All Forum Posts by: Arian Mustafa

My first concern would be, are you sure it's a "deal?" I know it's a portfolio of 60 units, but that doesn't mean it's a "deal." You said he is open to "reasonable" offers, but what does that mean to him ...and you. A reasonable offer to him may be a non-deal for you. Evaluating a potential deal like this takes quite a bit of time and energy, and may lead to a dead end. 

So, what would you want out of this deal? Below market price? Above market return/cashflow? Would you want to profit from the sell some of the units and keep the rest, or? I would get clearer on your intentions, and then evaluate his motivations, and see if you can make them align. Otherwise, you may be going down a route leading to nowhere. 

So far, nothing you wrote hints to him being motivated to sell below market. They are class A properties, 100% rented close to market rents. That sounds more like a dream for him as an investor with no evident reason for him to accept a discounted price or terms. I know he's older, but why wouldn't he want to pass them on to his son or family?

Anyway, to evaluate the portfolio, I would first get all the addresses and financials for at least the past 2 years. We get the financials on multi-fam properties (5+ units) and just the rental amounts and terms for the <4 unit properties, to start. Then put it all on spreadsheet/s. Evaluate the 1-4 unit properties for value (find comps), list current scheduled rents, estimated vacancy/collections, expenses, etc and you can have another column for a proforma, if rents could be raised, etc.

For the 5+ unit properties, you need to determine the market cap rates for the area and compare them to the actual performing cap rate of the Subject properties. This is why you get the financials, to see what the actual #'s are. Then you can evaluate if there is room to improve, what discount you would need, etc. 

But, for me, there would really be no reason to spend the time walking the properties first. I would just assume average condition for the units to evaluate them, until you could verify that. But, without being clear on motivations and if there is a potential deal here, walking the properties may just be exercise. 

@Arian Mustafa - have you thought about trying to syndicate this deal with some limited partners? could be another option if seller financing is off the table. At $266k a door in the Melrose area it definitely should get some attention from other investors.

@Arian Mustafa

At $300,000 per door, what’s the rent on one of these units? Where are they located?

@Arian Mustafa

Hi Arian, 

1) Research what similar comparables are selling for using redfin / zillow. You can check by square foot sales price, per unit etc. Good for a baseline.

2) Create a pro-forma analysis

Rents (less 5% vacancy)

Expenses (taxes, insurance, repair costs, 5% management fee, snow shoveling, pest expenses, anticipated annual legal fees (evictions etc))

For commercial loan rates you are between 5.5% and 7.5%. Wide range! I have clients hopefully closing around a 5.25% rate on the 30th on a 24 unit but I believe rates have moved up since then.

Based on the income less expenses you will get your cash flow and start determining how much you are willing to pay for that cash flow. (Simplification).

Happy to sit down and model with you.

3) As for raising the funds - if the deal happens to be very strong there are those who can supply preferred equity financing which is expensive but help cover the gap. ALSO - there is seller financing which can be great.  

 Actually its PRICE PRICE PRICE  :) 

I like to use these scenarios as learning opportunities. Arian, sounds like you did some kind of background check and it still didn’t work out. If you don’t mind me asking, what do you think you missed in the beginning if anything. Also, do you have a credit score threshold prospective tenants must meet? Rentals are a hot commodity where I live so I can be extremely picky. I don’t rent to anyone with under a 730 credit score. My last two tenants had 800+ scores. My average tenant lasts about 18 months and they usually leave to buy a house, but I never have non payers and they fill as soon as they go vacant. Good luck 

OK, I understand and appreciate your urge to do the right thing here. I also think landlords cross the border from trying to be a human being and showing mercy to enabling bad behavior once that bad behavior sets in. Just look at the behavior with the RCAPS process. First she says that she's going to go ahead with it, then she turns around and puts it on you. This is a cheap little trick, or a regressive childhood strategy, or a cognitive dysfunction. And once this kind of behavior goes in, the right and most humane thing to do is make it very clear to the tenant in a lasting way that this sort of behavior is not permissible from adults in our society who have signed a contract with each other, because it isn't.

Yes MA is a tenant-friendly state. Generally speaking, PA, and especially Allegheny County where I operate is also considered "tenant-friendly." I was a lot like you a few years and evictions ago, as I've apparently bought properties with inherited tenants that I didn't vet or choose more frequently than you have (or God hates me, which I am perfectly willing to believe). "Tenant-friendly" doesn't mean you need to think in terms of "treading lightly" or "gingerly action" when dealing with crap from tenants. It means the onus is REALLY on you to understand what you can and cannot do with greater clarity than landlords working in a less tenant-friendly state. You need a better understanding of the legal process of eviction and what to do to handle nonpayment, lease noncompliance, and nuisance behavior on the most basic, step-by-step level.

You need to know where you really stand. And right now, all you seem to really know is that you have to be careful. Being careful often becomes an excuse for doing less. You cannot afford this. Don't use the humanity of the situation as a reason to do less. Use it to do more, learn more, have direct and honest conversations, honestly give those who can reform a chance to reform, honestly throw out the trash when the trash is asking for it.

The term "hobby landlording" didn't have to be used in my previous response. I shouldn't have trotted it out. Good luck to you.