All Forum Posts by: Aaron Gilbert

Use part of what you have for a down payment to the owner ( keep some in reserves for unexpected issues) see if he will carry the remainder of the loan for at least 5 years or possibly the life of the loan depending on his age and what he is needing/ wanting out of the deal.

If your trusted contractor walked the property and gave it a go, then I wouldn't hesitate to proceed. The permit pulling process is just a way for the city to justify their existence and collect more revenue. If you don't have experience in the construction field then I would recommend always having your contractor walk the property before signing on the dotted line, even if permits were pulled.

@Anthony Rosa, thank you and I will definitely be doing this on future options. We threw out a number today to try and start negotiations and got rejected without counter. On to the next with more wisdom than before. Thanks all!

@Edward Liu I had not thought of the cost associated with pushing rents aggressively. 

Wouldn't an egress window count as a second exit as it does in above grade units? Im not sure I follow the math of doing all 3 units for 20k, can you expand on that? I was only considering CoC return with annual cash flow per unit divided into per unit cost. Such as if I was able to complete for 25k per unit with $200/mo cash flow per unit would be a 9.5% CoC. I know those numbers aren't exact but an example.

@Doug McVinua, yes I agree that could be a huge upside for me but the numbers have to make sense on the purchase as well. That would just be icing on the cake. With this being my second deal and first of this size I'm trying to underwrite everything to be fairly conservative.

@Account Closed thank you. I have done the underwriting and expenses work out to 50% although that was with the offer at a 7.5 cap. I think you are correct that I am being overly optimistic with the class of neighborhood. I have not spoken with the/a broker yet but my property manager said it WILL sell at a 7.5 cap in this current market once the asking price reflects such. Current asking price is 495k, 7.5 cap puts it around 335k, and cash flow of $100/ door or more would put it under 300k. From my understanding this is a partnership that is splitting up and needing to sell. It has been on the market for 100+ days I believe. Im trying to get everything ready and try to find any errors before they have to drop close to what it is actually worth.

@Jacob Sampson thank you, all very good points.

Wayne Brooks, the $600 per door is with utilities being billed back or sub metered. Otherwise we would be looking at $650 for a ceiling on rent with utilities included. All 10 units are 1/1's. There is also a basement that is not being utilized currently and could be turned into another 2-3 sub level units.

Kurt Jones, thank you. I have accounted for 7.8% vacancy as suggested by my property manager. All expenses have been accounted for capx, repairs, vacancy, insurance, and figuring if I RUBS I will only be able to bill out 90% of the expenses. I was just trying to paint a picture with the grading since that is what everyone seems to use. I agree with you, there are factors that aren't accounted for in the grading system. Im sure if this was a smokin deal than it would be under contract already. Just trying to figure out if its worth the risk for a year with low cash flow to get everything where it needs to be.

I am looking at purchasing a 10 plex. It is in a solid C+/B- neighborhood. The only issues I have with the building/ neighborhood are a flat roof ( which was replaced in '16) and the house across the street is vacant and boarded up. Other than that it is a solid neighborhood and the building is purpose built. I have bought rented and sold 1 SFH and looking to move into smaller multi family.

It is currently over priced but in talking with my property manager, he said it will end up selling at 7.5 cap. The problem is it will only cash flow at $75/unit per month at that purchase price. There is some up side though. Current monthly rents total $5,711 but with the current condition of the units and market rents, that could be up to $6,000 by the end of the year. That coupled with the current owner is paying for all utilities which could be put on RUBS or sub metered. That would save close to 14K in expenses figuring I could bill out 90% of the utilities to tenants.

After rents are up to market and utilities sub metered, I could refi and pull out 100% of my money and cash flow $120 per door. Option #2 refi and pull out my money plus another 78k and cash flow $75/mo. 

Am I missing something? Seems like a solid deal if I can pull all my money back out and have a cash flowing property. Is it okay to cash flow a little less on the purchase knowing i'll make it up in short order? Thank you for your help.