PROJECTED NUMBERS VS ACTUAL NUMBERS

[Jason Malabute]

I learned something new this week. When we analyze deals our projections won't be the same as "actual numbers". For example, when we run our projections we might run our numbers to have 5% repairs and the property cash flowing $100-200 a month. What new investors don't understand is that these numbers are projected numbers are average of 5 years (depending on your market).

If you are buying a property that is old (built before 2000) there's a good chance that you won't cashflow for the first 18 months. This is true even if you do a thorough inspection and rehab. This is because people often sell their problem properties and keep their best performing property. Moreover, the property is often neglected with deferred repair expenses. A good inspection should catch big ticket problems (like foundation and roof issues), but you won't catch some plumbing issues until tenants are actually flushing toilets. Expect small problems with repairs for the first 18 months until the property stabilize the repairs.

Once you get into apartments like me you can expect the economic occupancy to drop the first year. So if you acquired a property at 80% occupancy you can expect it to drop to 70-75% occupancy in the first year of repositioning. If you do things right you should reach 90-95% occupancy after year 3. That is why, when dealing with apartments, it is important to take care of the exterior repairs at the SAME TIME of updating vacant units acquisition so that you catch the attention of candidate tenants driving by and get vacant units filled up as quickly as possible.

Again, when buying an investment property expect a healthy ROI, but there will be some years that you will need to feed the property cash to keep it alive.