What do you look at to analyze a deal in 60 secs. 16+ units

Question

whats the main things you look at to analyze a deal in 60 secs?

If i'm looking at apartment building listings with 16+ units what should i look at real quick to tell if its worth looking more into or not?

Seth Williams · Answer

@Jim Growfer I’d slow down, and read a few books my man. You are spamming the forums.

Account Closed · Answer

@Jim Growfer yesterday you did not know how to calculate cash flow. I highly recommend you take baby steps and educate yourself, before even dreaming about owning a 16 unit.

Take the baby steps that all of us successful investors have done prior. A mistake on a 4plex won’t ruin your life like a mistake on a 16 unit will.

Jorjio Hopkins · Answer

@Jim Growfer

I agree with at @Justin R., those are great items to look for when you’re scanning for value add opportunities.

If you’re a numbers guy, here is another technique I use to riffle through a bunch of listings on a site like LoopNet to narrow down potential investment options:

1) Total Income - 5% vacancy factor = Annual Income

2) Determine the annual expenses using the 50% rule you mentioned

3) Calculate the Net Operating Income or NOI = (Annual Income -Annual Expenses)

4) Determine the cap rate. Hopefully it’s listed for the property, but if not you can find it a couple different ways.

- If you know the asking price then you can do (NOI / asking price) = cap rate

- If price is not listed then you can look for active brokers in your general area with apartment listings and give them a call. Take this as an opportunity to start build a relationship with them (key for future business success) and casually work into the conversation ‘what’s the cap rate in this area?’

5) NOI / Cap rate = Purchase Price

If all the information is present then the above only takes about 45 sec.

Spend the last 15 sec. comparing your purchase price to the seller’s asking price if it’s listed. If it’s not listed then pull up a tax assessment on the property to get a ballpark number of the assessed value.

Typically if the purchase price I calculate is within 25% or less of their asking price then I put that property on a list (excel spreadsheet) to do a deeper dive into later.

6) Rinse and repeat for all the listings you can find.

7) When I have my new list of properties that passed my first screening criteria, then I evaluate value add opportunities. If there are 1-2 good value add opportunities then I add those properties to a second list to be underwritten later.

8) Underwrite the list where you know you’re in the ballpark on their asking price and there are value add components you can leverage.

Hope this helps!

Justin R. · Answer

Analyzing a deal is 60 seconds is obviously only a preliminary check, not a true analyses, underwriting, or any aspect of due diligence. This is what I would look at....

1. Gross Rents

2.Market Rents

3.Master metered VS Split Utilities

4.Deferred Maintenance

5.(Gross rents X .5) / (Purchase price + Deferred maintenance) = Hasty Cap Rate

Matthew Baltzell · Answer

@Jim Growfer on a 16+ unit apartment I would look to see if there is a management fee. If not, do you plan on managing the property?

If you don't, you'll have to hire a property management company which will increase your expenses and eat away at your profit.

Best of luck.

Jim Growfer · Answer

@Fred Engh

A broker would never "by accident" make their cap rate too low, right?

if anything they would over inflate it?

Jim Growfer · Answer

@Fred Engh

i thought 50% rule was mainly used for apartment buildings if i include property management, Capex, and rest of utility/tax expenses.

But thank you, that helps a bunch

Fred Engh · Answer

CapEx is how much you set aside for capital expenditures (say 5%) to replace major things like a roof or HVAC. Sometimes they will use unrealistically low numbers to artificially inflate the cap rate.

You also have operating costs to manage and maintain the units.

Property taxes as well.

Then an expectation of vacancy.

After you deduct all of your expenses you have your cap rate. I have seen places in Seattle listed with a cap rate as low as 3%. 7% is common.

Yes, the 50% rule is related to that (I'm not sure how accurate it would be in a multi-plex). Or, 50% of expected expenditures will be the gross rent.

Jim Growfer · Answer

@Fred Engh CapEx is just expenses right? Thats where 50% rule is a good rule of thumb which includes vacancy as well?

What do you look at to analyze a deal in 60 secs. 16+ units

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