E174: Underwriting: What You Should Know - Devin Elder
This week real estate entrepreneur Devin Elder and I dive deep into what's changed for underwriting since last year including cheaper interest rates, the "COVID escrow" and much more. 👉👉 Get The Passive Investing Playbook - https://theinvestormindset.com/passive
Successful real estate entrepreneur Devin Elder drops by to give us some advice on what can save you time, money and stress when first getting into the investing game. He tells us: think about what you're best at; for you it might be easier to buy a stabilized property rather than one going straight to heavy renovation. If you're not experienced in property management, then the return might not be worth the work and stress. We dive into this and much more including what to look for when underwriting and what impact the past 12 months has had on the market.
Devin Elder is a real estate entrepreneur and sole owner of DJE Texas Management Group LLC, which manages all aspects of acquisition, repositioning, and sale of single-family and multifamily properties in Central Texas. DJE Texas Management Group has successfully completed over 200 Real Estate renovation projects since 2012, with renovation budgets ranging from $10k to $1.2MM+. DJE currently has an ownership interest in over 1,400 units of multifamily in Central Texas valued at over $130MM. Devin has extensive experience acquiring distressed properties, managing renovations, raising private capital, and managing single family & multifamily investment properties.
So join us on this packed episode, hit subscribe, and build your real estate investing knowledge today.
1. Interest rates have moved drastically lower from 12 months ago.
2. Be conservative with your underwriting. This is great for creating modest expectations on your returns and anything higher is a bonus.
3. Lenders right now want to see a COVID escrow. They want to see 9-12 months of payments upfront.
4. Create an underwriting document that can be adjusted by your team as you go along.
5. One of the quickest ways to lose money in real estate is to not have enough capital to pay extra unforseen costs.
6. As a passive investor ask 3 things about reserves.
The escrow budget per door per year that can go to the lender
How is the sponsor handling the escrow reserve for COVID
General property operating reserves
7. As a passive investor make sure that the sponsor is liquid. If there's a short term liquidity requirement on a project, can they take care of it themselves?
8. Ask the sponsor if they've ever done a capital call and make sure the answer is no.
9. Make sure you know what you're entitled to ask as an investor. If you're only investing smaller amounts then you may not be entitled to scrutinize the sponsors financials.
10. When interest rates do down, it makes it more affordable to purchase a property with that leverage in place and in turn makes the property more valuable.
11. As an operator it makes sense to do property management in house if we're going through a rapid change in the market.
12. If you want to get into the multifamily space as an operator then think about working under or with people who have plenty of experience in the field. If you do this first, you're going to educate yourself and set yourself up for success.
13. Think about what you're best at. For you it might be easier to buy a stabilized property rather than one you're going to have to gut out. If you're not experienced in property management then the return might not be not worth the work and stress.
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Learn more about investing with Steven at https://theinvestormindset.com/invest
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