that note you're right yeah so on that note it is right that one thing knowing what the market is I think it's going to trade around 145 million we are $12 million so not only our numbers we have some catch up but also uh that mostly is going to come from the rent growth that how much of a
• 53:00 - 53:30 escalation that we're having in terms of rent and um other income it's not a cost game it's a revenue game okay so if you stop sharing I will share M quickly from there all right and then we'll wrap it up for the day can you all see my screen yes cool all
• 53:30 - 54:00 right so this is the Dallas fortwood area the waterf Belmar right that's the one yes look right okay cool so property address is fine to me uh for everyone won we say good economy bad economy good location bad location everything is very simple two seconds you can get there it's called Justice map.org if you go to the income Tab and if we just type in the property information I don't know what I
• 54:00 - 54:30 at that this and it's going to tell you exactly um where the property at and that's going to ball down to that so I'm guessing it's somewhere down here darker the blue better it is it just tells you the economic power of this one I don't I'm not sure exactly what that at but I can see okay so just J mapwork use that typically side of DFW area are fine uh so you're going to see that version
• 54:30 - 55:00 of it but pay attention to that one less than $45,000 it's in a rough area less than 35 it's a war zone right and we just have to kind of now it's not good or bad which is being demographic and we're just figuring out how the play is going to be and if they're in a return then we go to the you know execution of it right absolutely fun I bought asset it is 32k know uh median income my bought assets were about $100,000 they're just totally different not right
• 55:00 - 55:30 or wrong about it it's just setting up your expectation that you're going to go in right so off the gate it is it's renting out pretty well uh anything above a120 you're in a good spot which is a seed anything above a 150 or $150 you a b depending on the city for DFW you a b class solid B Class anything that comes close to two it's an a area it that goes for the HST as well uh if you hit that $2 that is a solid area as
• 55:30 - 56:00 long as you can kind of have it right so that's that's there so location everything else checks out looks like they have some upgrades there nine buildings there rent R rent roll dashboard I I kind of s spend some time here first then I spend some time here it tells me when my leas is expiring July August summertime they have quite a bit of listes so 30 units gonna be here February interesting that quite a bit so as you pick up assets
• 56:00 - 56:30 this month it's a very crucial month for them they have a lot of renewals happening plus the new rent but overall they have done a good job spreading that around uh four plan summary dollar per square foot and based on the unit size and the last four there what we saw rent goes to $2 but really I want to see last where is my rent coming from my bigger unit is
• 56:30 - 57:00 $1.76 as you go smaller you're charging more so I've seen something over $2 that's misleading this at my average $1.98 is my average and my my dog asset will be the larger asset it's a good location you'll get good rent on the smaller side on the big side will be will be tough one so I'm just calibrating my mindset $198 1% wo couple of hundred dollars or square foot he's asking for doll10 I'm not too far
• 57:00 - 57:30 away am I making sense yes so that's what is so pricewise we're not going to have much of a leverage it's going to come back to uh the operations operations they have done a pretty darn good job November December they bumped it up so that what's telling me seller is pretty good they know they want to sell they filled up this one quite a bit in the last two months so either they have done a great job or they have done a good job with some dead bod so my list my list um my listing
• 57:30 - 58:00 audit got to be really good but if I take a look at it they've run a pretty good job then over the third and fourth quarter went down but so it's a they're running it pretty solid and that also tells me my T12 will in a pretty good spot so my T12 50% office ratio about a million dollar worth of an income2 million expense I would go with that mindset right and then I kind of look at the revenue analysis a little bit sorry cash
• 58:00 - 58:30 flow total or score I like score for it's just easier for me to look at it rentwise you can see base rental income they went uh they were low low went up and they filled out more people so they're stabilizing now dollar .75 after vacancy and everything else then you have some other incomes with put together it's about $1.94 $2 so they're doing a good job
• 58:30 - 59:00 based on what they're asking versus uh controllable expense which is s pretty good repair maintenance Landscaping admins all the right line items are there I don't see any landscaping and grounding so I could ask the question who's paying for that so that's there but here all in all looks good I want to double check my electricity bill so I'm going to go back to our unit or total that's not bad only $1,300 that
• 59:00 - 59:30 means I'm I'm paying for the common area and and things like that but look at the water bill 290 if I go to water bill per unit water per unit where's that at it's about 757 so this is what we're seeing that everywhere right so you build back mostly the water as you go winter time they spend more water and then some more time I get out of time or something so all in all it looks okay so my net operating income to about 50 56% so
• 59:30 - 60:00 before I even underwriting it checks the location so age of the building is in the middle location check utilities check price point is more or less there uh so what has to be true is that do we really have a price gap between the current Place versus the surrounding places so I want to go to rent comp I pulled out those to rent com so you have it here but I saw a couple of things to
• 60:00 - 60:30 remember here this is very important to understand this this is our property there's a freeway this is that both side of the freeway will behave completely differently they just do I don't have any other comp but I just want to go talk about it so same side of the road same side of the freeway that's your comp Zone on the other side of the freeway that's problematic because freeway will drive a lot of behavior changes you'll see dve
• 60:30 - 61:00 to 45 one side is great one side is like oh my goodness right or you have a measure through Fair like one block is great one block isn't especially in Houston but that's a version of that also true if you look at the 45 but just going to go with it this is our property and this is one and two our comp interestingly I picked the similar size so this one this one same size vintage perspective you know this is older this is kind of old this is brand new but think about
• 61:00 - 61:30 this this one is renting out very lower than what we're renting out for one or two bedroom on the other side the newer one is renting out much higher so what we have to do now we really have to study the comps get their in know current rent get their cost and get their um's say all the concession and then factor that in from the under writing so your underwriting has to be on the p&l how much of a rent Arbitrage do I
• 61:30 - 62:00 have was it a lot of information or are you guys okay so far that was a lot okay that was a lot so before you get into the underwriting you got to understand I mean whole point before we get under writing we got to understand what angle am I going to play with it what is my value yet in a sense I was so looking at that I was trying to collect the value ad so the value ad is a operational rent increase Val yet and to do that we have to really
• 62:00 - 62:30 understand the coms of all the properties around I know cl to the location once you do that you'll know the undering okay so to me it's worth pushing it location checks out but spend five or 10 minutes find out some of the properties on this side of the freeway get them a call as if you're renting it tomorrow and you're asking for a discount see what they say and then you can kind of go from there I have a question yes ma'am okay this
• 62:30 - 63:00 Andre when uh curle and I went to visit it uh the property one of the things the lady told us was that they do not take a down deposit or first last month rent how do you take that is that something that's good or is that something that that could be done to add value or is that what they're using to get um it least out pretty quickly well um I know one half I don't know the other then the half that we do know it is they are not collecting and
• 63:00 - 63:30 what I heard you're not collecting that because you can't collect because Market are asking you not to ask for right that's that's at Le glasses have empty operationally right I don't want to make your problem my problem so it's at least not till I buy so this is also a true because DFW area has a r suppression right now and everybody's competing and as you as you do the competition you got to give them something so usually I would ask you to
• 63:30 - 64:00 pay for first month rent second month rent High credit and a deposit now I just need you to show up and pay the bill right so I deposited drop it out search in today's market it's going to be tough to ask to all of them what they have done what we do also we have an insurance it's a $99 moveing that insurance will add5 or $10 extra on your rent but they will guarantee that if they go in first 12 months us as a landlord we're going to get paid so
• 64:00 - 64:30 that's why they so the pach is $99 moving that's really the insurance money uh and then you kind of come back and your first month and last month rent free so what they're doing is pretty good I don't think she gonna get anymore maybe two years under way and that's the first one I do know the other one if we go ask for it are we gonna get the rent probably not that's what I was kind of confused I was like yeah it's 50/50 shop but that's not you bre but that could be an icing on the cake but that should not be a bread and butter that I'm want to go do it and they're
• 64:30 - 65:00 going to come show up and they're going to show up tomorrow that assumption should not be factored into this at least for this year and next year any other underwriting I know we're five minutes over so really really appreciate everybody's time it was it was a good good session hopefully you all got some value out of it and you got doing pretty good stuff so we we're getting there and uh my my request as you finish the
• 65:00 - 65:30 underwriting find the way call the broker or send the emails maybe that's easier way copy some of us by saying that you under wrot it it didn't pencil out so thank you for sharing all the information let me know if the price changes and or anything else that you're looking at which is a pocket listing what happens is it typically we'll go to the brok and ask for a deal in this case we're not asking for a deal we're saying hey I already looked at your deal it
• 65:30 - 66:00 didn't work out thank you very much I'll see you later but if you have something please let me know that way they also see that you're active you're working you look at you took a look at it and you strong enough to say no to a deal so make that connection as you can of go through all right thank you everybody have a wonderful rest of the day I'll see you guys tomorrow
• 66:00 - 66:30 e
• 66:30 - 67:00 e
• 67:00 - 67:30 e
• 67:30 - 68:00 e
• 68:00 - 68:30 e
• 68:30 - 69:00 e
• 69:00 - 69:30 e
• 69:30 - 70:00 e
• 70:00 - 70:30 e
• 70:30 - 71:00 e
• 71:00 - 71:30 e
• 71:30 - 72:00 e
• 72:00 - 72:30 e
• 72:30 - 73:00 e
• 73:00 - 73:30 e
• 73:30 - 74:00 e
• 74:00 - 74:30 e
• 74:30 - 75:00 e
• 75:00 - 75:30 e
• 75:30 - 76:00 e
• 76:00 - 76:30 e
• 76:30 - 77:00 e
• 77:00 - 77:30 e
• 77:30 - 78:00 e
• 78:00 - 78:30 e
• 78:30 - 79:00 e
• 79:00 - 79:30 e
• 79:30 - 80:00 e
• 80:00 - 80:30 e
• 80:30 - 81:00 e
• 81:00 - 81:30 e
• 81:30 - 82:00 e
• 82:00 - 82:30 e
• 82:30 - 83:00 e
• 83:00 - 83:30 e
• 83:30 - 84:00 e
• 84:00 - 84:30 e
• 84:30 - 85:00 e
• 85:00 - 85:30 e
• 85:30 - 86:00 e
• 86:00 - 86:30 e
• 86:30 - 87:00 e
• 87:00 - 87:30 e
• 87:30 - 88:00 e
• 88:00 - 88:30 e
• 88:30 - 89:00 e
• 89:00 - 89:30 e
• 89:30 - 90:00 e
• 90:00 - 90:30 e
• 90:30 - 91:00 e
• 91:00 - 91:30 e
• 91:30 - 92:00 e
• 92:00 - 92:30 e
• 92:30 - 93:00 e
• 93:00 - 93:30 e
• 93:30 - 94:00 e
• 94:00 - 94:30 e
• 94:30 - 95:00 e
• 95:00 - 95:30 e
• 95:30 - 96:00 e
• 96:00 - 96:30 e
• 96:30 - 97:00 e
• 97:00 - 97:30 e
• 97:30 - 98:00 e
• 98:00 - 98:30 e
• 98:30 - 99:00 e
• 99:00 - 99:30 e
• 99:30 - 100:00 e
• 100:00 - 100:30 e
• 100:30 - 101:00 e
• 101:00 - 101:30 e
• 101:30 - 102:00 e
• 102:00 - 102:30 e
• 102:30 - 103:00 e
• 103:00 - 103:30 e
• 103:30 - 104:00 e
• 104:00 - 104:30 e
• 104:30 - 105:00 e
• 105:00 - 105:30 e
• 105:30 - 106:00 e
• 106:00 - 106:30 e
• 106:30 - 107:00 e
• 107:00 - 107:30 e
• 107:30 - 108:00 e
• 108:00 - 108:30 e
• 108:30 - 109:00 e
• 109:00 - 109:30 e
• 109:30 - 110:00 e
• 110:00 - 110:30 e
• 110:30 - 111:00 e
• 111:00 - 111:30 e
• 111:30 - 112:00 e
• 112:00 - 112:30 e
• 112:30 - 113:00 e
• 113:00 - 113:30 e
• 113:30 - 114:00 e
• 114:00 - 114:30 e
• 114:30 - 115:00 e
• 115:00 - 115:30 e
• 115:30 - 116:00 e e