Need help with calculating new investment

[Mida T.]

Hello guys,

I am new real estate agent, and I found this off market  multifamily listing in Brooklyn, NY. I think it has a great potential if I can find a someone to help me run the numbers and explain it to me. After that suggest what can I do with this opportunity to make it work.

Here is the specs:

- List price: $1,700,000

- Number of apartments: 6 x 2 bedroom apartments

- Annual tax: $8000

- Property condition: Building Is Well Maintained

- Rent Roll (currently rent prices are way below market price)

- apartment 1A + 1B are merged into 4BR for $1100/month

- apartment 2A 2BR for $620/month

- apartment 2B 2BR for $610/month

- apartment 3A 2BR for $650/month

- apartment 3B 2BR for $640/month

I am not sure why the rents are that low, but I new in Brooklyn a good two bedroom apartment in this area goes fro $2000 to $2800 per month.

So how to run the numbers for this property? and if the calculation show a good profit, how to find a partner to make this a great deal.

Thanks to all.

[Jonathan Twombly]

@Mida T. as @Ben Wilkins suggests, the way to go about finding a true value-add deal is not to start with what the rents need to be to make money.  Instead, you start with what the rents are.  If the deal is appropriately priced for those rents, and you know the rents can be raised, then you are buying a deal with built-in upside.

In other words, you never want to buy a property based on the value of what the rents "should be" if they were raised.  You never want to buy a property where the future value-add is already priced into the asking price, but YOU have to do the value-add yourself.  I'm seeing a lot of that these days, where sellers are saying, "this is what the value is if YOU do the work, so I am pricing it that way."  And, amazingly to me anyway, lots of buyers are going for it because they are in a feeding frenzy.

You only want to buy on the price implied by the current rents.

On top of that, when you are in a market like NYC, with rent control, then chances are you cannot raise the rents, or you need to do something underhanded to get the tenants out.  A lot of people are doing this.  It's unethical, illegal, and can get you in serious trouble.