Portfolio of family homes analysis

[Simon Leger]

Hi,

Since I'm new here and I dont want to make stupid beginner's mistakes, I would like to get people's advice on something like this :
http://www.loopnet.com/xNet/MainSite/Listing/Profile/profile.aspx?STID=&LL=&LID=17813031&SRID=3065307937&PgCxtGuid=a29353b7-f9c5-4f3c-a547-948ae9f17334&PgCxtFLKey=Profile&PgCxtCurFLKey=Profile&PgCxtDir=Up&EBrokerSent=Y&MessageSent=
It is 12 homes and 4 duplexes (20 units) with 25k sqft total asking 650k (let's assume it can be brought down to 580k) 100% rented for 14,220 per month (or 170k per year). Expenses with management company (i dont want to do that) is max 50% of gross rents so 85k per year which leaves with 85k per year before financing costs.
This is a 15% cap rate on the deal value if paying cash.

With financing it is much more...

What am I missing here ?

- I realize these are low income rentals so potential issues with tenants, vacancies...
- Condition of property is fair but there will be some maintenance (there is a brand new C of O so condition can not be that bad ?)
- I dont know the area well, is it declining like crazy there ?

Any comment is welcome, thanks in advance.

[Tim Delp]

First question I have is you reference $14,220/month or $170,640 in gross rent and then you think management will cost 50% of gross rents. That seems high to me unless you have significant deferred maintenance, assuming they are all rented now I"m assuming they are at least liveable. I would figure you can get a property management company for 10% of gross rents, maintenance and vacancy hopefully should run you no more than 25% even taking in to account to some improvements/deferred maintenance that you take care of.

Next question is that you reference financing. How are you planning on financing 12 homes and 4 duplexes, not too many banks wanting to do a mortgage secured by multiple sfr. If you are able to get financing it seems like you would have pretty good debt service though.

You would need to look at the values from a resale perspective and not just cash flow to see are you getting a discount by buying the bulk package compared to assembling your own purchases individually?

[Simon Leger]

Yes the seller is mentioning lower expenses than this, but even with 50% maintenance cost it is still very profitable so I like to be conservative and make this assumption and if it ends up being less it will just be the cherry on the cake...
Yes they are liveable (there is a brand new C of O so they have been inspected).
Financing should be doable also I have not dig too much yet into this especially for the fact that it is a portfolio of properties.

Your last question is one I've asked myself and to be honest no there is no discount but it is also much less time for me to spend looking and finding properties. All being in the same neighborhood also make it convenient and will make management fees lower.
It seems like these deals of multiple portfolios are mostly priced on financials and less on the property values.
I am assuming there is a 10% mark-up for being put as investment properties and being all rented with good financial track record over the past few years (all documented)

[Simon Leger]

Anyone know a bit about this area or has been investing over there (rochester / syracuse in NY state) ?