Multi Family Deal Practice

[Chukwudi Motanya]

Hi All,

I want to get into buying Multi Family properties, and I believe the best way for me to get used to analyzing multi family properties will be to analyze 100 different potential deals so I get used to crunching the numbers.

I already invest in single family houses, but now want to upscale. I am used to crunching the numbers for single family houses, but not so for multi families. I want to run it by the community to get some feedback so I get practice and get better

Here is my first property

http://www.loopnet.com/Listing/19720619/5327-Bell-St-Houston-TX/

I'm crunching the numbers on this. trying to understand how to look at cash flow and what makes a good deal. Still a lot of questions on my end on how to correctly go about this so I'm going to just rant about what I'm seeing and spitball to see what you guys think I might be missing. Also what I will do to get more perspective is ask people on bigger pockets to see what they think. So here it goes.

The Cap Rate for this is projected to be around 10%. That is taking the "As is" Annual Revenue of $90,780 and subtracting what the owner has as the following expenses;

Gross Income: $90,780

Vacancy (5%) (4,539)

Electricity (14,400)

Water (6,000)

Trash (1,500)

Gas (3,000)

Lawn (900)

Maintenance (2,400)

Insurance Expense (6,000)

Property Tax (5,962)

Advertising Expense (600)

Net Operating Income: 45,301

These are all current expenses not Pro Forma. Leads you to an NOI of $45,301. On this alone, this would be numbers that I would be happy with, but a few things scare me. My biggest question is if there are expenses being omitted. We would obviously have to have a management company conducting our management being out of state investors. That would fall into the expense line and reduce our NOI. and Also I do not see a line item designated for reserve capex. In practice, what do people do about this?

Now on a debt service basis, I will assume that we will have LTV of 75%, and 5% debt with amortization of 25 years for our financing.

Principal and interest payment

PITI Annual: (23,675)

Levered Free Cash Flow Annual: $22,174

Cash flow per month: $1,847

Cash flow per month per unit: $108

In terms of initial Equity, with the assumption that we will be putting down ~$112,000 of equity into the property, and then also ~$23,000 of closing costs (Simply percentage assumption, have no idea what closing costs will entail :)) and about ~$50,000 of repairs (Also simply a percentage cost, do not have complete understanding of what will need to go into this, however it is close to Marcus assumption that you should assume around ~$3,000 of work per unit.)

Equity Contribution: ~$112,000

Closing Costs: ~$23,000

Repairs: ~$50,000

Total Cash Contribution into property: ~$185,000

So from this assumption, we would have a year Cash on Cash return of about ~12%.I don't think that's bad at all. But listing below the highlights and risks that we would have to look into

Risk:

We do not know about Reserve Capex

No inclusion of property management costs

No insight into amount of repairs needed

Missing historical numbers on this property to get better sense of financial performance

Do not know motive of the agent for selling

Highlights:

Only 88% occupied

Rents are a little below market

Already cash flowing on current numbers

I'm going to try to do a write up like this daily