All Forum Posts by: Scott Skinger

it sounds like you might be referring to income tax and not property tax. @John Leavelle is correct about the 50% rule, although you are better off just getting actual numbers and running your numbers on the real thing from the beginning.

LLCs are pass through entities, so gains/losses pass through to your personal return and are calculated annually when you file your personal return.

This is a very important concept to understand. Based on the general nature that you're asking the question, I would recommend that you read up on it, https://www.propertymetrics.com/blog/2013/06/03/ca... is a good place to start. Also search in this forum, there are a lot of good questions/answers regarding cap rate.

Also, it is one thing to know how to calculate it, it is another thing entirely to know how it impacts your purchase price, sale price and the overall returns you can expect on an investment. While I agree with the general sentiment that cash is king and you should make sure that you have cash flowing properties, not paying attention to the cap rate when you buy and overpaying can cost you dearly in a market down cycle if you want to sell or need to sell when a note comes due.

Just looked quickly at your example again. Technically, property management goes above the NOI line and capex goes below. For the sake of modeling out whether or not an investment makes sense, I use 5% for capex reserves that is an expense that goes above the NOI line. My model, which is Michael Blank's spreadsheet, looks like this. Keep in mind that this is a summary page and there are other sheets feeding data into some of the cells.

Directionally accurate, yes. One very big factor in evaluating MU is the assumed cap rate. If you model an investment with the same cap rate 5 years later, you are not being conservative enough and you might have no equity in your building, when you include selling or refinance costs. The rule of thumb I use is to add .5 to 1.5 to the exit cap rate, depending on building, location, starting cap rate and length of hold time.

You might not be looking for this feedback as it is only a hypothetical example, but your expenses are too low. Model in 50% (including capex and pm) and you will get numbers that are more realistic, so use a $50K NOI. This is more conservative.

@Andrew Johnson Thank you! I really appreciate the time and effort you put in to your answer, very helpful.

@Todd Dexheimer This makes sense but do you find that the numbers are comparable? I can see where a mom & pop building has had insurance with the same retail company for 10 years and never bothered to get quotes. But what about larger buildings, 50+ units...are the numbers you are getting from your broker usually comparable to the what the seller was paying?

Agree with @Alexander Felice, at some point you just need to pull the trigger and learn from your first investment.

Regarding CoC and returns in general, I try to do the following:

CoC - 10% or greater

Overall Return - 15% or greater

And I think about the "real world" numbers outside of a spreadsheet. It is easy to get caught up in a spreadsheet and the excitement of buying the property but I also try to consider the following:

-Is my return greater that what I could receive investing in the stock market or an apartment syndication deal?

-how active or passive do I want to be in this investment? Will I learn something from this investment?

-a 10% CoC return in a spreadsheet is great but is the $200/month or $2400/year worth the effort I'm putting in? In other words "Is the juice worth the squeeze?"

Only you can answer these questions for yourself but I like to evaluate the investment inside and outside of the spreadsheet.

Good Luck!

Thanks guys, had this same question and this is very helpful. However, I would like to put these "rules of thumbs" to test on a sample property and get your feedback. I 100% understand that state, county within state, building type, age, depth of coverage, etc., etc., etc. is going to make every property unique, but it would be great to come up with a rough rule of thumb that will allow a conservative estimate. Consider the following:

12 unit in somewhat rural Wisconsin, 6 separate duplexes on one piece of land, priced at $849K.

OM Insurance cost: $6200 (seems high)

Broker proforma: $3000

1.25% - 1.5% rule from @Juan Vargas: $10,612 to $12,735

$250/unit rule from @Gino Barbaro: $3000

The WI apartment deal isn't a traditional apartment building so I tried it on one more building. I analyzed, a 52 unit in Indiana going for $2.65MM:

OM actual insurance cost: $13,619

1.25% - 1.5% rule: $33,125 to $39,750

$250/unit rule: $13,000

Thanks for the feedback!

I had the same questions, thanks for the detailed feedback!

Hey @Sam Garner, I use Michael Blank's Syndicated Deal Analyzer. It's $100 but well worth it. A few things to know about it:

-there is a small learning curve but not bad at all, plus there are plenty of videos to watch to help you understand it

-if you are not going to syndicate any deals, it still works great but you will have to make a few tweaks

-some might think it is overkill for smaller complexes (say 6-10 units) but I'm using it for small complexes as well and I love the detail and thorough analysis

Let me know if you have any specific questions. Also check out the calculator at https://jakeandgino.mykajabi.com/store/zdt9X8o2 if you're looking for online tools that are a little simpler.