All Forum Posts by: Chris Wyche

Thanks for the advice, @Marshall Downs . I'll do that

Joel, it's a bank owned property, so I doubt if they would have any info. Thanks anyway 

Ben, it's an okay deal. I wouldn't say fabulous. It's not worth spending the money on those 2 studies, then possibly having to fix a soil contamination problem. 

Hey Guys,

I'm looking at this property in Philly which has 2 gas stations and a dry cleaner all within a block radius. It's an apartment building over 5 units. Will the lender require that I get an environmental phase 1 and maybe phase 2 study?

I've never owned one, but I heard really good things. In going to start buying them in either 2015 or 2016. Self storage and billboards seem to be very good, low maintenance money makers

Thanks Ursula. I do this full time, so I definitely would have the time to manage. I ended up having to manage my other contractor really heavily, so I figured there would be little difference. One of the challenges I see is being able to get materials to the site. Hopefully the carpenters don't mind picking stuff up because I don't have a truck. That's something I'll have to discuss with them before hand. But yeah, I was thinking yesterday on the way home... I was trying to analyze this deal, and the numbers were tight. I'm using a new contractor now, and I didn't know how much he would charge for the job... Then a light bulb went off... Why not just hire the workers directly? I know enough subs... I think, lol. And I could always get more if I get jammed up. It would allow me to do more deals too because I could get better prices on the construction. I see nothing but upside...

So I've been hiring contractors for the first 7 rehabs I've done, and I've learned a lot about the construction process. A carpenter who does work for a contractor I recently parted ways with recently gave me a call and said "If you have any work, let me know." He's a great worker too. I've amassed a pretty good contact list of plumbers and electricians. I could use some more HVAC guys and roofers... But nonetheless, I think it's time to cut out the middle man and start making some more money by managing these guys myself. Any advice on making a successful transition? Liability issues? Any other issues with starting my own contracting company and pulling my own permits?

Interesting article @Lucas Pfaff . Thanks for the feedback, everyone

As I mentioned before, you'll have to talk to some local appraisers to figure out the cap rate in your market, but once that is in place, you simply divide the net operating income by the cap rate and there you have your value. Example:

$36,780 NOI / 10% cap rate = $367,800 ARV

If you have to, and you're really serious about this deal, you may have to pay a few bucks to an appraiser to give you some real info or maybe do a full appraisal for you

Well basically, an appraiser is going to determine value by taking the net operating income and dividing it by the market cap rate. It's kind of hard to figure out what the market cap rate is without talking to a local commercial appraiser, but you can figure out the net operating income.

Look at your market and see what apartments are renting for in that area. A good website to use for that is www.rentometer.com. You're probably going to get numbers all over the place, but since you plan on renovating the apartments, then it's safe to use rental figures toward the higher end of the spectrum... But not too high. You still want to be a little conservative with your figures. The closer to your building, the better. Add up all the monthly rents from the apartments, and multiply by 12 to get your gross yearly income from the building.

Now you'll need to figure in expenses. Appraisers will automatically take about 5% of the gross income for anticipated repairs, and another 5% for anticipated vacancies. I have no idea what water bills are like in your market, but here in Philly in my experience it's been about $25 per month for a 1 BR apartment. So I would estimate about $150 per month for that building, or $1,800 per year. If there are any common areas that are lit, then you would have to figure in a small electric bill (maybe another $25 per month or $300 per year). If you plan on managing the building yourself, then that's fine. If not, then deduct another 7-10% for property management.

Take the gross yearly income, subtract all the expenses I mentioned, and you have your NOI (net operating income). Example below:

Six 1 BR units rented at $600 per month = $3,600 per month and $43,200 per year in gross income.

$43,200

-$2,160 for repairs

-$2,160 for vacancies

-$1,800 for water

-$300 for electric

= $36,780 net operating income