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Updated about 10 years ago on . Most recent reply
What to do with confusing info...
Ok, maybe someone can help me understand what's going on here. I saw a multi-family property in a nearby area that I thought looked interesting.
Details:
List Price: 259.9k
6 1/1 units
all recently upgraded with new paint, granite counters, etc.
I asked for financials and the RE agent has been very helpful contacting the seller, but what he is sending makes no sense to me.
| 1st attemp: | ||
| 2013 | ||
| Avg Monthly Rev | $3,600.00 | $43,200.00 |
| Avg Monthly Exp | $2,500.00 | $30,000.00 |
| Avg Monthly Pos Cash Flow | $1,100.00 | $13,200.00 |
| 2014 | ||
| Avg Monthly Rev | $3,854.00 | $46,248.00 |
| Avg Monthly Exp | $2,300.00 | $27,600.00 |
| Avg Monthly Pos Cash Flow | $1,545.00 | $18,540.00 |
| 2015 projected numbers: |
| Operating Income - $45,360.00 |
| Operating Expenses-$16,000.00 |
| Taxes - $8,000.00 |
| Net Income - $21360.00 |
| Property tax (575.00 monthly) | $575.00 | $6,900.00 |
| Insurance (370.00 monthly) | $370.00 | $4,440.00 |
| Maintenance/Prep ($267.00) | $267.00 | $3,204.00 |
| Lawncare | $85.00 | $1,020.00 |
| Nat Gas | $23.00 | $276.00 |
| Extermination | $17.00 | $204.00 |
| City Fees | $6.00 | $72.00 |
| $1,343.00 | $16,116.00 |
Aside from the fact that the info is inconsistent, what should I be asking about? On the surface, it seemed like a good deal for the price.
Most Popular Reply
If the owner did a lot of renovations in 2013, the 2014 costs could reflect lower-than-average maintenance costs -- though that wouldn't account for an $11K difference in 2015. My guess is that either he counted capex in his 2013/2014 numbers and/or he's eliminating some important costs in the 2015 pro forma -- perhaps he's not including property management, perhaps he's "forgetting" about lawn care/snow removal/utilities, etc.
I would ask to see his 2013 and 2014 tax returns and verify those expenses. Then I would ask for the 2015 pro forma, and see where the pro forma differs from his tax return data.
The net income of 50% of gross income *may* be reasonable, but it may not be. You need to verify it, and also determine if it includes capex reserves and other costs that may be minimized in 2015 (due to recent upgrades) but will most certainly show up again in the future.