All Forum Posts by: Trevis Kelley

@Michael Seeker   Yeah, I worded that wrong.  I was pretty confident that's what it was, but I saw a couple of forum posts talking about it being income minus mortgage (or I dreamed them up), and I got confused.  After your initial explanation, I was confident that's what it meant.  I was trying to say that what I read about it being mortgage only was wrong, and that I needed to go back to it being income - expenses (no debt service).  Thanks for the heads up, though!

@Roy N. 

Thank you for the info. I know that CAP rates are almost impossible to come by. It seems like everyone has their own opinion on what NOI is, and it seems to be a nebulous term without much real meaning. I may have to just do GRM on this, and see what I come up with from there. I'll let the accountants handle the fun tax reporting stuff (of course, I will be consulting them the whole way through this process as well as tax lawyers). All I care about is getting a property that cashflows, and solving any issues that the owner may have so that he feels comfortable moving forward. That way, we can both win and I can finally get into the real estate game. That may not have anything to do with the properties' "value". I will try that approach first, as it is likely the the retiring investor is motivated to see this property gone and be able to do whatever in his retirement.

All in all, valuation seems to be more complex than is probably needed, and solving the owners problems while getting what I need out of the deal seems to be simpler to me.  Just the way I am wired.  I am a problem solver.

CAP rates that I have seen based on 5-20 unit MF listings in my area have been between 7-8%. Now, this is based on listings (and my own calculations/assumptions), and I am aware that those do not necessarily represent the actual purchase CAP rates. However, I do have to start somewhere with this.

I am mainly just trying to get confirmation that I know enough to be able to say to the owner that I need to get the property at X price for it to fit into my standards, or I need certain concessions to make the deal work better (like seller financing or carry-back of about 15% or so for down payment so I don't have to share cashflow with my dad). It sounds like NOI should be more than just the mortgage, although there is still some disagreement about what all should be included in the expenses side of things.

@Michael Seeker   Thank you for your response.  I am in the process of finding the comps in Trulia so that I can show those to the owner as well.  I am not finding a lot of 10 unit places in my area, but 12 units seem to be popular.  I will do my best to calculate both ways and see if the numbers are at least similar.  Maybe then I can show the owner that he's overpriced both ways, but of course, he probably already knows this.

That leads me to another question.  Why would a retiring investor be trying to sell a property to other investors at such a high price?  Is he hoping that some sucker will come along, or is he trying to find a smart young investor that he can work with?  I guess I will be finding out the more I work with him.  I will have to just go there, offer what makes sense, and then let the cards fall as they may.  Once I get the values worked up, I will probably be posting this under the analysis section to see if what I am looking at makes sense.

Hi!  I have only posted here a couple of times, mostly because I like to find the answers on my own.  I am having trouble with MF value.  I have read many, many forum posts, blog posts, and heard it talked about again and again on the podcast, but I am thick-headed in some things and this seems to be one of them.  I am currently looking at an MF that is being sold by an investor who is retiring.  He's been in the game for 40 years and wants out.  I see this as an opportunity to be able to come at a guy with numbers and walk away with a deal that will cashflow decently while at the same time giving this guy the ability to retire from a solid investing career.  Here's my issue: it only cashflows at 35% equity or more.  I am new to the game, but I see that as a problem.

I will post this deal later for analysis, but right now, I am trying to figure out value for the property. I understand the NOI/CAP rate, but I cannot for the life of me figure out why that would be important. I also do not understand NOI. Sometimes it includes all expenses, sometimes it seems to be income-mortgage, sometimes it seems to cherry pick. And here I was thinking that MF values were easier to determine. So, back to my question: how should I come up with a number to show this retiring investor?

I could determine based on CAP rate, but it seems like the thing should at least break even at 0% and be pretty cash rich at 20% down. Is that pie-in-the-sky dreaming by me? Or is that what everyone else is seeing? Shouldn't value be more determined on where the property breaks even? I know I am bucking the system (I tend to do that a lot), but it doesn't make sense to me, and I am beginning to get frustrated. So, I thought I would turn for help. I would really like to buy this at a price that cashflows for my partner and I (OK, I admit it - it's my dad), but I really don't want to put more than the normal 20% down.

Any and all advice is welcome!  Thank you BP community!

 Lol, great minds think alike.

I am also interested in this.  I just saw a webinar by him, and am considering a trip to Dallas (semi-close to where I live and have family there to stay with).  I would love to hear if the trip is worth it.  If I don't, I will probably go to see what it's all about.  Apartment complexes is somewhere I would want to be eventually, so this might be a good fit.  I have a feeling that it's some kind of high-pressure "buy my mentoring" sales pitch, though.  Might be a good trip just to see family if not.  At least it wouldn't be an entire waste of gas otherwise...  If I go, I will let you know how it goes.

@John D. @Hattie Dizmond @Bill Jacobsen @Bram Spiero 

Update to the update: I received a phone call from the owner today. He was calling me to tell me he wasn't interested in anything less than $20,000. He is trying to get enough out of the house to pay off a HELOC he is currently paying on. He doesn't like making the payments, but he isn't struggling to make them either. He says the rent pays the bills. When asked why he comes back for 60 days to sell it then, he says that his kids live near here with their mother and he comes back to visit them as well. He does this twice per year, and would probably do it even if he didn't own the property. Wow. Talk about a great learning experience.

Most of the info I got about the owner was from talking to the neighbors. None of them mentioned kids nearby. The owner was very nice, and I told him that if he ever decided he wanted to sell for that price, to contact me. So, first deal fall-through. Time to start looking again! After the call, I took a ride around town and wrote down addresses to all FSBO signs I saw. Did not see any "For Rent" signs. You can bet I will be on here with my next deal info when I find it. Thanks for everything. I know that I will be successful when I finally do find my deal because I have the backing of everyone here!

@Bram Spiero Thanks for the outlook.  I guess I will just wait and see what the owner does.  I know now not to counter or accept anything that's been countered.  I may have made the beginner's mistake of underestimating costs.  I will definitely be updating as this deal develops.  You guys have been great!  Thanks!

@Bill Jacobsen 

@Bram Spiero 

I am only trying to get my feet wet for now.  I am not feeling ready to jump in a huge property just yet, but I figure a small win will give me confidence in what I think I know.  I will feel better about bigger purchases once I know that my analysis of the numbers work.

I am going to do my own property management as I already manage my parent's properties (but I probably ought to figure that in, just so I am aware of that and then know that I am paying myself).  Vacancy is definitely something I need to add to my spreadsheet.  Thanks for that.

Update:  I sent the offer to the seller using an offer letter from a local realtor (both my parents and I have worked with her so much that she is almost family).  I offered $12,500 w/ seller financing, zero down, zero interest for 10 years.  I am waiting to hear back, most likely will happen next week as it will take a bit for the letter to get there (I sent it snail mail).

@Hattie Dizmond I would like to do that, however, housing prices in the bigger towns in my area have been booming as of late.  I am 3 hours from Kansas City, and I just don't feel comfortable investing that far away yet.  I have been watching some real estate in Wichita (which is about an hour from where I live), but haven't seen anything jump out at me that I would be able to get (would have to stay around $125,000 to hit that 80% mark).  I am not sure what other areas you might be talking about.  Again, this is about building that cashflow to be able to gain more capital to use on a bigger property in a better area.  I would like to get into multi-family as it seems like that's where the real cashflow in this area is.  If you know of any areas in the central Kansas area that people are making money, I am certainly willing to investigate.  This property just seemed like a good, solid start to making some cashflow and building equity.  I think of it as getting my feet wet.  Trying to not go too big for my first deal until I get a handle on what all the numbers mean.  If I screw up a $15,000 deal, it's easily recoverable.  If I screw up a $125,000 deal, not so much.

@John D. That is a pretty good idea.  Loan options are available through a local bank here.  They are the only ones that I have seen that will mortgage as little as $15,000.  However, they will foreclose in a heartbeat and they don't make it easy to get the loan in the first place (at least from what I hear).  I would be able to cut through a lot of that with seller financing.  That may be what I do once I get my first multi-family.  That would give me the chance to start focusing on collecting those multi-family properties.