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Commercial Real Estate Pro Network

Commercial Real Estate Professionals who work with Investors, Buyers and Sellers of Commercial Real Estate. We discuss todays opportunities, problems & solutions in Commercial Real Estate.
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Now displaying: Page 1
Jul 12, 2019

Darrin: [00:00:08] What is your BIGGEST RISK? [00:00:09][1.6]

 

Tim: [00:00:10] Sure. Great question and I pay a lot of attention to this because I've seen people make a lot of money and lose a lot of money in real estate. I want to make sure that I'm not making the same mistakes. The BIGGEST RISK, in me and my model and my business is probably tightening up of lending, tightening up of the banking. And so when I know how do you mitigate that right. Because my model is based on refinancing in 12 or 18 months. So one thing I could do is if I see the market shifting I can refinance sooner and I just don't get to take out like the refi cash out refight proceeds. Right. I can. I can refinance back out at my basis into long term debt at any time. The reason I wait until 12 months is typically because we could pull some money off the table distribute it. It pads the investors returns a little bit and makes them happy makes me more liquid to go qualify for more loans and things like that. But if I didn't if I didn't feel confident where the market would be twelve months from now I could definitely refinance sooner and at least get all my investors their money back out. And then just have long term debt in place and write out any sort of storm. The other thing that I do is I underwrite my projects as if it's going to be the loan to value is going to drop by 5 to 10 percent over the course the next 12 18 months. And then I also underwrite my jokes as if the interest rates are going to bump. Like right now my interest rates. I'm going to refinance right now my interest rates four point six percent and I'm underwriting my deals at 5.5 percent right now for anything that I'm acquiring today. So do I think to jump that much. I don't think so. But I want to be prepared for in case they do. So I'm underwriting it in a pretty conservative fashion making sure I'm making the offers at the price point that we need. And I mean it's such a low cost basis I'm buying at such wholesale prices that things would really have to shift hard for me to not be able to at least cash out my investors at the end of the day. So again I'm 30 to 40 percent below market values today and you know for traditional syndicators when they're looking out trying to forecast five years from now that's really hard. We could have three different presidents over the course next five years. Right. [00:02:25][134.3]

 

Darrin: [00:02:25] Right. [00:02:25][0.0]

 

Tim: [00:02:26] Versus forecasting out 12 months. It's a little bit more predictable of where the market's going to be in 12 months from now. You know interest rates aren't going to be at 18 percent or anything like that. Could they bump up maybe a half a point or a point? Yeah that might happen. Could lending tighten up a little bit? Yeah that could happen. But you know I'm at the point today where I have a big enough balance sheet and enough performing assets and enough cash flow coming in where even if the market shifts I'll still be a bankable. You know I'll still be able to put long term debt in place just maybe a little bit lower of a loan to value. And so. So that's that's really my greatest risk in my business. And you know if worst case scenario I got I got to ride out the storm and we can't refinance back out, my investors know that they're still gonna earn their 10 percent preferred rate of return on their money and they're OK with that. And if they have to ride it out you know 24 or thirty six or 48 months they're OK doing that. We have the asset. We're at a low enough basis we could sell it if we needed to or we could hang onto it. The cash flows enough the debt service coverage is high enough where we're able to cover all those expenses. [00:02:26][0.0]

[136.0]

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