Multi family numbers on specific deal.

[Paul Guilbeau]

My partner and I are very close to closing on approximately 2.4 acres of land just outside of Houston.  We have met with city officials and they are very eager to get more development in their city.  I have done the numbers about 100 times, listened to every podcast I could find, but want to get even more eyes on this deal.

The cost of the land, development and building will come to $700,000

Annual rent income will be about $120,000/year.

Taxes, Insurance and other expenses will about $20,000/year

Since it is a new building, we anticipate a cap rate of 8%

So once full, as I understand it, the building is now worth $1,250,000 ($100,000 / 8%)

As I understand, we can cash out REFI for say 70%, which would give us $875,000.

This means we would now have $175,000 in additional funds to go do this again.

Am I missing anything here ?

[Bjorn Ahlblad]

@Paul Guilbeau are you building a unicorn? All in, you are investing 700k for 10k/mo in rental income? Sounds like a solid deal if you can accomplish that. Is it a 10-12 unit? How about some details. Any more land down there? All the best!

[Paul Guilbeau]

Yes, 12 units.  The goal is to build the 12 units, and if we get the expected response, start construction of another 12 units on the same parcel of land.  The parcel is from an estate that the heirs want nothing to do with it and are selling at a great price.

I expect the second 12 to be even more profitable as most of the development expense comes into play for the first 12.  My partner is a lifelong friend who is a builder, so we get the added benefit of no GC fees, etc.

[Scott Skinger]

See Below:

[Brian Garrett]

$20k expenses on a 12 unit that brings in $120k isn’t realistic.

[Paul Guilbeau]

So, Taxes and insurance are $15k/year, that I know for sure.  I estimated roughly $400/mo in misc. expenses because it is a brand new building and I don't anticipate much in apartment maintenance that first year, so this is strictly general property maintenance.  We are self-managing the property.

Where am I missing the rest of the expenses?  I appreciate the feedback.

[Michael Le]

@Paul Guilbeau, 

You mention a value of $1.25M but taxes and insurance only $15k. Assuming $4000 for insurance that leaves you with just $11k for taxes. That's a tax rate of 0.88%. Where are you building that has that low of a tax rate?

Also, even if you're self-managing it is a horrible idea not to include that as a operating expense unless you have no value for your time. And what about make ready costs? Anytime someone leaves you're going to incur cleaning, painting, and minor repairs at the very least even in a new build. What about common area utilities? What about marketing? What about professional services like attorney and CPA fees? What about landscaping? 

[Paul Guilbeau]

Michael Le, like I said, the city is being 'very helpful' in regards to tax.  This is a Year 1 only look, which is what is needed to REFI.  So everyone is under a 1 year lease, so no make ready should be needed.  Initial landscaping is rolled into the cost of the construction.  

Common utilities, ongoing landscape maintenance, professional services costs were what I was wrapping into misc. expenses.  So taking your comments, $5k may be low for that groupl.

[Bjorn Ahlblad]

@Paul Guilbeau Your projected rent may be too low for the area, and you need to up your expenses. I am most surprised at the projected construction and development costs. I have a 2 storey 12 unit-8 two beds and 4 one beds, with storage, laundry and common area comes to just under 10,000 sq. ft. I know your partner is a builder-but still-you are building for 70 dollars a foot? 

[Paul Guilbeau]

We are just under 8500 SF, 10 1BR/1BA and 2 2BR/2BA, so closer to $82/SF is our budget.