All Forum Posts by: Edmund Chiang

Hi Guys, need a little advice/insight on a potential power move:

1) Currently just closed on a 16 unit multifamily in MA by the following method: $250,000 cash and $500,000 cash out refinance from our personal residence single family home. As such, this commercial property on paper was a cash deal and does not have a mortgage attached to it. (our personal residence does)

Gross Income: $170,000

Net Income: $90,000

Debt Service: $28,000

ROI: $62,000

Thinking about doing a cash-out refinance of $500,000 from this commercial 16 unit building to buy the following 2 multifamily buildings also in MA. This would incur an additional $40,000 in Debt Service to Property #1.

2) 30 Unit Multifamily (Stabilized) Fully occupied (Massachusetts)

Gross Income: $290,000

Net Income: $145,000

Debt Service: $55,000

ROI: $90,000

3) 32 Unit Multifamily (Stabilized) Fully Occupied (Massachusetts)

Gross Income: $275,000

Net Income: $135,000

Debt Service: $55,000

ROI: $80,000

So effectively by cashing out refinancing I would be able to buy two more properties and increase the following:

Gross Income $170,000 to a total of $735,000

Net Income $90,000 to a total of $370,000

Total Mortgage Balance: $500,000 to a total of $3,000,000

Debt Service:  $28,000 to a total of $178,000

ROI: $62,000 to a total of $192,000

In terms of pure cash out of pocket of $250,000, making $192,000/year with that would be 76.8% Cash on Cash Return (ROI). Let me know if I missed anything or any potential risks, pitfalls or simply a don't do it reasoning!

Best Regards,

Edmund

I would double check with the insurance companies that you are dealing with. I talked to both Geico which offers umbrella insurance and also a commercial insurance broker. Both parties told me that umbrella insurance would cover personal liability such as a car accident, personal injury, slander, etc. Anything to do with an investment property or business would not be covered. As such, most people get both an umbrella and also a professional/real estate liability covered. It does not hurt to ask...

Hey Guys,

Need a little guidance on this one. I recently purchased a 16 unit multifamily that is cash flowing well with a Cap rate of 11.3% and 21.5% ROI. The tenants has expressed a frustration with the parking situation because there are 16 units and 16 parking spaces in the rear of the building which means each unit is entitled to a spot which currently is free. Some tenants have more than 1 cars and therefore take more than one spot. This leaves a tenant that comes home late without a spot. My thought today was to have each space numbered and give each tenant one parking sticker. If they violate the parking rule than the car will be towed and the expense of this towing will fall on the perpetrator. I was planning on charging $25/month for a parking spot which I think is reasonable for a parking spot in this market area. $25 x 16 units = $400/month or $4,800/year. At a cap rate of 11% that would increase property value by $43,636. The previous landlord said he thinks the tenants will take exception to this new parking rule. The tenant base is 75% section 8 tenants. Should I charge for a parking space or should I just let it be free but have assigned parking spots anyways and therefore each tenant has each spot with no fee. Please Advise!

Thanks in Advance,

Edmund

Thanks so much Kim I appreciate it!!

10% downpayment? isn't it usually 20% for condos? Also your calculating that after 2 years you have paid $49,200 into mortgage so that your considering it to all be equity. Roughly $9,000 equity added and the the rest ($40,200 is interest). If you sell your property with a realtor that would obliterate your equity gained. Lastly, something always comes up so you always need to factor in some buffer.

Hi Guys, 

I recently acquired a 16 unit multifamily and had a very interesting dilemma. I kept the existing management company and they are holding 1/2 of the tenant's last month rent and the other 1/2 was cut out to us at closing.  Do we give the 1/2 that was given to us at the closing to the management company or do we request the 1/2 from management company. My thinking is that last month's rent is future income that is due to the landlord. Why should the management company keep that money. Maybe for accounting purposes? Please advise.....just a little confused. Thanks in Advance!!

Edmund

I've been a Residential/Commercial/FHA appraiser for over 15 years. Your house looks great but sometimes issues might arise that would prevent it from being FHA insured. Sometimes those issues can be remedied but it might be costly in money and time. The second point is that you are on the top of your market and therefore really depends on the appraiser doing the appraisal. He might be generous and give you a nice value or he might come in several thousand lower. It all depends on the AMC that has hired the appraiser and also if the appraiser has been reprimanded or fined recently and may come in more conservatively. Another issue to consider is that the value is going to be very high due to a bidding war which may not be substantiated with recent sales. Even the most recent sales are about 3 month delayed due to closing time and therefore in a rising market can mean the difference between a property appraising at value or below value. I personally go with the cash offer. The financing deal even though is higher in value has a certain degree of risk in it. Also if you close lets say a month or two earlier doesn't that constitute mortgage/tax/insurance/utilities savings or at the very least opportunity cost for other ventures?

I don't know if the tenant would be paying for these but here are a few more expenses to consider:

Electricity, Heating, Gas, Water, Sewer, Landscaping/Snow Removal, Pest Control, Trash, Professional Fees (Accountant, Eviction Lawyer)

Can you give us the gross rents for this house and your total expense list broken down? (Tax, Insurance, Utilities, Etc.) Also let us know the Sales Price, Down Payment and loan interest rate and term length?

I think we all know that real estate is not that easy because of tenants but my example is a very simplified overview of the benefits of RE investing and some of its economic potential.