All Forum Posts by: Scott Skinger

@Bryant Patterson Thanks for the reply.

Sigh...I get it, but it sure does make it confusing to compare apples to apples when discussing and looking at cap rates. I guess the good news is that the CoC return is the same regardless. ;)

Thanks again,

Scott

Thank you so much for the quick reply Jeff. That verifies what I was thinking. 

Could I get your feedback on the usefulness of the 50% expense rule of thumb (for quick analysis) on apartment buildings? Does the 50% number include capex reserves or is this on top of the 50%?

It is confusing because a couple of different deal analysis spreadsheets I have include capex reserves above the line which impacts the cap rate. You also see capex reserves counted as an expense within these forums when people are asking for feedback on their deals.

Thanks again,

Scott

Hi All, 

I'm new to REI and hoping for a little clarification.

Quick background - I'm looking at 10-25 unit apartment buildings. I found a 10 unit building with 2 retail offices on the first floor that has potential. The offices are leased up (5+ years) and the apartments are 100% filled with very low vacancy. Great location. Offered as a 7.2% cap rate. I have the OM, rent roll and opex. New roof was put on building and all windows were replaced in 2017.

My question is regarding capex expenses/reserves and its impact on the expense % and cap rate. I'm using a general expense estimate of 50% or higher when I'm putting together my numbers and preparing an offer. Included in my 50% number is capex reserves. Using capex reserves as an opex lowers the NOI and therefore the cap rate. I get that I need to have a capex reserve to properly budget my expenses, however, my understanding is that capex is not included as part of opex and should not impact NOI.

The confusion sets in when I look at the cap rate on a deal and the OM from a broker. They have not included capex reserves as an expense, thus there expenses are much lower than 50% (35% in this case) and their cap rate is higher because of this. It seems like they are correctly reporting all of their expenses, they just have not included capex reserves.

Can somebody please help clarify this? I can give numbers if that is helpful.

@James Kojo Thank you, there are some more nuggets in there that are very helpful

@Joel Owens Thank you as well! It is good to hear the real world thoughts and concerns from the broker side and it will be very helpful in rethinking my approach.

Joe,

Can you pm me info or a link please?

Thanks!

@Chris Tracy

BTW, saw your link in the signature, bought your book on Amazon. I will post a review on Amazon after I read it. Let me know if there is anything else that I can do for you.

Chris, thank you so much! I appreciate the detailed answer.

I've yet to invest in a MU property, so this feedback is only coming from my point of view as someone who is running numbers like you, thinking through pros and cons. In your scenario the CoC returns are infinite BUT I would be concerned about how little it is cashflowing and unknown expenses. You have very little margin for error. You would almost need to hold back the cash that you're trying to save (at least some of it) to handle any surprise expenses. Some ideas/thoughts:

-see if the seller will take less down, maybe offer another concession to put less down

-only borrow half the amount from the friend/investor

-be conservative, put your own money down, enjoy 15%+ CoC returns and execute the BRRRR strategy in a few years.

@Account Closed

Why not? Because you feel like the seller is not being transparent? Self-managing? Your experience is that these properties never turn out?

I'm not questioning you, just trying to learn. Thanks!

Hi BP,

Thanks to all for making this such a great resource! Absolutely fantastic.

I'm just getting started in real estate investing. Over the last 2 months I have read and listened to A LOT and my mindset has progressed from SFH to multi-family to apartment buildings. My focus right now is on acquiring a 10-25 unit (possibly up to 50 unit) apartment buildings and holding them for the long term. I have business background (owned/sold a few EdTech companies) and capital. What I'm lacking is experience in real estate which leaves me with some gaps in knowledge that I'm trying to fill in. My goal is to knock out some of these "gaps", one by one. This is my first one below.

I've read/listened (Michael Blank, Lance Edwards and others) about the importance of relationships with commercial brokers. Being in front of brokers, reaching out to them, establishing personal relationships, etc. I want to be top of mind as new deals come in. This much makes sense. However, both Michael and Lance spoke of the importance of not sounding like a newbie by asking the right questions, knowing how to talk the talk and generally making a good first impression but we're a little short on specific examples.

I would love to hear from you if you have experience and specific feedback on the best way to handle a call to a commercial broker. What types of questions are good questions? What types of questions are bad questions for this initial phone call? What is the logical progression of next steps after the initial phone call? If a Loopnet listing is short on details what is a reasonable request on my part at this point in the process? Offering memorandum? Rent Roll? Exact expenses? Is everything on the table?

Any feedback is greatly appreciated! Thank you.