All Forum Posts by: Giovanni Isaksen

@Brian Sealey NPV like IRR ard DCF are great for convincing an investment committee, outside investors or sophisticated jv partners to come on board a deal because they're comparing what you're offering to what other shops have. But, if it's just you in the deal and/or the property is a fourplex that kind of analysis is total overkill.

When you go to a bank for financing they're not running those kinds of numbers because what's really important is that they're comfortable the property will throw off enough cash flow to cover debt service with a margin of safety and be worth enough that they can recover their principal if you default.

Those two things should be an investors main concerns as well; does the property comfortably throw off enough cash to make it worth my while and will it be worth more in the future than it is today? If the deal is an income property, i.e. 5+ unit apartment building, self storage facility, mobile home park, office building, retail center, etc then the value can be calculated from the Net Operating Income capitalized at some given rate. If the property is a house, duplex, triplex, fourplex (some say anything under 10 units is a plex) it's value will be determined by comps and therefore isn't an income property that running numbers on will produce anything meaningful.

And speaking of meaningful numbers one of the biggest problems with NPV, IRR and DCF is that the results are very influenced by things that happen in the future, which is very difficult to predict. So much of their returns are generated by what amounts to educated guesses and so much of a property's return is generated by how it is operated that the two can be pretty incomparable.

Good hunting-

@Bridget Smith-Osbourne With those rents at a 10 cap figuring 10% vacancy and 50% for operating and capital expenses, it should work. Especially if it can be financed at 70 LTV in the low fives-

Note this quick crunch doesn't include acquisition costs or initial CapEx for immediate repairs but for a first pass the numbers look ok.

Good hunting-

Thanks @Account Closed for the detailed reply. The B and C stuff that I looked at with a client last year with in PHX seemed a little rich even then given the amount of deferred maintenance and the intensity of management required to turn the properties around. Maybe I'm a little spoiled though because another client was picking up REO product there in 2010 and 11 that they're now exiting with good results for their investors and the distressed pool has pretty well dried up it seems.

Great stuff on the link to the WPCarey brokers forum. I'm on their distro list and am waiting for their next edition. About a year ago they did a presentation called Phoenix Housing Market Explained where they said that in the next 25 or so years the city would grow by the size of Denver and highlighted the importance of being near transit corridors (and future transit corridors). The video and my take on it from the multifamily angle is here.

Also, to link someone's name in a post or a reply on here type @? and a dropdown list will appear at the bottom of the page with all those who've posted or replied on that thread.

Good hunting-

@Account Closed Welcome aboard. Looking forward to your posts and comments. What is your sense of the PHX multifamily cycle at this point?

@Bridget Smith-Osbourne Need a couple more pieces of information: What rents is the building getting now? What's the market cap rate there for this type of building?

@N.A. N.A. what was your investment objective when you bought the property? Has the plan changed or has it achieved its goals?

It sounds like you have one of the nicer properties in that market, even if it's not 'pretty' and it's cashflowing nicely. If you went to a bigger market the competition for properties would likely be more intense driving prices up and returns down.

I would check in with your original investment plan in buying and make sure that boredom or other cognitive issues aren't at play.

Good hunting-

Check with John Lasswell of Lasswell Home Inspcetions, he is very thorough but not sure if he works that far north.

(206) 793-0118 is his number.

Good hunting-

@Jeff Greenberg We're currently doing all six of those on our latest PDX acquisition. Also working hard to keep our property manager from burning out before it's stabilized, it's a lot of work but She and her whole company are making good progress.

@Minh L. ... and it's not just me on the Japan thing. Ambrose Evans-Prichard at the Telegraph said this last week: "The US seems caught in a Japan-style trap, endlessly masking the effect by stealing a little extra growth from the future with artificial stimulus"

Then he had this: "Former Fed chairman Ben Bernanke said recently that long-term yields would never reach 4pc again in his lifetime, portraying a changed world where nothing returns to normal."

http://www.biggerpockets.com/blogs/5055/blog_posts/37898-interest-rates-must-be-going-up-soon-right

Good hunting-

@J. Martin great tip on looking at commute times, CityData.com has a table on it like this:

(Note this is the chart for my hometown, and yes people here complain about their 'brutal' 15 minute commute :)