All Forum Posts by: Daniel Jenkins

@Daniel Jenkins Hi Daniel, it is important to walk all the units to evaluate the CAPEX needed so as to make an informed decision.

@DanielJenkins, Remember Value = NOI/ Cap rate and Cap rate= NOI/Value

Your original post indicated no update is needed. Assuming your expenses are 50% of that $600/month... your NOI is $300×12 apartments x 12 months= $43,200 yearly. If you paid $900,000, your caprate is NOI/VALUE Or $43200/$900,000= 0.048 or 4.8%. If you increase your rents to $750/month, keeping your expenses constant, your New NOI =$300+$150=$450 ×12 Apartments x12 months= $64,800.

As Value =NOI/Caprate, your New Value =$64,800/4.8%= $1,350,000 an increase in your $900,000 investment of $450,000. Not a bad ROI at all in my opinion.

Nice unit mix. should rent well. You will need to budget for the rehab. If your 100% leased then for sure the rents are too low. 

I wouldn't worry about cap rate. If it cash flows and hits your returns, thats all that matters. 

If I were in early stage of my career and wanting to grow fast, I would do fix and flip houses until I had about $500k in cash, then passively invest most of it while I continue to fix and flip houses on the side to create more cash to invest

Cap rates going in are almost meaningless. What makes a difference is an exit cap rate. If similar properties continue to sell at 4.5% cap rate in 5 years and your NOI grows to $100K, you may reasonably plan your exit at 5% cap rate and get $2M upon exit.

If market cap rates increase to 7% you're sill in good shape at $100K NOI but not so much if your NOI is below $70K.

Can you grow NOI to $100K? That depends on how much you can increase rents and how you control expenses.

@DanielJenkins,

Use the CRE formula, Value(Price)= NOI/caprate.

Get the actual expenses pd from the sellers actual tax reports to calculate how much of that $600/unit rent goes to expenses... to calculate an actual Net Operating Income (NOI).

The caprate for your zip code can be retrieved from a local CRE agent....Google estimates an average of 4.8% for the Charlotte area.

That being considered, given absence of other hidden costs, this looks like a good deal on the surface. Raising your rent by $150 & NOI by 25% will increase your value by $450,000...

It's hard to evaluate without having the financials, but if we assume 50% expense ratio, looks like a going-in 4.3% cap and a stabilized 5.4% cap. How are you planning to fund it? You own money, JV, syndicate?

A going in cap rate of 4.3% doesn't bother me, but there just doesn't seem to be a lot of upside if the stabilized cap is 5.4%. I would just get very clear on what your target returns are and then determine if this deal fits that criteria.

You did not mention expenses and financing. 

Rehab cannot be zero unless it's a brand new building. You need to bugget for unit upgrades up front and have that money available when a unit becomes vacant. 

Budget at least $5K/unit for a light rehab. 

The cap rate for this deal is between 4 and 5% depending on the expenses. Is it at, above, or below market? You need to ask local apartment brokers to for market cap rates. 

@Daniel Jenkins usually a hard money lender (HML) will lend you about 75% of the ARV. So in this scenario you would receive a loan of $187,500 (or so) from your HML and come out of pocket the rest. Then you would refinance that HML into a long term loan on your REFINANCE step. That's the basic outline of it at least. I hope that makes sense.

@Daniel Jenkins there are fix and flip programs that lend up to 90% purchase, 100% renovation funds but not to exceed 70% ARV. for your case, max loan amount would be 175 (70%of 250). But this would allow you to purchase and renovate the property with little cash down. DM for further questions but this program lends in NC.

Very helpful! Thanks, Jonathan. Will reach out via DM