193 unit - Feedback

[Ramon Pena Alvarado]

Good evening...
Well…I believe this property is worth taking a second look .
Property has undergone rehab but still could use upgrading. Blue collar profile and working class property. 3 story garden style.
I’m relying on sellers OE being accurate. We all know how that goes.
Good Demographics.
Upside potential.
Occupancy – 87%
193 units
Rents are low.
1 bed @ 52% ( $393.00 )
2 bed @ 48 % ( $515.00 )
3 bed @ none
PRICE – $ 4,190,900

2008
Effective gross income - $ 893,304
Operating expenses - $ 472,000
Net operating income - $ 421,200
Cap rate 10.05 %
Please give me some feedback. What do you see here?
Ray..
:wink:

[Jon Holdman]

You can only get the $100 a door with the down payment. The idea of the 100% financing for analysis is to see what the property returns. Once you throw in a down payment, the returns are partially from the down payment and partilly from the property.

With 100% financing, I get $133K in annual cash flow. With 30% down, I get $250K. I'd argue the difference, $117K, is the return on your $1.257M down payment. That's a 9.3% return on your cash. Really, that return includes both interest on the cash and principle. This evaluation simply treats any down payment as a loan from you to the property at the same terms as you're paying on your first mortgage.

Its been a while since I seriously looked at financing anything like this, so I too am not sure what terms could be had. I'm quite sure a fixed rate for any length of time will be difficult to achieve. I expect interest rates to jump up at some point in the next 3-6 years. Since apartments and other commercial buildings are usually financed with short term balloons, I expect apartment and commercial prices to plummet when owners find out they have to refi out of the (horrible) 7-8% loan into a 12-14% one. And then, we feast.