All Forum Posts by: Christopher Cruz

Hey @Brandon Turner ,

Thanks for the in depth analysis! The Rental Property Calculator looks great. I like the conservative approach you took with incorporating vacancy exp, repairs & maint, cap ex, and property management. They add up to 35% in additional operating expenses - I don't know if I'll be able to find any cashflowing properties in my market (New York, CT, NJ) due to price of real estate when factoring in that extra 35% - maybe I'm just not looking hard enough, or in the right areas.

When you're running a quick 50% analysis as a preliminary calculation, does this 50% include the 35% mentioned above?

I like the idea of of offering 150K, but considering the guy bought it 6 years ago for 176K I doubt anything will materialize from an offer like that. I'm still planning on visiting the property tomorrow to get more experience with showings. anything in paticular to look out for?

I also like the creative thinking about 50% down on $186 will create CoC return of 4.9% which is better than money sitting in the bank. However, I would rather leave my money in the stock market and hold off for a better opportunity.

I'm a little out of ideas in terms of where to look for the golden investment MF property over here in the NE. I know you're over on the west coast, but maybe you have heard of areas that are good for starting up over here?

I appreciate the time you took to put together that PDF. It's awesome seeing how helpful everyone is here at BP. Thanks!

Hey Joel!

Thanks for the response. When using "rentometer" middle 50% 2br/1ba came in at 900-1200, so 1305 is a little high. The units are very well kept and in great condition. When looking at the lease agreement it shows section 8 tenant Rent at $1305 then a utlities reimbursement at -$105. So that means the net rent for that unit is 1200? - I've never seen that before.

I will check into rates of increasing property taxes, and utilities. Maybe I can change the month to month tenants to pay for water and sewage as well. It was explained to me that owner pays electricity for section 8 tenant because its connected to the same box as basement electricity; the basement has common washer/dryer that owner pays for. An electrition could change this pretty easily I would assume.

Thanks for advice on mortgage - thats what I thought, just wanted to make sure.

I posted that I just receieved the schedule E's after you posted. They verify rent receieved - what I found interesting is that they also verify LOW OPERATING EXPENSES.

Thanks for feedback Joel!

Thanks for your input Bill. Good idea incorporating vacancy expense - I knew I left out something. $186 sounds like a fair offer - also close to the tax assessment.

I just got my hands on the Schedule E's from the owner. Repairs and maintenance from 2010-2012 avg in at $872. Rents are verified. Op expenses seem oddly low.

Hi Guys -

The past two years I've been gobbling up information on all things real estate - specifically buy and hold MF (1-4) in the low-middle income space.

I have finally come across a property that I believe will be a great first investment property and I would like to share my analysis and thoughts to get some feedback and guidance in how to make an offer as well as best way to structure my financing (30 yr fixed, 15 yr fixed, etc.). I have an appointment to visit the property on Saturday, and if all things go well I will be hoping to make an offer within the next week.

Property: Listed at $200,000
3 Unit MF, fully occupied.
Tenant 1: Section 8, $1,305/month. Just resigned 1 year lease.
Tenant 2: $1,000/month. Month-Month lease
Tenant 3: $800/month. Month-month lease

Each unit is individually metered and tenant pays utilities except for the following:
Electricity for section 8 tenant only (2,100/yr)
Water + Sewage for entire house (1900/yr)

Property Taxes: 7,808
Insurance: 1,500 per year

Summary: (annual basis)
Rental Income: $37,260
Operating Expenses: $13,308 (35.7%)
NOI: $23,952
Mortgage 30 yr @ 5%: $10,307
Net Income: $13,645 $4548/Unit

The following expenses were receieved from the owner. I realize that operating expenses at 35.7% are unrealistic. Even after adding 10% for repairs, maintenace, and reserves puts this property at 45.7% - I would still be very happy with this outcome.

To dumb down the wishful thinking (and numbers) I reassessed with operating expenses at 50%:

NOI: $18,630
Mortgage 30 yr @ 5%: $10,307
Net Income: $8,323 $2774/Unit ($231/Unit per month)

Even with operating expenses at 50%, this property seems to be a cashflowing cow.

The month to month tenants have been there since 2010 and 2011, they were recently switched to monthly leases when the owner decided to sell the property to allow more flexibility to the potential buyer. The section 8 tenant was resigned for another year due to nature of the tenant.

Roof and chimney was redone in 2009, new gutters installed.
Plumbing was replaced in 2009 (main stack and drain)
forced hot air furnaces for 1st and 2nd floors - 2004
Electrice baseboard for 3rd floor
all hot water heaters replaced within the last 6 years

Everyone is up to date on rent, and he is willing to provide me with signed statements for verification. However, he will not provide bank statements to verify.

When I asked for schedule E, he did not want to share his tax records. I think he misunderstood what I was asking for. The broker said he is going to speak with his client to try and obtain these.

I have a copy of all 3 lease agreements and they look good and clean. Everything the owner has told me was on point.

The owner is selling in order to liquidate to flip houses. He sold another 3 unit less than a mile away 2 months ago.

The owner bought the house in foreclosure in 2008 at $176,000
The house was tax assessed $185,000
The asking price on the house is $200,000.

I would appreciate all and any feedback, criticism on analysis, important things I left out, major questions to ask when visiting the property on saturday. Basically would like to have everything covered, and because this is my first I'm sure i've overlooked/missed a good amount of things.

I would also like some guidance on how to go about offering for this property. In the analysis I provided above I assumed I offered asking price at $200,000 with 20% down. The cashflow gets even better when purchasing the property for $175,000 which I originally modeled it at.

Is it out of line to offer $175,000 when they acquired the property for $176,000 in 2008 and it is assessed at $185,000? The house has been on the market for 15 days - so I feel like I have a good chance of purchasing this property, I don't want to miss the opportunity with a lowball offer. I want to offer a fair price that works for both parties. With that being said, I would like to pay as little as possible =).

Lastly comes the financing. I'm beginning to shop around for mortgages today and what I have in mind is 30 year fixed mortgage to take advantage of today's rates. If you guys have any creative ways or better ideas on how to go about purchasing this property I would love to hear feedback. Keep in mind I have enough liquidity to put down 50%. Do I put as little down as possible to remain liquid for another purchase?

I know this post was long, I just wanted to be thorough. I'm sure I forgot some things out so just ask if I did. I appreciate everyone's time and feedback.

Thanks
-Chris

A few of you may have read that I'm on the prowl for my first investment inreal estate. I'm patient and have no problem waiting for the perfect property.

However...

In the later half of 2013, once Bernanke is no longer holding the rates down, IR will begin to rise.

My primary concern is the effect rising interest rates will play on CF strategies when acquiring real estate through the means of borrowing.

Just wanted to start a discussion and get different perspectives on the topic at hand.

Thanks guys!

Ivan Alfaro Haha ohh man, that must've been some experience! The building I was looking at was in East Humboldt, Chicago. (West of pulaski) Google search says it all.

Brandon Turner Thanks for the great feedback!

The numbers did work out, and from the pictures provided the property did seem to be in good shape. If my partner and I were to follow through with this deal we would've most likely put the 20% down to reduce payments and retain more equity in the property. (any thoughts?)

As we did further research of the neighborhood, as opposed to the city, we discovered that this was one of the worst parts. It is said to be gang ridden. Apparently in March of 2012, there were over 67 shootings in this paticular neighborhood and surrounding areas.

As a first investment, we decided to stay away from this property and continue the search. Dissapointing, but definitely a learning experience.

On to the next one.

Thanks guys!

Joel Owens okay, so simply ask the seller. I'm assuming if he doesn't have them on hand he would contact the owner?

What move would you suggest if they are unable to provide me with these records.

Thanks again!

Joel Owens Thanks for the great feedback! this is a great and simple way of calculating NOI, and purchase price at 10% cap rate.

I will definitely be inquiring about the list of questions you brought up.

Will the seller of this property be able to provide me with schedule E returns? Is that standard procedure? What if he tells me he can not? (I do not know if the seller is the operating landlord, what if he is just an agent)

You brought up a great point about verifying deposits made into their business account. How would I go about doing this? Again, is this standard procedure? What if he tells me he can not provide this information.

Thanks again for the thoughtful and informative feedback! This is exactly what i was looking for!

Hello and good evening everyone!

Long time reader, first time poster!

I've been keeping an eye on 4unit multifamily unit buildings (to stay qualified for FHA loans) in markets that I am interested in/would be alright occupying my first property in.

Tonight i found a listing that seems a little too good to be true! Here are the following financials listed:

Year2012
Scheduled Gross Income$42,600
Effective Gross Income$40,740
Operating Expenses$10,088
Net Operating Income$30,652

listing claims the building is only 75% occupied (3/4 units). Solid brick building, 3 car iron fenced garage. tenants pay for electric and gas. A new roof was installed in October 2012. Hard wood floors were placed in the building 3 years ago.

The property is currently listed at $140M, listing claims county assessor valued the building at $330M. Discount is due to "need for fast sale."

My calculations: (approximate)
Bought at 20% discount of asking price (110K)
20% down = 88M mortgage
Even with 100K 30 year mortgage, payments will be less than $450 a month.

NOI - 5400 (annual mortgage payment) = 25,252 CF/year (roughly 18% cap rate)
CF about $2100/month
2100/4 = $525CF/Unit per month
(my calculations even assume 100% occupancy is generating this CF/unit calculation. listing claims its 75% occupied.)

Questions:
How accurate are provided financials in online listings?

Do these "operating expenses" include taxes, insurance, etc.?

Is it in my novice nature to assume this deal is too good to be true - or is that the general consensus?

I contacted seller and I am waiting to hear back -> What list of questions should I have ready when i speak to the seller?

My concerns:
Fluffed up financials/completely inaccurate

tenants pay for electric and gas, i'm assuming this is an old heating system. Do I ask the seller about this? What would be a rough estimate of the cost of replacing a heating system for a 4unit 4500 sq ft building?

New roof installed -> was the building leaking? is the new roof doing the job it was replaced for?

Hidden expenses?

When was the last time the pointing work was done? if roof had to be replaced, does there need to be brickwork done?

I guess i'll start it there and see what everyone thinks. Any and all information/feedback is much appreciated!

Thanks