Small Investors Lose Major Deal because Of Math Problem

[Caplan Abbey]

Amazing how many deals get lost because of poor training, education, and simple Math . Most investors go into a deal worrying about the price and cap rate. Lets share an example here: These deal may still be available by the time you read this. Here is 30 Units Multifamily in Jacksonville, FL. The asking is $1.7M, with 13.4 cap rate. Gross Rent is 234,000. Expenses $20,000, which produce NOI $214,000.

So at first let's try to figure out NOI sufficient to make this deal worth buying:

TRICK: ON HOW TO FIGURE OUT NOI IF NOT GIVEN:

At Asking $1,700,000.00  with( 20%) Down Payment is $340,000.00  And (80%) Loan is $1,360,000.00

At 6% Rate factor your annual debt payment should be $81,600.00. Now, if you aim to receive 10% as Equity return on your down payment that is $34,000.00  Therefore to make this deal work, the property need to make is $34,000+ $81,600= $115,600 minimum, just to make you whole

At given NOI $214,000. We see that it exceed what we just calculated above, by $98,000. That is extra free cash flow, a huge cushion that even if expenses where to be much higher than given, you would still have huge cashflow to make you sleep soundly at night. You will be surprised how many people passed on this deal. So the thing you need to worry about is, if the property is making enough to compensate you for the risk taken, that is it covers the debt payment and some return on your capital.

So here is a summary:

ROI:If you finance with 20% down

• At 20% Down Payment =$340,000
• Debt Payment =$81,600
• ROE/ROI = 40% =$132,400
• The DSCR(Debt Service Coverage Ratio) is x 2.62.
• LTV is almost double the property value. At 20% Down. Loan Amount $1,360,000.00 Property Valued at $2,464,888.00