I'm stuck

[Fred Delariva]

I heard plenty of the experienced guys say that there a lot of bad wholesalers. In other words, they are peddling homes that don't make sense. As a re-newbie** it's kind of hard to tell what a good deal is. Let me share where I'm stuck.

I found a seller who desperately wants to sell his 7 unit multi-family so that he can purchase a home. He owes 595k on the building and wants to sell for 949k. The NOI is 81,300 with 35,450 in expenses.

In a multi-family building, I know the income is what investors use to determine a price. So what is that income worth to an investor? I'm not sure if there's even a deal there. Can someone provide insight?

** A re-newbie is someone who invested heavily from 1998 to 2005, where all his mistakes were covered up due to rapidly escalating market. Hence he never learned what he did wrong.

[Account Closed]

Fred,

Let's say there is a deal, are you able to cash him out?

Joe Gore

[Fred Delariva]

Joe,

Not with my own funds no. I was first trying to see if there is a decent margin to pass it on to someone that does.

[Ellis San Jose]

Depends where it is located. Some will pay a 3% cap in trophy "A" areas or 10% +cap in a tough area ( I am assuming this is in So Cal.)

Just to be clear is the gross annual income $81,300

with $35,450 in expenses for an NOI of $45,850 ( which is a 5 cap)

Or is The gross annual income $116,750 = $81,300 + $35,450 (9% cap)

[Kenneth Shelley]

so you have a 7 unit building making 81,300 after paying out the 35,450 in expenses so gross income would be 116,750? so anyone that is going to pay out 949k to buy it to make 81,300 a year or 6775 a month to hold a loan payment of almost a million dollars. their cap rate would be 949,000/81,300=11.6 cap rate or roi you would need to ask what they want to make back each year or what type of return on investment they are wanting if they want a 20% return on investment and they are looking to pay 1 million dollars(for easy math) to get 20% return on investment they would have to be making 200k yearly or about 16k a month after all the bills are paid. so if your investor is looking for a return on investment with in that percentage rate then its a good deal for him if he is looking for a higher cap rate then no it wouldnt be good. besides how are you going to be paid on this deal? it doesnt look like there is much room to wholesale and keep a good cap rate you may want to try and talk the friend down a few grand so you can make a wholesaling fee that is worth your time.

i hope this helps

[Fred Delariva]

Kenneth Shelley and Ellis San Jose thank you for the education. The numbers are starting to make sense.

[Mike Kimani]

Welcome back to Investing!

To determine the value of the property to the investor, the first step would be to determine Market value. A general tool is Gross Rent Multiplier (GRM), not very precise but handy when doing a quick value assessment. Find like properties that have sold in the past 6 months then use the below formula.

Market Value/Annual Gross Income= GRM

Now to compare to your property

GRM* Annual Income= Market Value

Now depending on the market value, you can determine if this is a deal to go after and present to your investors based on individual acquisition criteria.

Hope that helps :)