Understanding the Numbers on a Deal

[Cody Laughinghouse]

Hi BP colleagues!

I am a new investor eager to get my first deal under my belt. My goal is retirement from my J.O.B. by 35 and focus solely on investing.

I've been reading the forums, listening to the BP and other REI podcasts, and reading some of the recommended BP books.

I have not found my first deal due to lack of capital to put me at my personal target of $250/month/door cash flow and 10% CoC. I did find an apartment complex that has 54 units that seems to meet those criteria. This is huge undertaking for a beginner however I want to practice running the numbers on this property.

A little information on the property

Listed: $8,889,000

County Appraisal - Improvement: $1,388,880

County Appraisal - Land: $2,661,120

Taxes: $125,000/y

On Market: 125+ days

Built: 1972

Renovated: 2017

54 Units: 22.3% Studio, 63.2% 1Br/1B, 14.5% 2Br/2B

Rent between: $895-$1750

100% Occupied - Average age of tenants ~35

Cap Rate from Broker: 5.6%

NOI: ~$500,000

Assumed Vacancy: ~9%

Coined Laundry: ~$500/m

Electric Reimbursement: $2,500/m

Admin, Management, Turnover, Utilities (pool included): ~$100,000

Maintenance: $2,000/m

Insurance: $25,000/y

Neighborhood

Average listing price: $420,000

Average time on Market: 60 days

Average price sq. ft.: $250 (SFH)

Purchase Info

Assumed Purchase Price: $6,125,000

25% Down over 30 years

2% purchase costs: $122,000

First year IRR: -3%

I believe that the list price is overpriced for the area given competition. I believe that it is worth around $6,125,000 based on some of the comps in the area and keeps the per door cost less than $110,000. I am also unsure how to evaluate a negative IRR. First year is at -3% while years 2+ are around 10%+.

The other issue with this potential deal is finding money and or a partner to go in on this deal but before starting to find funding, I want to be sure that I understand the numbers well enough and have an accurate model.

I know I am making a mistake somewhere however I do not know what I am missing, any feedback on items to take a look at is greatly appreciated.

Thank you for all your time and look forward to networking with you all in the future!