All Forum Posts by: Bill Jacobsen

Unless there is something unusual about the property it should be worth the potential cash flow divided by an appropriate discount rate for the area.  If you are a buy and hold investor the discount rate is determined by the return you want on the investment.

I would probably start out finding out the rental rates.  Usually I use an 8% discount rate and a 50% expense ratio.  For instance, $700 per month for each unit is $50,400.  Using a 50% expense ratio you get $25,200.  At a discount rate of 8% you get a value of $315,000.

I would look to see if there is deferred maintenance.  This would be subtracted from the above number.  Later on you can look at actual expenses and get a better value.

The restaurant is a problem because the owners have not been able to find a permanent renter at the price being charged.  That could indicate that the rent is too high or that the property is not in a good location for a restaurant.  Is there another use for the property?  I don't want to use an 8% discount rate for "maybe" income.  I would probably use 16%.

I hope that all 6 owners agree that the property should be sold.  Even then, they might not agree on the price.  Good Luck.

Bill

As well as reading the above mentioned book, I also recommend "an introduction to real estate investment deals" on this site.  If you still have questions after reading we will be glad to give our opinion.

Good Luck.

Bill

There are formulas to use to determine the viability of flips or long term rentals.  Besides using the formulas you have to decide how sure you are of the input on each  variable. 

I do like scenarios where it makes sense as a flip or long term.  Do you have any idea about the condition and cost to fix up to flip.  What is the current rent?

Risk comes from lack of information.  Only you can decide how much risk you are willing to take.

Bill  

 We have only bought properties where we have vacationed.  If we manage we must find a housekeeper and a handiman. 

If we pay for management it includes the housekeeping.  They also inform us of needed maintenance.  Housekeeping for our small properties is about $55-75 per cleaning.

Nayt.  Congratulations on your find.  We do not make those kinds of rents on under a $100,000 properties.

Bill

As Jordan pointed out the difference between your cost of funds and your return is very small.  I require a 3 percentage point difference.  Your mortgage constant is 7.58%.

I would be budgeting at least $18,000 for maintenance and capital expenses.  I also would want to know if the 7% management fee included finding new tenants?  You will probably be averaging one vacancy at all times.

Good Luck

Bill

It looks like an 8.5 cap property at $850 per month and you have a borrowing cost of 4.5% for a spread of  4 percentage points.  I always require a spread of 3 percentage points so this looks good.

Bill

After factoring in maintenance, management and vacancies + the expenses$ you mentioned I only get $4,732 of NOI. Based on a purchase price of $42,500 + $6,000 in repairs is a cap rate of 9.7%. That is a good number considering that your cost of capital is only 5%.

The problem is that your cash flow after paying the mortgage is $1,600 and you are doing your own lawn.  Earning $1,600 on a $9,000 investment isn't bad if you weren't mowing the lawn.

Good Luck.

Bill   

I use at least 5 % for vacancies or more based on my research.  I use $1,000 per unit for maintenance and up to $1,000 for capital expenses depending on size of building.

Bill

Based on your numbers and a 5% vacancy factor + $2,000 for maintenance and capital expenses + $2,882 for management I get NOI of $11,882 or over a 9 cap on a $130,000 buy price. With a 6% cost of capital I think that is good.

Good Luck.

Bill 

Before I flip a house I must believe that I can determine ARV within 7% and rehab cost within 20%. I plan on making 20%.

Obviously,  You can use any parameters that you want but I don't like to lose money.

If it is too difficult to come up with valid numbers go to the next property.

Good Luck.

Bill