Apartment buildings and other residential and multi-family housing can provide a stable income to an investor. This Financial Poise webinar discusses some of the pros and cons of being a landlord. It provides a basic overview about how to find and assess opportunities, obtain financing, negotiate a deal, and manage a multi-family investment. The accounting, tax, and legal aspects of being a landlord are part of the discussion. To listen to this webinar on-demand, go to: https://www.financialpoise.com/financial-poise-webinars/investing-in-residential-multi-family-real-estate-2020/

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Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.

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5. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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6. Meet the Faculty
MODERATOR:
William McGuinn - Sugar Felsenthal Grais & Helsinger LLP
PANELISTS:
Tracy Treger - Syndicated Equities
Tammy Kelly - Redwood Capital Group LLC
Scott Weinstein - Field and Goldberg, LLC
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7. About This Webinar
Investing in Residential & Multi-Family Real Estate
Apartment buildings and other residential and multi-family housing can provide a stable
income to an investor. This Financial Poise webinar discusses some of the pros and cons of
being a landlord. It provides a basic overview about how to find and assess opportunities,
obtain financing, negotiate a deal, and manage a multi-family investment. The accounting,
tax, and legal aspects of being a landlord are part of the discussion.
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8. About This Series
Real Estate Investing 101
Real estate has always been a popular asset class for investment. After all, as the adage
says, “they’re not making more of it.” More and more investors are turning to real estate as an
investment class.
Investors considering making an investment in real estate have a variety of choices: retail,
office buildings, industrial, raw land, and, of course residential. This Financial Poise webinar
series covers several types of real estate classes that one may choose to invest in, explaining
where to look for opportunities; how to diligence them; possible funding solutions; and best
practice for execution.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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9. Episodes in this Series
#1: Investing in Residential & Multi-Family Real Estate
Premiere date: 2/18/20
#2: Investing in Commercial Property
Premiere date: 3/17/20
#3: Investing in Real Estate through Equity Crowdfunding
Premiere date: 4/14/20
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10. Episode #1
Investing in Residential & Multi-Family Real Estate
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11. Types of Investment Residential Property
• Single family home/condominium
• Full time rental or partial use/partial rental
• Multifamily
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12. Potential Advantages of Multi-Family as Compared
to Single-Unit Investing
• Cash flow
• Rental diversification
• Economies of scale/ affordability of professional management
• Use of more leverage
• Less competition (not competing against owner-occupiers)
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13. Factors to Consider in Selecting a Multi-Family
Building
• Location – proximity to public transit, schools, shopping
• Amenities of property
• Condition of property
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14. Economic Due Diligence Tips
• Determine market rates for similar properties in same are
• Determine vacancy rates in area
• Determine costs for repairs/painting when typical tenant vacates
• Estimate operating costs
 Fixed expenses – obtain copy of seller’s insurance policy, property tax bill, utilities
bills, management company bills
 Variable expenses – obtain property’s financial statements & compare to actual
invoices. Consider cost to eventually replace roofs, HVAC, etc.
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15. Other Expenses to Consider
• Advertising
• Cleaning and maintenance
• Commissions paid to rental agents
• Home owner association/condo dues
• Insurance premiums
• Legal fees
• Mortgage interest
• Taxes
• Utilities
• Management Fees
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16. Acquisition/Disposition Costs
• Transfer taxes
• Title insurance
• Loan fees (tax and insurance escrows)
• Move in- move out fees
• Legal fees
• Due diligence costs (inspection, environmental, etc.)
• Survey
• Broker’s commission
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17. Contract Considerations
• Earnest Money and how it’s held
• Contingencies
 Due diligence
 Financing
 Other (permits, licenses, approvals, etc)
• Representations
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18. Contract Considerations
• Closing costs
 Who pays for what
 Prorations/reprorations of taxes, rents, income and expense
• Representations and how long they survive
• Title survey requirements
• Closing mechanics and deliverables
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19. Key Consideration
• Tenant turnover
• Collections
• Maintenance
 Rule of thumb – any building with 20+ units will support cost of professional
management and a live-in manager; 10-20 units will usually only support a live-in
manager; < 10 unites usually require owner to manage
 Potential for appreciation
o Discounted price
o Fixer upper
o Rezoning potential
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20. Financing
• Commonly based on property’s ability to generate income as opposed to buyer’s credit
• Sometimes such investing is encouraged through favorable financing regulations
• Leverage – pros and cons
 Average down payment = approximately 30% of purchase price
 Amount of equity invested can change risk profile
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21. What is Equity?
• In real estate, the financial value of someone's property over and above the amount the
person owes in debt.
• For example, assume you buy a home worth $100,000. If your mortgage is for $80,000,
then your loan to value ratio is 80% (because your loan of $80,000 is 80% of the home's total
value).
 Calculate the LTV ratio by dividing the loan value into the property value:
80,000/100,000 = 0.8.
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22. Generating an Operating Proforma
• Revenue: Rent and other income (parking, utility reimbursement, etc.)
• Expenses: Property Taxes, Insurance, Repairs & Maint., Turnover Costs (leasing & make
ready), Landscaping, Utilities, Contract Work, Legal, etc.
• Net Operating Income: Revenue less Expenses (NOI: Purchase price creates a cap
rate value)
• Financing Expenses: Interest, Principal, Reserves
• Capital Expenses (roof, windows, appliance replacement, major repair, etc.)
• Cash Flow: NOI less financing costs and Capital Items – when created for a predicted
investment hold period, a DCR analysis can be completed.
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23. Cap Rates
• If you collect $1,000,000 in rents and other income (i.e. vending machines) and pay
$600,000 in expenses (excluding major capital expenditures), your “Net Operating Income” is
$400,000.
• Once you have the NOI, divide the price or value of the property into it. For example, if
you have $400,000 in NOI, and you paid $4.8 million for the property, the Cap Rate is =
8.33%.
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24. Cash On Cash Return
• If you have a mortgage, your return isn't the money you collect in your NOI. It's what you
have left after making your mortgage payments
• To calculate your after-debt return, called a cash-on-cash return, you divide that net cash
flow by your down payment. If you put $700,000 down on that $2.4 million property, you
would owe $1.7 million
• If your annual debt service was $130,000, and you took it out of the $200,000 NOI, you
would end up with a $70,000 annual cash-on-cash return
• When you relate the $70,000 to your $700,000 down payment, you would end up with a
10 percent cash on cash return
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25. Alternative to Cap Rate
• A Discounted Cash Flow analysis assumes an investment for a period of time, and
discounts it back at an investment rate. This can be analyzed as an IRR or Net Present
Value. Ignoring the NPV for now, the IRR allows one to determine the return of an
investment over a period of time. The calculation includes the initial investment, a projected
end value for the investment and all of the distributions in between. While it has some faults,
it can be a more accurate tool than a cap rate.
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26. How Do You Calculate NOI?
Net Operating Income Formula
Potential Rental Income
- Vacancy and Credit Losses
Effective Rental Income
+ Other Income
Gross Operating Income
- Operating Expenses
Net Operating Income
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27. Key Contract Provisions
• Contingencies – inspections and attorney review
• Tax proration – make sure you understand local taxes, payment and reassessment dates
• Seller reps and warranties
• Required condition of title
• Default and remedies
• Amount of Earnest Money required and who holds
• Proration of Rents and assignment of Security Deposits
• Assignment of leases and collection of rents following closing
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28. Title and Survey Considerations
• Boundary line issues – (Insured over by title?)
• Easements (must be reviewed and understood)
• Liens - should be released at closing
• CCR – covenants, conditions and restrictions of record – should be reviewed and
understood
• Condo or homeowner’s association documents – any restrictions on leases/sales
• Tax status
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29. How to Take Title
• Personally?
• LLC, Partnership or corporation
 Advantage is limitation of liability to assets of the entity
 Holding title personally is never recommended
 Lender issues with holding in an entity
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30. Considerations if Self-Managing
• Leasing strategy – How will building be kept occupied? Cost of leasing. Understanding
Landlord-Tenant laws.
• Repairs and maintenance – Do you have time? How will tenant issues be handled?
• Property tax assessment monitoring and appeals.
• Capital Improvements/Construction: Who will monitor and assist when larger items need
to be addressed?
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31. Multiple Properties
• With multiple properties – several issues should be considered:
 Should all be titled in the same entity or should new entities be formed for each –
isolating liability for each property in each entity
 Location – Ideally they are close to aid with ease of management
 What insurance coverage is available across properties – even if held in different
entities
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32. Sustainable Growth
• Steady economic growth and key drivers will keep the multifamily market moving forward
in 2016.
 Multifamily rental demand kept pace with the large wave of new supply in 2015 and
will remain strong into the foreseeable future.
o Favorable demographic trends, strength in the job market and reduced
affordability of owning a home will continue to fuel strong demand for multifamily
rental units.
o As more supply enters the markets, the national vacancy rate will increase
slightly, but it will remain less than the historical average through 2016. As a
result, rent growth will remain strong until new supply can catch up with demand.
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33. Sustainable Growth
 In 2015, 306,000 multifamily units were completed and entered the market – the most
in a single year since 1989. The level of new multifamily supply is expected to remain
elevated over the next few years, given that the number of new construction permits
rose again in 2015.
 The labor market added 2.7 million jobs and is near full employment as the
unemployment rate finished 2015 at 5 percent. The strengthening labor market will
put upward pressure on wage growth in 2016.
 Despite the Federal Reserve’s decision to increase interest rates in December 2015,
multifamily property price growth will remain strong and capitalization rates will not be
significantly affected in the short-term.
 Multifamily origination hit record volume in 2015.
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34. Sustainable Growth
 Source:
http://www.freddiemac.com/multifamily/pdf/freddieMac_mf_outlook_2016.pdf
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35. Historic Growth Rates
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36. About the Faculty
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37. About The Faculty
William McGuinn - wmcguinn@sfgh.com
Bill’s real estate practice extends to the acquisition, development, sale, leasing and financing of
commercial, office, residential and retail properties. In his affordable housing practice, Bill has
represented owners and developers of thousands of housing units in numerous states with multi-
layered financing including taxable and tax exempt bonds, low income housing tax credits, HOPE
VI, Community Development Block Grants, Neighborhood Stabilization Program funds, Tax Credit
Assistance Program and Tax Credit Exchange Program. Bill has also represented developers of
conventionally financed projects, both residential and commercial. He also guides buyers and
sellers, landlords and tenants through all aspects of their respective transactions. Aside from real
estate matters, Bill has worked with numerous closely held businesses on a variety of matters
including representing business in obtaining credit facilities, structuring start-up organizations and
the purchase and sale of a number of business entities. Bill is an avid sailor and participates
annually in the Chicago Yacht Club Race to Mackinac. Bill has also competed in the Transpac,
racing from Long Beach, California to Honolulu, Hawaii.
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38. About The Faculty
Tracy Treger - ttreger@syneq.com
Tracy Treger is Principal at Syndicated Equities. Tracy helps high net worth individuals and family
offices to profitably invest in real estate. She also assists investors in identifying appropriate
replacement property to complete tax-deferred exchanges under Section 1031 of the Internal
Revenue Code. Drawing upon her 20 years of legal experience in the areas of real estate,
bankruptcy and corporate restructuring, finance, and commercial law, Tracy seeks out
opportunities to improve the relationship between Syndicated Equities and its investors, to cultivate
new investors, and to identify new investment opportunities and align them with investors’ goals.
Tracy joined the Syndicated Equities team in 2013 after serving as vice president and assistant
general counsel for a private REIT, where she handled all legal aspects of the company’s daily
operations and its joint venture relationships in the U.S. and Mexico. Prior to working with the
REIT, she was a partner in two large Chicago-based law firms with national and international
practices. Tracy holds a B.A. in Psychology and an M.S. in Psychological Services from the
University of Pennsylvania, and a J.D. from Chicago Kent College of Law. She is a committee chair
for CREW Chicago, and actively serves on the Global Advisory Committee, Foundation board, and
regional board of the Anti-Defamation League (ADL).
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39. About The Faculty
Tammy Kelly - Kelly@RedwoodCapGroup.com
Tammy is a Senior Vice President of Asset Management at Redwood Capital Group. Ms. Kelly, CCIM, CPM is
responsible for oversight of all asset management, including budgeting and capital expenditure requirements, as
well as all strategic dispositions. She also assists with sourcing and underwriting the firm’s investments. Ms.
Kelly optimizes value by managing with strategic oversight and by identifying and seizing market opportunities
thereby maximizing asset values. Prior to joining the Firm, Ms. Kelly was Senior Vice President at Blue Vista
Capital Management from 2006-2014 where she oversaw a multi-million dollar commercial real estate portfolio
consisting of various asset classes. Ms. Kelly’s asset management responsibilities at Blue Vista included
executing on strategy and monitoring asset performance, as well as serving as the liaison with the Firm’s
operating partners. Prior to her tenure at Blue Vista Ms. Kelly spent a year at Equity Investment Group where
she was responsible for overseeing, coordinating and evaluating the company’s property acquisitions, which
consisted of closing over 2 million square feet of retail shopping centers. From 1999 to 2005, she worked as a
senior property manager for both Equity Investment Group and New Plan Excel Realty Trust where she
managed retail shopping center portfolios in excess of 1.4 million square feet, respectively.
To read more, go to: https://www.financialpoise.com/financialpoisewebinars/faculty/tammy-kelly/
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40. About The Faculty
Scott Weinstein - SWeinstein@fieldandgoldberg.com
Scott A. Weinstein comes to the Field and Goldberg, LLC having developed a broad-based
background in commercial real estate. Mr. Weinstein’s experience includes working with a fortune
500 company where he handled transaction financing and deal structures. Having served as
president, counsel and co-owner of a successful real estate title company, Mr. Weinstein brings a
unique perspective and understanding of the daily and ongoing business issues clients face and is
able to provide practical and proactive counsel. Mr. Weinstein regularly represents commercial real
estate clients in all aspects of commercial transactions including lease negotiations for landlords
and tenants (including franchisees) nationwide on retail, office and industrial leases; acquisitions
and sales of office, industrial and multi-family apartment buildings, and shopping centers;
financing; and condominium deconversions. Admitted to practice in the State of Illinois and the
U.S. District, Northern District of Illinois, Florida and New York, Mr. Weinstein received his Juris
Doctor degree from Temple University Beasley School of Law and his Bachelor’s degree from the
University of Maryland at College Park.
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41. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
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42. About Financial Poise
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