Apartment Analysis To BUST Into The Commercial World!

[Ryan York]

Hey all,

We're super interested in getting into apartments, but I'm struggling on a few things when it comes to the analysis. 

1. When considering work that needs to be done to the property, such as remodeling rooms, should we consider that as upfront money or somehow spread it out in our analysis? I know investors often do a few rooms a year or something like that. Obviously, having an additional 80k in expenses added on to the purchase price makes your cash on cash return and overall ROI look a lot worse. How would I go about factoring that in over say 3 years? Subtract from cash flow maybe??

2. We're looking at a property that would cost us about 600k plus the repairs. We don't have that kind of scratch so we'd need a loan. We would probably put together some private money in addition to a commercial bank loan. Who should I consider approaching first, bank or private money? 

I've attached our current analysis below. It's a work in progress so feel free to pick it apart! 

Any other input would be greatly appreciated as well. 

[Jeff B.]

I like "Cash-n-Carry" approach; ie: make the property perform and support itself. By that I mean, buy w/o any room rehabs (assuming all are serviceable, but just out dated).  Get it operational, all your support systems working and cash starts flowing.

Now when you get your first vacancy, REHAB this unit before filling it.  The property has supported the remodel via cash-flow, not your long term loan.  Your taxes improve the following year (capital improvement) as does your cash-flow because with the rehab you can increase your rent on that unit. 

Improving the YE NOI then forces an appreciation and better value (as measured by a recalc of the CapRate).

Iterate upon each new vacancy...