South Bronx New Construction Multifamily

[Christopher Persaud]

Hi,

I just put under contract a property in the Bronx, near St. Barnabas Hospital. House is on a 25x100 land and according to architects, I can build up to 8 units, all 1 bedroom. Now I just want to make sure the math is correct, since this is my first new construction multifamily:

Assuming $1200 monthly for 1 bedroom

8 units x $1200 monthly = $9600

$9600 x 12 months = $115200

Assuming a cap rate of 6% = $1.92mil

Would it be safe to say that would be the market value when completed? 

If you are familiar with the area, what are your thoughts/opinions on the area?

[Tom Mole]

@Christopher Persaud, I agree with everything @Chiagozie Fawole said. The formula is:

Net Operating Income (NOI) / Cap rate = Value

The formula for NOI = GSI (Gross Scheduled Income) - Operating Expenses.

Operating Expenses = Taxes + Insurance + Management + Maintenance + Utilities + Repairs (TIMMUR). Oh and DO NOT forget vacancy. Some add that as an expense, others subtract vacancy from GSI. Either way is fine, but make sure that you budget for this significant nasty. The market determines the vacancy rate and no amount of wishful thinking will change that, so do your homework.

Cap Rate is not something to assume, but rather it's something determined by the local market for similar properties in the area. Do not assume that your 8 unit cap rate will be the same as the 100 unit on the right or the 30 unit on the left. Those building may serve a different market segment. Again, do your homework. I good commercial broker who knows your area could be a great help. Do NOT settle for a residential agent that says he can handle a commercial deal. There's too much at stake to leave this to amateurs.

Are you sufficiently uncomfortable yet? That's OK. Don't be discouraged. You can do this thing. Everyone wants you to succeed and so wants to be sure that you don't make a costly misstep. 

Good job finding this opportunity! I like the way you see the best and highest use and you're unafraid to pull the trigger. Also, you are wise to bring this situation to the forums before things get tangled. Very wise! 

I look forward to hearing how this all comes out.

Cheers!!