All Forum Posts by: Cabrin Mills

Guaranteed Rate is great for renovation loans

@Michael Jones The condos are currently not apart of a condo association, because they were converted (or being converted) into 6 large condos/or appt. Where the building was initially an 11 unit apartment building.

He said it's not too late to convert them back, or redesign the building however you like; which could potentially change everything. It seems to be pretty wide open right now. So I just focused on the deal as a 6 unit condo/ apartment building, and I would lean toward the apartment side of things because of the very point you just made. Thanks!

@Annette Schneider Thanks! Yea I definitely would not put faith in my estimate. That's kind of why I called it "a real life, hypothetical, potential deal opportunity". I simply estimated 30k per in rehab per unit (30k x 5 = 150k) + an other 20k for the miscellaneous = $170k. Like I said that could be way off but I needed a rehab figure for the sake of the question.

And as far as the value vs potential income. Is the properties value based on GOI? And are you saying that I should analyze the NOI and Cash on Cash return?

Hello BP, I have a question about a real life, hypothetical, potential deal opportunity. I know a little about commercial multifamily investing in theory, but have no practical knowledge on how to analyze a deal, or negotiate one for that matter. So if anyone has experience in this field please chime in, and let me know if it's worth pursuing...

Okay, I've seen an add for a 6 unit Condo/Apt building on Craigslist for a couple weeks now, and the guy want $170k. There is only one unit finished, and it looks really nice in the pictures. I estimated (based on the pictures) that it would cost probably another $170k to finish the remaining 5 units. He says that you could rent each unit out for $1000/mo, but I'll analyze 20% less and say $800/mo (Im awaiting information on that market right now).

So If we are all in at $340K with a

Annual Gross Operating Income of $57,600 ($800 in Rent x 6 units = $4800 x 12 mo)

minus

Annual Operating Expenses of $28,800 ( We'll say 50% of the GOI)

Equals

Net Operating Income of $28,800...

Divided by 

the GOI ($28,800/$340,000) you get a 

Cap Rate of 8.4% 

Now to my knowledge; I should be shotting for a 10 Cap. So, If the numbers checked out I would have to offer him Approx $118K to get a 10% cap rate. So where would I go from there? What else would I need to take into consideration when making an offer, or negotiating the purchase price? And is there anything that I'm over looking while analyzing the deal?

I greatly appreciate any feedback in advance. Thanks! 

@Jarrod Kohl Thanks for the tip on the rental comps. That really helped and I don't know why I didn't think of that. The area ranges from about $600-$775. $750 would be on the high end but since the owner pays the utilities $750 would be a pretty idea price. 

Also for the ARV. I had a realtor help with me with the comps. There were only 4 comps within 2 miles of the property, that sold within the last 18 months. The 2 that were the closest in proximity, and comparison sold last year; one for $89k and the other for $110k. But there are two other that were 2 duplex's that were in a different neighborhood, but did sell more recently; one for 16k, and one for 29k. The report comped the property at around 70k, because of the average, but I would realistically weigh the comps closer to the $89k-$110K.

Okay I have number updates!

4 unit Multifamily

- 2) 2 Bed 1 Bath unit; Rent $700/mo ea. (Utilities Paid)

- 2) Studio Units; Rent $450/mo ea. (Utilities Paid)

Purchase Price: $46k

Est. Rehab: $25k

Projected Gross Rent: $2300/mo

Utilities: $700/mo

Insurance: $50

Taxes: $115/mo

Management: $230/mo

Maintenance: $150/mo

Vacancy (5%): $115/mo

Net monthly Cashflow: $940... (I'll round down to $900)

NOI: $10,800 annually / $71,000 investment =

Cash on Cash Return: 15%

These numbers are playing it pretty safe. I would estimate that utility cost will be quite less on average. The monthly maintenance cost will probably be quite less. And you could fairly charge $750/mo for rent with the utilities being paid, but $700 is more competitive. I think the property has really good potential as an Air BnB also; even if only the studio units (just an idea to add value). So what do you think now? Would you make this deal?

@Andrew Johnson Im coming to believe that many of the issues are stemming from poor property management. I agree; I'm pretty sure that the rehab cost is going to be much higher than 10k. I still haven't had a chance to walk the property; I've been waiting on the property management company to grant me access. If my walk through shows an increase in rehab cost, than of course the purchase price would reflect the difference. $55k is the absolute highest that I would assign the contract for, and that price is based on the information he has given me. As more information comes to light, the numbers will be adjusted to ensure a profitable investment.

The 2bedroom units have been vacant for maybe a month or 2. I talked to the current tenant, and he told me that it's going on 2 months since the previous tenants left. I believe they are still vacant because they have not been cleaned out and rehabbed. Both of those units were rented for $750, and had been for at least the last 2 years. The tenant that I spoke with also confirmed that the evicted tenants had been there since before he arrived over a year ago, but that they were pretty "nasty". So in regards to the rent; I think it may be a little high, but I'm positive that it's not unreasonable for the area (I also know a few people who live in the area).

I also understand your point of view in regards to "why aren't they doing it?". There is always a possibility that the owner knows something that I don't, but I don't think that's the motivation in this case. This is an off market deal that I came across driving for dollars. The owner had no intention in selling until I wrote him a letter, coincidentally right after an eviction. And if we're unable to come to an agreement; he does plans to fix it and re-rent. He's owned the property since 1994, and I think that with the combination of poor property management, and a recent eviction; he's willing to sell it and move on. Again nothing is finalized yet, so as more knowledge come present  the numbers will be adjusted accordingly. 

At this point what details should I be focusing on to make sure I cover my bases?

@John Leavelle Okay and that's where the uncertainty lives. I wasn't sure if I should evaluate the property the same way that I evaluate a SFR (65% rule ect) , or base it on the income. There are not many apple to apple comps in the area for this properties (bed/bath/sqft), because it is a MFR. I've comped in comparison to SFR in the area and it came to about 100k

The numbers that I have provided are not set in stone, and are based on the information I have received thus far. We are still in negotiations because of many of the  same concerns that you all have expressed. I definitely understand that I must have complete and accurate information before I could expect and investor to make a sound decisions. I guess what my question is, if these numbers were set in stone (complete and accurate) would it be a good deal? That will give me a ratio of purchase price, rehab cost, and return to stay close to if numbers fluctuate.

@Andrew Johnson Yes all the $750- rent units are vacant right now, because it was a double eviction on the those two units. Would It be better to analyze the deal at $650 rent on the 2 bed units, and maybe $400 for the studio units?  That would make the gross cashflow $2100, and we'll say net cash flow $1000. That would be $12,000 net return.

Let's say the rehab comes to $15,000, and the purchase price is $55000. We'd be all in at $70,000, and that would be a 17% Cash on Cash Return. Hypothetically; if these were the final numbers would it be a bad deal at this point? Or maybe a better question is: at what percentage of return does the deal turn from good to bad?