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Updated over 7 years ago,
10 Unit deal - current performance vs future performance
Hi Experts,
I am in contract and negotiating a deal currently and have spent a lot of time making sure I dot my i's and cross my t's but I know part checking out is also getting some expert advice and opinion from this group of folks.
Details: The multi-unit that I am purchasing is 5 duplexes located on a single parcel (10 units total). The purchase price is $375K and will need about $160K worth of work. That includes connecting sewer and water to the public since it is currently on septic and well. Most of the units are actually in decent shape and the total cost to renovate the homes is included in the $160K rehab cost (from my contractor). Total in all - I will be in this deal at about $535K. Currently the owner of this property
has left the units in low rents and have not really spent the time to properly manage the units. Her husband pass away years ago and they have kept these same tenants in here for over 6-8 years and she doesn't really want to do much with rent increase, etc. Here are the current numbers on the performance of the home:
| Address | Type | Sq Ft | Rent |
| 4102 | 2 bed 1 bath | 945 | $250.00 |
| 4102 -A | 2 bed 1 bath | 945 | $550.00 |
| 4102 -B | 2 bed 1 bath | 945 | $550.00 |
| 4102 - C | 2 bed 1 bath | 945 | $550.00 |
| 4106 A | 3 bed 1 bath | 945 | $550.00 |
| 4106 B | 3 bed 1 bath | 945 | $550.00 |
| 4110 | 3 bed 1 bath | 945 | $550.00 |
| 4110 A | 3 bed 1 bath | 945 | $- |
| 4110 B | 3 bed 1 bath | 945 | $- |
| 4110 C | 3 bed 1 bath | 945 | $- |
| Total | 9450 | $3,550.00 |
| Pro Forma Calc. | ||
| Type | Amount | |
| Income | Rental Income | $42,600.00 |
| Total Income | $42,600.00 | |
| Expense | Utilities | $1,500.00 |
| Water/Sewer | $1,896.00 | |
| Taxes | $2,000.00 | |
| Management Fee (8%) | $3,408.00 | |
| Home Insurance (both) | $3,000.00 | |
| Vacancy (7%) | $2,982.00 | |
| Total Expenses | $14,786.00 | |
| Net Operating Income | $27,814.00 |
My property manager and I have determine that the rents should be a lot higher which after repairs and renovation should be yielding about $800 avg rents. So here are my future numbers:
| Address | Type | Sq Ft | Rent |
| 4102 | 2 bed 1 bath | 945 | $800.00 |
| 4102 -A | 2 bed 1 bath | 945 | $800.00 |
| 4102 -B | 2 bed 1 bath | 945 | $800.00 |
| 4102 - C | 2 bed 1 bath | 945 | $800.00 |
| 4106 A | 3 bed 1 bath | 945 | $800.00 |
| 4106 B | 3 bed 1 bath | 945 | $800.00 |
| 4110 | 3 bed 1 bath | 945 | $800.00 |
| 4110 A | 3 bed 1 bath | 945 | $800.00 |
| 4110 B | 3 bed 1 bath | 945 | $800.00 |
| 4110 C | 3 bed 1 bath | 945 | $800.00 |
| Total | 9450 | $8,000.00 |
| Income | Rental Income | $96,000.00 |
| Total Income | $96,000.00 | |
| Expense | Utilities | $2,000.00 |
| Water/Sewer | $3,000.00 | |
| Taxes | $4,000.00 | |
| Management Fee (8%) | $7,680.00 | |
| Home Insurance (both) | $4,000.00 | |
| Vacancy (7%) | $6,720.00 | |
| mtg | ||
| Total Expenses | $27,400.00 | |
| Net Operating Income | $68,600.00 |
I am getting hard money loan with these terms:
LOAN AMOUNT: 80% of the purchase price and 80% of construction costs
COLLATERAL: 1st DOT on subject property
TERMS OF LOAN:
- Type: Multiple advance loan
- Length of Term: 270 days (looking to extend this to 12 months)
- Rate: 10% per annum with interest paid monthly
- Loan Fee: 2% of loan amount paid at closing by Borrower
- Doc Fee: None
- Prepayment Penalty: None
- Borrower Down Payment: 20% of purchase price and 20% of construction costs (can be held at a security deposit in lieu of a downpayment, in which case the loan amount will be 100% of the purchase price & construction costs)
APPRAISAL REQUIREMENT:
- Approved appraisal required to indicate the 'As-Is' Value of the subject property to be at least equal to the purchase price and 'As Complete' Value of at least 70% Loan-to-Value, paid for by Borrower
GENERAL REQUIREMENTS:
- Review and approval of Borrower's itemized construction budget
- Construction funds to be advanced in draws as requested by Borrower according to % completion, approved 3rd party inspection company will inspect property at time of each draw request, $150 fee per draw/inspection, detailed instructions attached
- Review and approval of Purchase Contract
- Review and approval of Borrower’s brief description of experience, current credit report (Authorization Form attached), proof of funds, last 2 years tax returns, W-2’s and pay stubs and additional info as requested by Lender
- Acceptable drive-by inspection of property by Lender
- Individual guarantee required if Borrower is a corporation, LLC, partnership, etc.
- Interest payments shall be paid to Lender through automatic payment service (auto debt)
- Title insurance and property insurance acceptable to Lender paid by Borrower
- Other documentation and information may be required as determined necessary by Lender
My end goal here is to buy and hold with the BRRR strategy to get most of my capital investment funds out. Base on my calculations on my future performance and a cap rate of 9%, this property should be valued at or about $762K, which I have talk to local commercial lender that can refi into a 5/7 yr fix loan amortize over 30 yrs @ 65% LTV. I know I may not be 100% cash out at the end of the day on this deal but I do want to hear from you guys your opinion on the deal itself, any areas that I may have overlooked, can there be more value added, is my cap rate too conservative and if there is anything else I would need to know. Thanks again.