FIRST POST!-Analysis of an OVERPRICED 4 Family Townhouse in NYC I just listed for $5mm

[Armando Ramirez]

Hello BP,

While I have mostly perused this site for investor knowledge based on keyword searches, I've recently started to focus also on the many different forums. I am an associate broker with Exit Realty in Manhattan, and have been in the business for 6 years, however, still no investment portfolio...we're working on that! Basically like most New Yorkers I pay extremely high rent! So I acknowledged I need some start up capital before I can quit my full time job as an agent. My goal is to refocus on my real estate practice before I can start investing even on a small scale. My goal is to sign 6 exclusive listings in 6 months. With that income, I can be ready to start making offers on investment properties early 2016. Then possibly house hack my way into a multi family or do some flips or BRRRs in surrounding markets from NY/NJ/PA.

I kill fsbos! My business plan is simply based on cold calling and follow up through emails and direct mail. (I guess thats another post). I have rarely needed to create very thorough analyses for sellers of multi-family buildings in Manhattan because the demand is so strong and my pricing is normally so accurate that my listings are in contract with 30-45 days usually. 

However I just signed a multifamily and would like some validation on analysis I did to make sure I did it correctly. I would appreciate any advice on the analysis from both investors and agents....thank you!

When I found the fsbo, it was priced at $5,250,000. I called him this past Friday, we met on Monday and he signed my listing agreement immediately (again, another post on negotiating i guess, this was a great story). During our meeting, he admitted he was way over-priced. I asked what was the lowest offer he would accept and he said at least $3mm. This is now a situation where he's convinced he should work with an agent but he needs to have the satisfaction that we tested the waters at this asking price. 

I created an analysis using the property's numbers. Basically the four apartments have the potential to rent for $9660 monthly/$117,130 annually assuming 8% vacancy (HELP here, if I assume an apartment will be vacant for a month do I calculate 1/12=8.3%? And do I apply this same vacancy rate to the monthly as well as annual rental income?)

Expenses come out to $19,229 annually.

NOI=$97,901

Cap Rate @ $5mm= 1.96%

Cap Rate @ $3mm= 3.26%

Cap Rate @ $2mm= 4.90%

Then I created a scenario where the building is purchased for $2mm, assuming 65% financing with 4% interest (i know, very low rate).

Debt service comes to $6206/month; $74,472/year.

Cash flow= NOI - Debt Service

=$23,429

Cash on Cash= $23,429/$700,000 (35% down payment) 

= 3.35%

Total Return=

$23,429 Cash Flow + $140,000 Appreciation (7% in Manhattan) + $22,894 Equity Accrual

=$186,323

Total ROI= $186,323 / $700,000 = 26.62%

Again I would love to hear any feedback to make sure these numbers make sense. I honestly have been spoiled by being able to sell properties so quickly that I have to practice analyzing deals for my future endeavors.

Thank you