The Basics of Underwriting Your First Commercial Real Estate Investment
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- Опубликовано: 21 окт 2024
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Tyler gives an in-depth guide on the basics of underwriting your first Commercial Real Estate Investment.
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I work at a private real estate firm, we focus on MH communities as a niche investor with big corporate financial backing now. Our acquisitions team is CONSTANTLY changing their projections for the properties we are interested in. It is crazy how much information and data goes into one project. They keep us acquiring!
It's an ever-moving target! It's definitely a science and an art
A video on your sequence of acquisition would be awesome. I think us newbies get it backwards and confused and I'd (and im sure others) would love to see how its done. For example do you make offers on deals before securing investors? I've heard its yes, but when you have no deals to your name and you're new they always want to see your proof of funds or something... Proof of funds? Of course I don't have the funds thats why im going to go get investors.. It just feels like a huge road block. any insight helps!
Love it! I'll keep that in mind
Hey Tyler, I'm considering buying the spreadsheet. Does it show the cell calculations and allow for editing?
Absolutely - it’s fully editable and can be modified however you need it to be
Your back of napkin underwriting.. is that calculated in a pro forma basis so you can see if the DSCR will match what you need? Or are you using historical financials and trying to see if THOSE will still match the DSCR you need? Thanks!
I use the current numbers and then what I think it'll get to in the next 3-5 years. That will give me a good enough picture of how the deal looks to determine if it's worth investing in or not
The video about deeper underwriting you suggested at the end didn’t pop up?
It ended up popping up on the right hand side because of an editing error - here's the video: ruclips.net/video/aBfi6rSMRmE/видео.html
@6:30
Wouldn't a DSCR of 1.03 be better than 1.025? Why would a bank lend on the latter but not the former like you suggested?
Or did I misunderstand?
I said 1.25, not 1.025. A DSCR of 1.025 wouldn’t work either haha. Hope that clears it up!
@@TylerCauble So lenders want to see an NOI 25+% over the debt service payment?
That’s correct. That means you’ll be bringing in enough cash flow to cover the debt, your expenses, and make a profit
@@TylerCauble thank you for the clarification.
"Equity is WAY more expensive than debt". What does that mean exactly? Because of the opportunity cost? You can do more with that money in your hands than wrapped up in the property as a down payment?
It means that whatever I have to pay my investors for being in the deal will cost more than what I’d have to pay in a loan. Typically, investors want to see 15% to 20% annualized cash on cash returns, while debt might only cost 7%-8%, so my equity is twice as expensive as my debt
Love this channel
Appreciate that, Daniel!
why is the DS before cash flow 11,894.79 where does that number come from
So it's actually the cash flow before debt service - that's the amount of revenue coming in minus all expenses except for the cost of the debt. So you take the monthly cash flow and add the principal payments and interest expenses back in. Hope that helps!
Loving this content!!
Glad to hear it!
Subscribed
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On the projected P/L spreadsheet/mortgage item, you only use loan interest, not the whole P+I? I saw another video where they used the P+I. I'm confused.
Yes - you can get an interest only period depending on the deal, so we’re accounting for that time. If your deal goes full term immediately, you would want full P+I day one
Are you CCIM?
Not yet - I’ve finished all the classes but need to take the final exam