All Forum Posts by: David Alvarado

Welcome Paulo! 

I too am looking at Hagerstown primarily for multifamily and am always available to bounce around ideas or just to network. Don't hesitate to reach out. Best of luck! 

Welcome @Jennifer Nwadike. I too migrated from South Florida last year but am in the DC metro area.  Bigger Pockets is a great way to network and meet like minded people which is what will ultimately build your business. Don't hesitate to reach out with any questions or just to connect. 

Best of luck!

Cap rates give a broad picture to an investment and based on my past valuation experience looking at secondary and tertiary markets I'd expect close to double digit, if not a little higher for Dover. This is highly dependent on the property fundamentals, financials, location, etc. 

As previously mentioned, for smaller properties looking at cash flow and running the numbers will be very useful and doesn't take the cap rate to do. In my experience cap rates in core markets, like LA and New York, may apply to smaller properties, but may not apply to small properties in other markets with less sophisticated investors. 

For your 5 unit example Id stick to running comps, your proforma, and finding a price that makes sense to meet your investment criteria. Hope this helps!

My first advice would be to seek a 1031 attorney as they will help guide you through the process. I can't answer all your questions but here is a link to 1031 information from the IRS that should help:

https://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031

For 2, 3, and 4 unit properties I typically focus on sales comps first and then back that up with my investment criteria and the returns I'd want to make. You'll want to know what the market rents are, all your expenses, and where your demand is coming from; but cap rates at properties that small typically can be tough to compare and buyers at those price points typically don't put much weight on that metric from what I've seen. 

Something is going on in the financials. They need to be broken down and torn apart to realize how the property should operate moving forward. Before you completely dismiss it, I'd ask the broker to have the sellers provide you with some historicals - you'll typically want to see three years - 2014, 2015, and TTM at least.

The economic and actual vacancy look a little light compared to what I think you should underwrite at. I don't know your market, but I would do some research there to get comfortable with what you can expect moving forward. Bad debt can be around 1% - 5% depending on the location and class of property. Vacancy can vary as well by market. Next, you shouldn't include income from interest - ~$30 in the sheet. The other income line items look fine.

The expenses also need some cleaning up. Do not include the interest paid out, that does not get factored in when calculating value using a cap rate. Some of the maintenance and repairs, specifically the HVAC expenses look a little high and may have been one time costs that they are not allocating correctly - should've been capex if that was the case. Worth a question if you're serious.

Also, as someone mentioned their payroll looks excessive and for 56 units you may not require two people on site depending on the condition of the property. I'd say, one full time and the other part time for maintenance should be sufficient. I typically account for 2 full time persons for around 100 units. Overall the expenses are $4,400/unit based on the TTM figures, which is a bit on the high side for what I'd consider an efficiently operated property. I've seen near this figure and it was realistic but I think it is worth getting more information on before you draw any conclusions. Typically multifamily operating expenses can vary anywhere from $3,600 - $4,400 a unit - this is for quick scrub purposes and you should always run through your own underwriting before making an offer. 

I backed out the interest income and expenses and came to a value of just over $1.1M based on a  7% cap rate. With a better understanding of how its being operated this may or may not be a good deal.

Hope this helps!

Check out northmarq.com/multi-family-rates

And crefcoa.com/apartment-loan-main.htm

Keep in mind there are minimum requirements for Fannie and Freddie multi loans. I'm not sure what size properties you're looking at but something to think about. I'd recommend developing a relationship with your local bank that knows your area as they will be most comfortable with properties you are looking at and will likely work with you better than a larger bank or brokerage - this is assuming the product you are interested in is catered to more local investors and not the regional and national guys.

At the core of it, for multifamily you'll want to be sure the DSCR is adequate. Banks will want at least 1.25x coverage and that is for superior class A product. Be a little conservative there if you're looking at B/C product. If you have to run with a rate, I'd run a few scenarios to see how the property covers the loan, for example between 4% and 6% would likely be safe (assuming no major issues) to see where that puts you. Hope this helps!

Congrats and that is a great mantra to live by! With risk comes potential for reward and consequence - more so potential for reward when t is calculated risk. I believe as investors we have to have the mindset to take that reward or consequence and make the best of it and learn to move forward. Keep doing what you're doing! 

I'll piggy back on what everyone is saying and say that multifamily can be a great way to grow wealth and have steady income but beware that once you enter into the realm of larger properties you are going to want to build out a team you can trust, as I'm sure your mom won't want to handle multiple units turning, potential evictions, capex scheduling, etc. Typically for a professional team in the underwriting I've done at work, one person in the office and one person out on the property can handle 100 units.

With the $1M to invest there is nice potential to acquire a property in the $3M - $4M dollar range, which could get you 60-80 units assuming around $50K/unit acquisition. I'd identify more on where you are looking to buy, what type of property (garden vs mid-high rise, etc) and potentially link with a broker in the market you want to work in. From there you'll have to scrub the numbers provided and determine what acquisition basis makes sense and follow the procedure to do all your due diligence before going under contract. Due diligence on the front end is imperative with these larger properties as you'll want to identify near term and long term capital improvement costs and what sort of reserves you'll want to have set aside among identifying other potential issues that might arise. Feel free to reach out if you have any specific questions or need a second set of eyes on a potential deal. Good luck!

Welcome Scott! BP is a great resource for finding like-minded people to bounce around ideas with and learning about creative ways to structure deals. 

Additionally, the DC metro area is a great place to have access to a wide variety of different investments depending on your criteria. Best of luck to you in your investing!