Bangor, ME · Member since 2017 · 72 posts · 19 votes
I am looking into purchasing a 38 unit from a company. Price is approximately $35,000/door for a total purchase price of $1,330,000. All buildings are in excellent shape, but are in need of roof replacements. Property after debt services cash flows $110,000 per year. Is this a good deal?
Price is approximately $35,000/door for a total purchase price of $1,330,000. All buildings are in excellent shape, but are in need of roof replacements.
Your math is wrong. Recalculate purchase price adding cost of roof replacement to the $1.33 million you're paying up front for starters.
Then calculate cash flow PROPERLY. There's a lot more to cash flow than just debt service. Can you pay all the expenses of the property (taxes, management, repairs, vacancies, general administration, reserves, etc. etc. etc.) out of that $110,000 each year? How much is left over?
Then compare your net return after all expenses (including tax savings on other income from depreciation) on the amount of money you're putting into the property and the time you will spend managing it, to the money you can make in some other investment. Adjust for risk. Look at your answer.
Price is approximately $35,000/door for a total purchase price of $1,330,000. All buildings are in excellent shape, but are in need of roof replacements.
Your math is wrong. Recalculate purchase price adding cost of roof replacement to the $1.33 million you're paying up front for starters.
Then calculate cash flow PROPERLY. There's a lot more to cash flow than just debt service. Can you pay all the expenses of the property (taxes, management, repairs, vacancies, general administration, reserves, etc. etc. etc.) out of that $110,000 each year? How much is left over?
Then compare your net return after all expenses (including tax savings on other income from depreciation) on the amount of money you're putting into the property and the time you will spend managing it, to the money you can make in some other investment. Adjust for risk. Look at your answer.
Price is approximately $35,000/door for a total purchase price of $1,330,000. All buildings are in excellent shape, but are in need of roof replacements.
Your math is wrong. Recalculate purchase price adding cost of roof replacement to the $1.33 million you're paying up front for starters.
Then calculate cash flow PROPERLY. There's a lot more to cash flow than just debt service. Can you pay all the expenses of the property (taxes, management, repairs, vacancies, general administration, reserves, etc. etc. etc.) out of that $110,000 each year? How much is left over?
Then compare your net return after all expenses (including tax savings on other income from depreciation) on the amount of money you're putting into the property and the time you will spend managing it, to the money you can make in some other investment. Adjust for risk. Look at your answer.
This is net cashflow after debt services AND expenses. I wouldn't mention cash flow without expenses being part of it, otherwise it would be considered gross profit. Cash flow shown is after tax, insurance, lawn, snow, water, sewer, trash, heat, electrical, maintainence percentage.
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
4y
@Andrew Michaud on top of what @John Clark said it also depends on where you get your numbers. Get UTD taxes from county web site, insurance from a broker-depending on age some carriers may not even want flat roofs! Talk to a lender about reserves-they will want 12-18 months reserves on deposit. All the best!
@Andrew Michaud on top of what @John Clark said it also depends on where you get your numbers. Get UTD taxes from county web site, insurance from a broker-depending on age some carriers may not even want flat roofs! Talk to a lender about reserves-they will want 12-18 months reserves on deposit. All the best!
I am asking the question with the provided specs of property, as they're accurate. I have done some research etc and all solid metrics. Asphalt roofs. Still cash flows 110k/yr. What if we figured in very worse case and it cash flowed $80k/yr? Good or bad?
This is net cashflow after debt services AND expenses.
--------------------------------------------- As the old saying goes: You change the facts, I change the answer. Your original post mentioned debt service only, and there are plenty of people who don't account properly (let alone sufficiently) for expense items and think they are cash flow positive.
You still have to tell us what alternative investment opportunities you have, and how they compare to this one once you adjust for risk.
Investor · USA · Member since 2015 · 168 posts · 243 votes
4y
@Andrew Michaud The numbers look too good (to be true?). If the numbers are real and legitimate, it sounds like a good deal.
At the peak (first quarter of this year) of the market, the national muti-family cap rate is close to 4.4%, though the recent interest rate rise pushed up the cap rate (which pushed the price down), your numbers still look far far better, the property's cap rate should be more than: 110k/1.33m = 8.5%.
However, even if the numbers are real, they can easily be manipulated. For example. if each year's average repair/capital cost is $50k, the seller can easily move all of the major repairs to the previous year to make this year's number look much better.
Also, $35k per door, the property probably is located in a rough area and tough to manage.
So due diligence, due diligence, due diligence. If you can verify all the numbers and you can handle tough tenants, it is doable.