All Forum Posts by: Dave House

Originally posted by Joel Owens:

Is the criteria you have to live there OR can it be any investment ??

I'd be willing to live there but I'd prefer to live in my own single family.

Originally posted by DeuceSevenOff:

I think your cap rate is way too low. In my mind, your cap rate should always be higher than the cost of the debt...

Makes sense; but how much more than cost of debt? And other than being higher than cost of debt, how do you select an "appropriate" cap rate when looking at individual deals, in general?

Originally posted by DeuceSevenOff:

... or you are getting debt-like returns for equity-like risk...

What's the difference between debt-like vs. equity-like investments and their risk/returns?

Originally posted by DeuceSevenOff:

Either the cost of your debt is too high or the cost of your equity is too low. I'm thinking the latter.

I understand the concept of the cost of my debt being too high (7.5% my landlord wants to hold note) but if you'd help me understand what you mean by "cost of your equity is too low", It'd be very helpful. Thanks!

Hey thanks everyone, I thought it might be pretty low and you'll have to excuse my newbie ignorance but I wasn't even sure if I was looking at the numbers properly...but I guess I am. I've been renting here 12 years and have a good relationship with the owner but he has defintely done things on the cheap, for the most part, which reflects in the quality of tenants he's been renting to the past 5-6 years and obviously the rent he can charge as I've seen other rents in the area higher than he's charging.

The property is right on the fringe of a really nice family type neighboorhood with a little park and some other small MF's as well as retail nearby but the owner has not really added any value to the property since I've been here but like Mark said...he IS 75 and he complains a lot about landlording. ;)

>>>Dave how much land are those 2 buildings sitting on??
The lots are actually kinda small, the larger one is 8,390 sq & the smaller one is 6,757 sq

>>>What about deferred CAPEX?
I thought the 50% rule accountanted for a certain amount of CAPEX. The smaller building probably could use a new roof soon er than later but the larger one's roof is 6 years old.

>>>With that much money you should be able to leverage yourself into a much larger project.
I'm all ears...My goal is to stop paying rent ASAP and start cash flowing enough to cover living expenses. If the numbers had worked, I could've seen holding these buildings and renting the units for at least 5-10-15 years or until if and when the market turns, then possibly convert them to condos and sell the units with seller financing.

I'm looking at buying the apartment building I'm currently renting in & potentially the building next door with seller (same seller for both buildings) holding note @ 7.5%. The 2 multi family buildings fit together perfectly on side by side lots as if they're one complex with a courtyard. I have a 762 FICO and can put up to 25% down on both buildings.

Some instant appreciation may be attained by updating the units and a Community Redevelopment Assoc has begun improving the nearby (less tan 1/4 mile) beach access road to attract more businesses & beach goers, which hopefully will also lead to added natural appreciation in time, once completed.

So, am I doing these numbers the right way and what are your thoughts about this potential deal(s)? Thanks!

BUILDING #1
Built 1969
Current Owner Purchased in 1977 for $142,500
10 apartments; Two = 2BR/2BA, Eight = 1BR/1BA

INCOME APPROACH
$67,500 PGI x .50 = $33,750 NOI / 0.075 (Min 7.5% CAP Rate Desired) =
$450,000 Estimated Value

CASH on CASH RETURNS
$67,500 PGI x .50 = $33,750 NOI - $30,206.04 Debt Services =
$3,543.96 Before Tax Cash Flow / $90,000 Down Payment 20% x MAO =
0.039 Cash on Cash Returns

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BUILDING #2
Built 1973
Current Owner Purchased in 1989 for $157,000
Legal 3 family; Two = 2BR/2BA & One = 3BR/2BA (Currently being rented as three 2 BR's + 1 Effic)

INCOME APPROACH
$31,800 PGI x .50 = $15,900 NOI / 0.075 (Min 7.5% Cap Rate Desired) =
$212,000 Estimated Value

CASH on CASH RETURNS
$31,800 PGI x .50 = $15,900 NOI - $14,230.44 Debt Services =
$1,669.56 BTCF / $42,400.00 Down Payment =
0.039 Cash on Cash Returns

---

BUILDING #1 + BUILDING #2
INCOME APPROACH
$99,300 PGI x 0.50 = $49,650 NOI / 0.075 (Min 7.5% Cap Rate Desired) =
$662,000 Estimated Value
vs.
$721,210 Tax Assessed Value

CASH on CASH RETURNS
$99,300 PGI x 0.50 = $49,650 NOI - $44,436.48 Debt Services = $5,213.52 BTCF / $132,400.00 Down Payment of 20% =
0.039 Cash on Cash Returns