Newbie - Help me analyze this deal

[Blake Davis]

View report

*This link comes directly from our calculators, based on information input by the member who posted.

I am a new investor in the Dallas - Fort Worth market. I am interested in utilizing the BRRRR method to acquire multi-family properties. I have been learning how to analyze deals from articles and resources on BiggerPockets, and could use some feedback just to make sure I'm doing things correctly. I have been using the analysis tool to analyze several multi-family deals. Most of them are negative cashflow and negative cash on cash ROI. Am I crazy? Or are these all just terrible deals? Here is an example of a Fourplex that would bring in less than 2% cash on cash ROI. Maybe I am doing something wrong? Or is the DFW market just THAT hot?

Would love some feedback, especially from locals!

Blessings,

Blake

[Ken Breeze]

Hey, @Blake Davis

First off: You’re not crazy. Many markets are currently not red but white hot and will experience a correction some time in the near future. Now’s a good time to practice, network for your A-Team (attorney, PM, GC, CPA) and learn to scale.

Always make a “ridiculous offer” of 75% ($337.500,00) of purchase/asking price ($450,000.00) to test the waters. They might hang up, scream at you, disappear off radar but always keep in mind you need to keep tesing the market.

Here’s my "10 Minute" Analysis:

• First calculate the price per unit: purchase/asking price $450,000.00 divided by number of units to get to your unit price. In your case $112.500,00/unit.
• The min. monthly rent needs to be 10% of the unit price. In your case $ 1.125,00

The great thing about  calculators is that they’re blind to local markets, our attachments, emotions or bias.

Generally you need to experiment on which wheels you need to turn (price, debt service, down payment, terms, etc.) to make the deal work. If that’s not possible, it’s not a deal.

We always look for 6-9% CoC and 15% IRR, a refi in 2-3 years and an exit in 5-7 years.

A few subjective thoughts on the current general multifamily real estate situation: 

I see similar signs on the wall as in 2008. People were paying ridiculous prices for SFR because everyone, their aunt, and their dog received a "stated income" loan. Similarly I see some CRE lenders throwing money around again topped by dried up inventory and too many new, overpriced A-class developments going up just to create the perfect storm all over again - this time in the CRE space. Not to mention the elephant in the room: offices and strip malls, who needs them in this day and age? But that's for another blog.

Thus it's important to run numbers conservatively with built in saftey for when the people move into the brand new A-class buildings increasing our "old" asetts' vacancy for a while only to pick up all the A-class peeps again, once they realize they can't afford those rents anymore, which will in turn have an effect on all rents. 

It never gets boring with real estate. The game is on ;-)