Underwrite a Multifamily Deal With Ben Suttles & Feras Moussa!

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In today’s Money Monday$ we will be underwriting a multifamily deal with you live!

VIDEO TRANSCRIPTION

00:00
all right true lovely monday tv
00:03
studios never stop who are you and who
00:05
am i i
00:06
am the lovely ferris moosa there you go
00:08
ben suttles
00:09
your hosts here of money mondays when do
00:12
we do this man
00:13
every every monday 3 30 central oh yeah
00:16
what are we talking about today then
00:17
we’re going to underwrite some deals
00:19
right we can’t go through the whole
00:20
entire process everybody obviously
00:22
you know underwriting is a it’s a it’s a
00:25
mathematical process it’s also a little
00:27
bit of an art and it also takes more
00:28
than 30 minutes so
00:30
now we’re going to go through a real
00:31
deal this is a big deal this is one of
00:33
our real deals
00:34
you know um that we had kind of gone
00:36
through man when did we buy this back in
00:38
18 2018 somewhere around there yeah it’s
00:41
going on three years since we bought
00:42
this deal
00:43
uh we’ve since actually had it anymore
00:44
though we since exited it
00:46
we sold it what kind of returns did we
00:48
say we had about
00:50
75 80 return in 18 months something
00:52
around there not bad
00:53
not bad it’s on an annualized basis it
00:55
was close to 50 folks
00:56
so you know i mean not all of them can
00:58
be home runs like that right but
00:59
we’re going to tell you why this deal
01:01
was interesting so let me give a little
01:02
bit of backstory real quick and then we
01:03
can hop into the numbers
01:04
yeah so maybe to kind of give some
01:06
people contacts where’s that switcher
01:07
it’s in my pocket
01:08
so basically really quick right this is
01:10
a deal in atlanta
01:12
it was kind of an ugly deal but therein
01:14
lies the opportunity we’re going to run
01:15
through kind of some of the financials
01:17
as to really why there was an
01:19
opportunity
01:20
but really it was a deal that not a lot
01:21
of people looked at a lot of people got
01:22
scared went out there and toured the
01:24
deal
01:24
and you know we have it up here on the
01:26
screen you can kind of take a look at
01:27
what it looked like a little bit of the
01:28
before and after
01:29
right but really it was a deal that had
01:31
nine down units right it’s 99 unit
01:33
property
01:33
so nine is about ten percent yep so ten
01:36
percent of the units were down
01:38
plus just rough deal the area was okay
01:40
but it’s just mismanaged you know
01:42
poor boy owners didn’t know what they
01:44
were well they were and they weren’t
01:45
even really mad let’s be honest they
01:46
were self-managing but they didn’t
01:48
really have a property management
01:49
company folks like they were one of
01:50
those people they’re like oh i’m just
01:51
going to pay the manager out of my own
01:53
pocket and
01:54
it was extremely loose and when we came
01:56
on site
01:57
we knew that there was an opportunity
01:59
but it did take me a little bit of time
02:01
to get used to it you know i think
02:02
we’ve probably told this story before
02:03
where i was a little bit shell shocked
02:05
for the first couple hours but then i
02:06
started warming up to the deal
02:08
and ultimately it’s all about the
02:09
numbers you can’t get sold
02:11
on the sexiness of a property or the
02:13
sexiness of an area
02:14
it has to be driven by the data and the
02:16
numbers right yep
02:17
so ultimately when we went back even
02:20
after due diligence we knew we had
02:22
something here right yeah yeah so i mean
02:23
it’s just ultimately it’s about the
02:24
numbers like ben said so
02:26
you know what made it attractive for us
02:27
is that the guys that ran it clearly
02:28
weren’t operators so no
02:30
first thing that means there’s usually
02:31
efficiencies that can be done yep
02:33
and how down units that again if you
02:35
come in capitalize you can get those
02:36
units online
02:38
and prove it and you know we saw some
02:39
things that are happening in the area
02:40
right
02:41
we saw that basically property nearby
02:43
got bought vacant someone had put forty
02:45
a door into it and upgrading it so
02:46
really his cost basis is 80.
02:48
we saw that the deal you know basically
02:49
the deal across street had a waiting
02:50
list and so we saw some indicators that
02:52
look
02:53
hey if we were to come in operate this
02:54
property effectively we could get this
02:56
thing turned around
02:56
yeah and so that’s ultimately what we
02:59
did but really today we’re here to talk
03:00
about not the deal the returns
03:02
we’re here to talk about what we saw in
03:03
the deal from a financial perspective
03:05
right
03:05
kind of going into it and we got a
03:07
little bit of a white board here we’ll
03:08
try to see if we can if you guys can’t
03:10
see that just
03:11
holler at us right you know i always
03:12
kind of tell people you have to have a
03:14
few different things before you can even
03:15
start underwriting a deal right you have
03:16
to have what t12
03:18
t12 rep roll and preferably
03:21
preferably i’m gonna i’m gonna add a
03:23
third thing these guys didn’t have any
03:25
bank statements
03:26
right which was a big big red flag they
03:29
said oh we co-mingled this with other
03:30
properties
03:32
why would somebody why would somebody do
03:34
that because they’re lying
03:35
because they’re lying right whatever
03:37
they had on their financials
03:39
we completely threw out of um the window
03:42
right off the bat
03:43
because we knew that they weren’t
03:45
ultimately operating the property
03:46
efficiently
03:47
and we knew that they were co-mingling
03:48
and probably weren’t making as much
03:50
income as uh
03:51
as ultimately they were saying they were
03:52
they were doing right
03:54
and when we took over the property we
03:56
realized that it was about
03:57
80 75 80 occupied on paper
04:01
but of that it was they were actually
04:02
probably closer to 70
04:04
occupied and of that 70 percent probably
04:06
about half of them were actually paying
04:08
rent
04:08
so it was it was a it was a pretty rough
04:10
deal to take over
04:11
so really ultimately what was happening
04:13
in the past is not necessarily what’s
04:15
going to be indicative of what’s going
04:16
to happen in the future right
04:17
yep so that’s what we we cross this all
04:21
out right you know
04:22
we got their financials it’s mediocre at
04:24
best it wasn’t accurate right
04:26
and that’s okay we don’t care yeah we’re
04:28
really so in this kind of deal whenever
04:29
it’s a reposition play
04:31
what do you know with a jeep value add
04:32
what are you looking for you care less
04:34
about how the person’s
04:35
operated it yeah there are some things
04:37
you do care about you know you want to
04:38
know what their water bill is that’s
04:40
probably not going to change
04:41
you want to maybe know something on that
04:43
deal on that deal
04:44
probably not unless you come in with a
04:46
specific gap that you see a problem to
04:47
solve right
04:48
you know maybe that was a bad example
04:50
yeah that’s a bad example of the water
04:51
but long story we don’t want to get into
04:52
that one on this show
04:54
but uh you know there’s some things
04:56
though general utilities aren’t going to
04:57
change
04:58
generally things like you know contracts
05:00
that they have aren’t going to change
05:01
landscaping is not going to change
05:02
drastically so maybe some of the
05:04
expenses you can keep but
05:05
on the income side it’s all about what
05:06
are you doing right because a property
05:08
that’s vacant doesn’t mean that it’s
05:09
going to be vacant whenever you run the
05:10
property that’s true
05:11
and so you know you really want on those
05:13
kind of plays you want to look at your
05:14
year one
05:15
right so on this deal yep right you know
05:17
kind of take a look at it so
05:19
you want to point out so ben is going to
05:21
be my lovely host
05:23
what’s the host from uh vanna white dude
05:25
nana white thank you
05:26
i’m not flipping you guys i got betty
05:28
white uh
05:30
she’s certainly cuter than i am and uh
05:32
so basically what do we do with the
05:33
gross potential right so this deal
05:34
right we if you really average that out
05:37
right i did the math just a second ago
05:38
that ends up being 715 dollars per unit
05:41
yep this property was all two and three
05:43
bedroom units
05:44
they were already getting that we got so
05:46
much more than that right we ended up
05:47
getting like 950 a thousand dollars on
05:49
some of those units
05:50
right on the town home units yep so
05:52
really we’re looking at the gross
05:53
potential which means if every unit is
05:54
functional
05:55
and rentable what could we get yeah
05:57
right assuming it’s 100 that is the max
05:59
and that’s actually that’s a good point
06:00
let’s talk about that right let’s talk
06:02
about some of these concepts yeah
06:03
exactly
06:03
once again folks we can’t underwrite the
06:05
whole entire deal we can’t tell you
06:06
exactly how to underwrite but we’re
06:07
gonna go we’re gonna try to give you the
06:08
high level stuff
06:09
gross potential rent is if a hundred
06:10
percent of those units are rented out
06:13
at the max rent that you can get in that
06:16
market
06:16
that is the number that you’re getting
06:18
more specifically at market rents at
06:19
marketing rights right
06:21
so now that usually doesn’t happen so
06:23
when does windows economic and physical
06:26
so economic includes people that don’t
06:27
pay their rent right bad debt
06:29
okay and includes units that are down
06:31
includes whenever they’re sitting vacant
06:34
model the model universe you have one uh
06:36
employee units all of the employee units
06:38
so this is anything that’s going to take
06:39
away from
06:40
once again 100 max rents 100 of the
06:43
units right
06:44
and then you also have physical vacancy
06:47
right you know you have
06:48
just say 10 20 of the units aren’t going
06:50
to be occupied
06:51
so you’re going to decrease that from
06:53
your gross potential rent
06:55
right so then that gets you your net
06:56
rental income right this is how much
06:59
rent you’re pulling in on a yearly basis
07:00
right so in this case
07:02
724 they were saying that they’re
07:04
already a 725 it was a
07:05
it was a completely made up mythical
07:07
number that they were never going to get
07:09
folks but they were telling everybody
07:11
that they were
07:12
and we knew that that was completely out
07:14
of the so we threw that out the window
07:16
right so this was our actual
07:17
underwriting based on
07:19
what we knew about the market what we
07:20
knew about the comps working with our
07:22
property management company
07:23
all of these people will help you
07:25
underwrite because they ultimately want
07:27
you to be successful right yeah you know
07:28
and you have to provide a budget to your
07:30
lender so you need to really understand
07:31
how this
07:31
and because this unit had nine down
07:33
units plus it had to get cleaned out
07:35
you know we we underwrote a pretty high
07:36
economic right twenty percent yeah
07:38
roughly right
07:39
because we knew that ten percent of the
07:41
units are down we knew that was going to
07:42
take us a couple of months to get online
07:43
unfortunately a few months longer than
07:45
expected but we still got them done
07:46
pretty quickly
07:47
yep and on top of that right we knew we
07:49
were just gonna have to get back
07:50
you know get the bad elements out of
07:51
there yeah those are gonna sit vacant
07:53
those are gonna be rough turns inside
07:54
all right so let’s talk about what is
07:56
other income
07:56
right oh man that’s everything all right
07:58
anything you can possibly think you can
08:00
charge so you know things like late fees
08:02
application fees pet fees parking if you
08:04
have it right reserve parking if you
08:06
have
08:06
covered parking i mean there’s any of
08:08
those kinds of things on this property
08:09
yes mostly
08:10
pet fees application fees late fees you
08:13
know
08:13
not non-sufficient fund fee like you
08:15
know somebody’s checking bounces
08:16
so usually whenever you know utilities
08:18
if you rub it back which we did do
08:20
right that goes in there as well so big
08:21
big buckets folks just so we can notice
08:23
look so we went from 26 000 to 71 000
08:26
on the other income and why was that
08:27
though right they were self-managing
08:29
they weren’t collecting the fee
08:30
structure that they should have been for
08:32
this size property
08:33
so we knew that we had this this number
08:35
in the bag and actually i think it ended
08:36
up being a little bit more than this
08:38
you know so we threw their numbers out
08:40
because they were all bs anyway
08:42
right we started underwriting how it
08:44
should be so you have to normalize
08:47
the t12 right because you’re going to
08:49
find even on a stabilized property
08:51
that there might be something on the on
08:52
either the revenue side or the er the
08:54
expense side
08:55
that maybe you could potentially do
08:56
better maybe you could run the property
08:58
a little bit more efficiently
08:59
and therefore have you know a more
09:01
profitable deal right so here’s other
09:03
income
09:03
so then you get total net income right
09:06
so we’re at 796
09:08
680 all right then again this is
09:11
projected year one
09:12
right projected year one this is while
09:14
we’re still in the midst of our rehab
09:15
getting it cleaned up and i guess one
09:16
thing we should have on here is year two
09:18
once it’s stabilized and we’ll kind of
09:20
talk to that verbally right but
09:22
keep going all right so then you have
09:23
your expenses right you know so this is
09:25
pause for a second for those of you just
09:26
tuning in monday mondays with us every
09:28
monday 3 30 central yep
09:30
talk about a bunch of different things
09:31
today we’re talking about underwriting a
09:32
real deal that we had kind of what we
09:33
saw whenever we first bought the deal
09:35
right
09:35
actually before we bought the deal what
09:36
what led us to offer on the deal
09:38
and you know uh basically we’ll go
09:40
through that for about 15-20 minutes
09:42
and then we’ll leave about five 10
09:44
minutes at the very end to just go
09:45
through q and a so people have comments
09:46
questions
09:47
go ahead and leave them we’re happy to
09:48
kind of talk through it alright back to
09:50
you hey hey so one thing i wanted to
09:52
mention too
09:52
folks is you have to be comfortable with
09:54
the numbers if you’re not comfortable
09:56
with the numbers you’re always going to
09:57
have a problem because
09:59
ultimately your lender’s going to be
10:00
asking you your investors are going to
10:02
be asking you
10:02
you have to know your numbers especially
10:04
on your first few deals right you have
10:05
to be have all that buttoned up so
10:07
even if you don’t feel like you’re good
10:08
on a spreadsheet get comfortable
10:10
right there’s classes on excel there’s
10:12
all kinds of information out there
10:13
it’s ultimately not rocket science i’ve
10:15
underwritten probably upwards of about a
10:17
thousand deals
10:18
i can probably look at a deal and within
10:20
about 15 minutes i can determine if it’s
10:21
going to be something that we want to
10:22
even move forward with right we have
10:24
we have a sniff test before it even gets
10:26
into our pipeline
10:27
just by some basic things we just know
10:29
like hey that’s not going to work for us
10:30
right
10:31
so once again we threw all that out
10:34
because we knew it wasn’t gonna work for
10:35
us and it wasn’t it was ultimately not
10:37
accurate anyway
10:38
it was cooked so that’s why you do rent
10:40
roll analysis you do lease audits you
10:42
try to determine
10:44
is the seller what they’re telling you
10:45
correct and we knew off the bat before
10:48
we even got on site that it wasn’t
10:50
so here we go so total net income minus
10:52
our expenses right
10:54
so your expenses are everything except
10:56
for capital expenses
10:57
which we’ll get into here in a minute
10:59
and your debt service which is your
11:00
mortgage
11:01
right so this is going to be payroll
11:04
this is going to be
11:05
insurance this is going to be taxes this
11:07
is going to be utilities
11:09
this is going to be you know regular
11:11
repairs and maintenance stuff that you
11:13
have
11:13
contracts that you might have maybe pest
11:15
control or
11:16
call it landscaping right you’re going
11:18
to have all this is going to be lumped
11:20
into your expenses you’re going to
11:21
decrease it from the total net income
11:23
that your property takes in
11:25
and then you’re going to get then you
11:26
obviously have your replacement reserves
11:28
what are replacement reserves
11:29
that is what the lender expects you to
11:31
escrow and it’s usually anywhere from
11:33
250 to maybe 350 a unit
11:35
per year and they force this as part of
11:38
your
11:38
your mortgage note every month to put
11:40
that aside for capital items that you
11:43
might have to do
11:44
throughout the course of the year so
11:45
this is on top of the capex budget that
11:47
you might bring to the table when you
11:48
close the deal right
11:50
and pretty much every single deal that
11:51
we’ve come across there’s been a couple
11:53
that we’ve seen that don’t have this but
11:54
for the most part you’re always
11:56
going to have this so then you decrease
11:58
this from your expenses
11:59
right then you’re going to get your noi
12:02
net operating income right and this is
12:05
really
12:06
this is how you value a property right
12:07
you take this number divided by a cap
12:10
rate and you’re going to determine your
12:11
value
12:11
right so we did that up here right so
12:14
yep so basically we’re saying is you
12:15
know
12:16
year one if you just stabilize it at six
12:18
and a half caps which is very
12:19
conservative
12:20
right we’re valued at a four point five
12:21
million dollar value right that’s not
12:23
actually very good right look at what we
12:24
bought it for we bought it for 3.9
12:25
million yep
12:26
about 200 000 in fees nine hundred
12:28
thousand dollars of rehab so we’re all
12:29
in about five million dollars
12:31
right but the really important thing to
12:34
people is what
12:35
this is are not our stabilized
12:36
calculation right this is still year one
12:38
we’re still getting units online getting
12:40
them rented
12:41
and so really if you assume that
12:44
basically
12:45
what we end up doing year two right we
12:47
end up increasing the ny about 200 000
12:49
why because this is about this is right
12:51
here is about a hundred thousand dollars
12:53
sorry this is about 20 economic right
12:56
yep
12:56
this will end up being about you know
12:58
really about ten nine
13:00
so i get about fifty you know fifty
13:02
percent of this back so about a hundred
13:03
thousand dollars
13:04
right that will come back in here add it
13:06
to the 295 so that 295 so that gets you
13:08
know it’s about 300 so that gives you
13:09
about 400
13:10
000 right and then on top of that we
13:12
started increasing this too
13:13
as i said we popped our income
13:15
significant actually much higher on
13:17
those upgraded units
13:18
and we got more other income so we end
13:20
up getting about another hundred
13:22
thousand so then if you really do that
13:23
so you’re 400 plus another hundred
13:25
thousand
13:26
for those of you that don’t know i’m a
13:27
software guy i type
13:29
because it’s a lot better than my
13:30
handwriting so what exactly are you
13:32
trying to say down there
13:33
we end up having about five hundred
13:34
thousand dollars in a y if you end up
13:36
going back and calculate out at a six
13:38
and a half cap
13:39
what is that that ends up being about
13:40
seven point seven million dollars i did
13:42
not calculate that in my head ben was
13:43
amazed
13:44
but actually i calculated that uh right
13:46
before guys but you know seven point
13:48
seven million dollars right so
13:49
really if you do a year two value right
13:53
you’re at about seven
13:54
point seven and what and what are we all
13:56
in we’re all in it five million folks
13:58
five million and then maybe one thing
13:59
that’s missing everyone is what do we
14:00
raise on this deal ben
14:02
1.2 1.1 1.1 billion yep 1.1
14:06
million raise
14:09
right so if you really work through this
14:10
everyone so let’s just do this so 7.7
14:13
minus what we bought it for or normally
14:16
cost let’s take it all and cost 5
14:18
million
14:18
right 5 million equals
14:22
2.7 million dollars left
14:25
right now on top of that you have other
14:26
closing costs or the miscellaneous
14:28
300k yeah so i mean you end up about
14:30
let’s just say 2.4 million right
14:32
yep now this deal we had 1.1 million
14:36
dollars that we raised
14:37
so after you get everyone back there you
14:39
know after you give everyone back their
14:40
initial capital
14:41
you end up having 1.3 million dollars
14:44
left
14:45
and then on this deal we had some uh
14:47
some fun uh
14:48
county fees and other miscellaneous
14:51
stuff which is ben is wondering where’d
14:52
the math go but yeah
14:53
you know but we end up making about 1.3
14:55
million dollars plus or minus a bit so
14:56
very ballpark but
14:58
that’s really the high level of how you
15:00
go from
15:01
kind of where a deal is to basically
15:04
projecting out
15:05
to then figuring out okay whenever i go
15:06
to sell it right the other thing too
15:08
that we’re kind of ignoring
15:09
is whenever we went to sell atlanta was
15:11
not a 6.5 cap market
15:12
no so that’s a quarter or six more
15:14
closer you brought up a really good
15:16
point right so
15:17
this is called what’s called a reversion
15:18
cap rate right this is the cap rate that
15:20
we could potentially sell this at
15:22
in one to five years right and nobody
15:26
has a crystal ball nobody really knows
15:28
what that number is so you always want
15:29
to be conservative right
15:30
so this actually ended up probably being
15:32
six
15:34
so we got a 50 basis point you know bump
15:37
essentially in our value which is good
15:39
for us right it’s the gravy on top of
15:40
everything but we didn’t underwrite the
15:42
deal
15:43
for that in mind right so we were trying
15:44
to be conservative up front
15:46
we ended up selling it at a six cap
15:47
which ended up helping us out
15:49
but you have to understand where you’re
15:52
currently buying it at where stabilized
15:54
properties
15:55
regardless if this is unstabilized where
15:56
were you buying at right
15:58
and really right around then was about
16:00
six to quarter you know so we bumped it
16:02
up to about six and a half on a
16:03
reversion
16:04
right and we ultimately cap rates ended
16:06
up compressing even more and it ended up
16:08
being a six cap
16:09
this is roughly where we modeled it and
16:11
realistically where we sold it too
16:12
no no it was it was it was it was pretty
16:14
spot on i wanted i want to kind of point
16:16
out one thing though right
16:17
you know what you do on an unstabilized
16:20
deal that has a lot of down units it’s
16:22
going it’s going you might as well just
16:24
throw those numbers out the window
16:25
and really the lender doesn’t care as
16:27
much because you’re going with the
16:28
bridge lender anyway
16:29
the the the bridge lender is caring
16:31
about what is the value going to be in
16:32
the one to three years
16:33
because they want to a make sure that
16:35
you can either refi or sell the deal and
16:37
be able to pay them that note back
16:39
right so they’re going to be focusing
16:40
more on year one and yeah so
16:42
just the kind of people that are
16:43
listening right a bridge lender
16:45
essentially is a lender
16:46
that is lending not on the stabilized
16:48
deal and what it looks like today yeah
16:50
they’re lending usually higher leverage
16:51
but they’re giving you
16:52
essentially they’re they’re baking in
16:54
their risk elsewhere you’re bringing
16:56
more money up front but they’re going to
16:57
give you much higher leverage and give
16:58
your rehab dollars
16:59
and they’re betting on where you’re
17:00
going to take the deal to so they need
17:02
to actually understand that business
17:03
plan and get behind it as well
17:05
yeah and besides the fact we had a
17:06
terrible bridge in there on this deal
17:08
right we use the bridge lender we won’t
17:10
say names we will not say no
17:11
yeah but um you know ultimately right
17:14
that’s how we were able to buy this deal
17:15
we couldn’t have never bought it with a
17:16
fannie freddie
17:17
no that’s another tool it’s a valuable
17:19
tool you got to use the right tool
17:21
for the right thing it’s all about yes
17:23
it’s all about the right debt folks that
17:24
really really makes a difference
17:26
so on this deal once again it was
17:28
probably 70
17:29
to 80 occupied fannie and freddie aren’t
17:31
going to touch a deal unless it’s 90
17:34
for 90 days yes right so we knew going
17:37
in that we were always going to have to
17:38
use a bridge limiter
17:39
right bridge lenders are there their
17:40
interest rates are going to be a little
17:41
bit higher they might give you a little
17:43
bit more leverage
17:44
usually it’s all i o you can still get
17:46
non-recourse
17:47
right but you usually have to be out of
17:49
the deal within two three maybe upwards
17:51
of five years just depending on what
17:52
kind of term you get
17:54
so you just have to you have to bake
17:55
that into your analysis right whereas if
17:57
we had a
17:58
stabilized deal fannie and freddie
18:00
really pay attention to the historicals
18:03
right i mean in fact that’s probably one
18:04
of that plus the sponsorship group are
18:05
the two biggest things that they’re
18:07
focusing on right whereas the bridge
18:08
lender is focusing on what’s the pro
18:10
forma
18:11
right they’re all equally important and
18:12
ultimately fannie and freddie still want
18:13
to see that too but
18:14
they’re going to try to look and see
18:16
what has happened in this property over
18:17
the last
18:18
one to two years is what fannie and
18:19
freddie are trying to focus on yep
18:21
so you know i know like i said we’re
18:23
moving fast
18:24
so i mean and also maybe one last thing
18:26
to add to you for this deal we were
18:27
modeling actually
18:28
doing a refi we weren’t planning to sell
18:29
it no we weren’t we weren’t right but
18:31
the refi
18:32
model the same thing instead you’re
18:33
pulling out that much money give it back
18:35
to investors then you hold on to deal
18:36
so let’s talk about let’s talk about why
18:38
why didn’t we go for a refi on this deal
18:40
i mean ultimately we’re just sitting on
18:41
so much cash
18:42
it just made it better to exit it we
18:43
would have had to recapitalize it a
18:45
little bit so even though we were going
18:46
to refi
18:47
we’d have to put some of the money back
18:48
into the property and we could have
18:49
right
18:50
it still needed probably about a five
18:51
hundred thousand dollars let’s just be
18:53
honest the real reason right is ben lost
18:55
all of his hair on that deal
18:57
it was a stressful deal you know we
18:59
wanted to move on that’s part of it all
19:00
right i mean you get you know some deals
19:01
are exhausting
19:02
right this this wasn’t exactly when we
19:04
were able to perform we home runned it
19:06
for the investors and
19:07
you know do we refund hold on or do we
19:09
make an exit and let someone else come
19:10
to come in with new capital because we
19:11
could have refined
19:12
but i guess ultimately with the refi you
19:15
want to pull most of that give that back
19:16
to the investors
19:18
and you know so we would have still
19:19
needed to capitalize it some
19:21
versus someone coming in new they can
19:23
come in with a lot more capital right
19:24
they dump another million dollars back
19:26
into the property
19:26
i think he had that of another 500 000
19:29
and i think he ultimately did that that
19:30
was
19:31
he was close to another million dollars
19:32
so because that’s ultimately what it
19:34
needed
19:34
but we were never going to be able to
19:36
get 2 million dollars in a rehab
19:38
budget with the lender right yeah now
19:39
could we have taken another million
19:40
dollars to it
19:41
but that’s not really how we operate our
19:43
properties right we try to come in and
19:45
do
19:46
probably you know 50 60 70 of the work
19:48
but we leave enough meat on the bone for
19:49
the next person
19:50
so they have a business plan yep right
19:52
it makes it more
19:53
attractive you have a bigger buying pool
19:55
where you say hey there’s still some
19:56
meat on this bone
19:57
and so we were never going to come in
19:59
and you know do the
20:01
30 40 000 a unit like we see in atlanta
20:04
sometimes
20:05
you know we did the ten thousand dollar
20:06
rehab yep and we got a lot done
20:08
you know the property looked
20:10
tremendously better than when we took
20:11
when we taken it over
20:12
we had repositioned it we got all the
20:14
dirt bags out
20:15
you know which was probably uh there’s a
20:17
probably a better term for that all of
20:19
the uh oh what i mean
20:20
all of the um not appealing tenants
20:24
this is very politically correct we had
20:26
security on
20:27
cleaned out the property you had turned
20:29
it into a community and people that’s
20:30
what i was loving getting taken care of
20:32
it brought on a playground really
20:34
improved it yeah so but before we
20:35
continue for those tuning in for the
20:36
first time money monday through this
20:38
every monday 3 30 central
20:40
on our disrupt equity facebook page or
20:43
on linkedin kind of any of our channels
20:45
uh basically we do 30 minutes usually
20:47
all in so first
20:48
15 20 minutes we’re presenting different
20:49
topics this week we’re talking about
20:50
underwriting a real deal and kind of
20:51
what we saw at the very beginning a
20:53
video that we did eventually sell
20:54
and you know the last five ten minutes
20:56
is q a so if people have questions go
20:57
ahead and leave them we’re happy to go
20:59
through it
20:59
we’ll do it here live and kind of answer
21:01
people yeah we went pretty close that’s
21:02
the best part
21:03
and you know ask us questions about this
21:05
or something else right we tried to
21:06
leave it really high level
21:08
and explain the concepts right and let
21:10
people kind of create their own
21:12
detail analysis one thing i want to
21:13
point out everybody is that you have
21:14
this is
21:16
this is based on experience this is also
21:17
based on the property management company
21:19
that you’re working with
21:20
experience as well right you know we
21:22
didn’t just come out we just didn’t pick
21:23
numbers out of a hat here
21:25
right this is based on our market
21:27
studies what the property management
21:29
company felt like we could do
21:31
and you cut you you you really you back
21:33
into it and say okay is this still a
21:34
deal
21:35
right after taking a first kind of sniff
21:36
test of the whole thing and it
21:38
ultimately ended up being better than we
21:39
expected
21:40
but do not just try to do this all on
21:41
your own especially when you’re under
21:43
contract you really need to be working
21:44
with your property management companies
21:46
um you know pretty early on in the
21:48
process to understand this yeah so going
21:50
through
21:50
comments questions so jefferson says
21:52
what’s up ferris and ben hello everyone
21:53
has a great weekend you too my friend
21:54
somebody savion says valet trash if you
21:56
offer the renters
21:58
and is that money going to property or
22:00
the insurance company from your
22:01
experience
22:02
oh definitely trash you charge a premium
22:04
yeah so you you know becomes a cash
22:06
it becomes an incentive for the tenants
22:08
it’s other income
22:09
yeah it’s other income folks yeah
22:11
absolutely collecting more than you’re
22:12
paying and it helps keep your property
22:13
cleaner yeah
22:14
for example you’re going to charge your
22:16
tenant 25 bucks
22:18
but you’re only paying 15 a month for
22:20
that right that delta
22:21
at 10 bucks is going into your other
22:23
income right yeah so let’s keep going so
22:25
eduardo
22:26
says hello ben and ferris great topic
22:28
for thank uh
22:29
facebook live thanks for presenting and
22:31
educating perspective investors always
22:33
happy too
22:34
thank you thank you iggy says what’s up
22:36
what’s up iggy iggy what’s going on
22:38
he says what’s up ronnie mr ronnie
22:41
savion says love the simplicity man even
22:43
from a high level i feel my
22:45
eight-year-old would understand how to
22:46
underwrite a deal
22:47
definitely proof of the understanding
22:48
you both have how do you feel about
22:50
using rules of thumb initially when
22:51
underwriting
22:52
absolutely example 50 expense ratio 2.5
22:55
closing
22:55
out one percent working capital should
22:57
you always confirm with the property
22:59
marketplace
22:59
with property management companies
23:01
there’s you want to answer well yeah
23:02
there’s a lot of questions in that right
23:04
you know i mean i i think you should
23:06
first rule
23:09
yeah you’re trying to trying to minimize
23:11
your amount of work right especially if
23:12
you’re looking at 50 different deals
23:13
right
23:14
you know but you have that’s within
23:15
reason right there’s rules of thumb that
23:17
does not mean that they are laws
23:19
right you have to just understand that
23:21
yes you should work with your property
23:22
management company
23:23
some of the ones that you did point out
23:25
you know expense ratios right
23:27
i would say on this deal it was probably
23:29
pushing 55 60
23:31
whereas newer deals you can probably be
23:32
45 to 50.
23:34
so it just depends on how what the
23:36
vintage is what sub-market it is
23:38
because one thing that people um here in
23:40
texas
23:42
we do have some lower expenses on
23:44
certain sides but most of the time
23:45
especially along the coast your
23:47
insurance and especially your taxes here
23:48
in texas
23:49
completely blow up your expense ratio
23:51
right whereas you’ll go out to phoenix
23:52
and your expenses might be a little bit
23:54
lower
23:54
it’s the same thing right you know taxes
23:56
are appraised very differently than
23:58
texas so absolutely and insurance is
23:59
usually a little bit
24:00
a little bit uh lower as well yeah so
24:02
but yeah rules of thumb
24:04
absolutely all right ronnie says no plot
24:06
today nope but he says let me know y’all
24:08
shirt sizes just send us some kingly
24:09
plaid gear oh welcome to send it to us
24:12
um isaiah thank you
24:16
yeah so for those tuning in right monday
24:17
mondays just every monday 3 30 central
24:20
usually going through different topics
24:21
today we’re talking about underwriting a
24:22
deal next week we’re talking about
24:24
ben doesn’t know uh whoa whoa whoa whoa
24:26
whoa
24:27
but you know basically 20 minutes
24:29
presentation the last 10 minutes q a
24:31
so if you have questions please drop the
24:33
questions we’ll answer them here live
24:35
um but next week let’s see so our uh
24:38
lovely shanna has uh what’s coming up
24:40
next how to define your real estate
24:42
investing your goal
24:45
i forgot about is but before that right
24:47
we do have an underwriting guidelines
24:49
don’t we ben yes we do
24:50
where can people get it disrupt
24:52
equity.com under
24:54
writing guide all one word and two g’s
24:57
after each other underwrite yes
24:58
underwriting guide yeah spell it all out
25:00
everybody right
25:02
um and so it’s it’s definitely gonna
25:03
help you out you know give you
25:05
some of those rules of thumb give you a
25:06
little bit more information we’re not
25:07
trying to sell anything it’s not gonna
25:08
cost you any money
25:10
right you know one one thing i am going
25:12
to try to you know shamelessly plug is
25:14
investor academy
25:15
we do have an underwriting course that
25:17
you know we literally spend a ton of
25:18
time there’s probably
25:19
anywhere from eight to ten hours worth
25:21
of a lot of sweat and tears it was well
25:22
definitely
25:23
because we do it saturday nights and it
25:25
was usually bacon up here because they
25:26
don’t have the ac on
25:27
but we there’s about eight or ten hours
25:29
worth of content on there folks and we
25:30
took a
25:31
way deep dive on underwriting and so
25:33
you’ll learn a lot more than a 30 minute
25:35
show that we can give you we’re just
25:36
trying to give you the basic concepts
25:37
here
25:38
yeah you know and kind of show you a
25:39
different uh you know a different side
25:41
of
25:41
you know how you look at it it’s a
25:42
mathematical game and it’s a
25:44
relationship game right you know but
25:45
numbers don’t lie
25:46
you know you have to make sure that that
25:48
the numbers work you know regardless if
25:50
you think that the deal is sexy or the
25:51
sub market is sexy
25:52
that’s why i love the power of the
25:54
partnership right because i’ll talk him
25:55
off the ledge
25:56
on deals and he’ll do the same thing he
25:58
really likes austin deals i wonder why
26:00
for anybody that knows he graduated from
26:02
ut that’s why but i also like austin
26:04
deals too
26:07
so you know sometimes we have to almost
26:09
you know
26:10
let’s let’s pick it apart because we’re
26:11
probably getting too caught up in where
26:13
it’s located at
26:14
you know and ultimately the numbers have
26:16
to work yep so
26:18
that’d be my my piece of advice for
26:19
everybody kind of tuning in yeah so with
26:21
that said
26:21
monday mondays every monday 3 30 central
26:23
if anyone has any more questions go
26:24
ahead and ask them
26:25
otherwise we’ll call it a wrap a little
26:27
bit behind schedule but we started
26:28
behind schedule so that’s fair
26:30
all right all right going once
26:34
going twice no questions
26:38
no questions people are quiet today it’s
26:40
mondays man yeah it’s that monday
26:42
it’s that monday come on guys ben still
26:44
wants itching to talk
26:46
no i mean i like this topic you know and
26:48
i think it’s i think it’s important for
26:49
people to understand
26:51
so well hit us up offline if you guys
26:53
have any questions all right let’s call
26:54
it a wrap then thank you all very much
26:56
money mondays we will see you guys again
26:58
next week how to define your real

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