All Forum Posts by: James Dickens

Everything I have seen on BP about Cash Back at closing has been shady at best and illegal at worst. Why did you decide to do the Cashback and did you have any reservations or did you cover your self with all parties? 

I'm curious as I had a local (to me) investor tell me about how he had bought so many properties with CBAC and at the time I looked it up and saw nothing but bad juju regarding it. 

Not saying anything is wrong here just really curious to if this is really a valid strategy and what safeguards did you have in place to make sure you would be comfortable in doing it?

Nice list @Kerry Baird! Also nice of you to share it. Lots of hard work went into putting that together. Bigger Pockets for the Win!

@Jasmine Keys Welcome! Wish you were still in Louisiana as I could use some interior design help once I start buying properties :) 

You have found the right place to get started in Bigger Pockets for sure. Lots of great people and information. 

@Mormon Redd I have been doing the same type of Analysis and have run into the same issue. What I seem to be finding is that if you want to adjust your % just by looking at the data you could use Age of the property as one adjustment. 

I usually plot everything out and then tinker with the numbers to see what gets to break even and then what has the property making returns that I would expect just to understand what adjusts what and by how much. 

It's tricky and being new like I am assuming you are and I am, and it's a bit confusing when trying to understand the numbers of things. Something I did was build my own excel sheet from looking at several different investors who also give out advice. That way I could learn the calculations and equations that made it up. One of the many things I learned in that process was the Debt Coverage Ratio. Until I ran into that in one of the sheets I had I was clueless but now it helps quite a bit when I see that ratio as being considered low. 

Best of luck and hope the training pays off for you!

When I am looking at listings and no cap rate is given but I have other information I usually use this to at least try and determine what cap rate they basing the price listed on.  http://www.proapod.com/calculator/free/o_cap.php if nothing else it helps to understand the calculation.  

@Ben Leybovich and @Sam Grooms Congrats guys, Can't wait to see a Blog post about this!. I went back through the 6 pages and created my own highlight sheet :) Thanks for sharing what you have so far on this deal. It certainly helps people like myself to understand the process a bit better with real-world examples along with the reasons behind the decisions included. 

@Cedric Macon Congrats on those deals. Are you Wholesaling them or keeping in your portfolio? 

@Leland S. I'm new at this but I agree with you those number just don't work when you calculate it out. Not sure what you came up with but just using rough figures I have the offer price at just over 200K? After some assumptions (vacancy, expenses, capital reserves and debt service if you are not paying all cash) shows about 14k cashflow per month but only if you could get it at that 200Kish price. 

Using the 528k price it shows you would be in the hole about 5K first year with the same assumptions. 

Those are my numbers anyway. Your numbers may very. 

@Bjorn Ahlblad LOL that line made my day "Pro Forma is Latin by the way, it means ‘I had to fill in something’."

And yea I get that the numbers will be somewhat inflated because they are trying to sell and get the most they can for it. I guess I'm still not over the shock at how far off a lot of them are. The closest I got to my numbers matching up with the listings was a Trailer Park listed in Montana (I think) where I was within about 20K of asking. 

Thanks for the reply!

This post is a study in numbers intended to help newer members to talk about and understand the numbers on a Multi-Family deal.

I have been working on understanding the numbers on a deal while putting together a template for a Sample Deal Plan. Although I think my template and numbers (excel sheet) are pretty good it still may need some adjustment. With that here are some numbers on a Mutli-Family listing that I would like to post to compare what I see vs what is listed. Think of this as me wanting to make an offer and wanting to know what the deal is worth to me vs asking price. Hope that all makes sense.

The numbers for the property are taken directly from the Offering Memorandum look like this:

Now one of the confusing aspects of this document is based on Potential Rental Income. That PRI of $530,100 first year compared with the actual last year income is a difference of $175,011. To me that sounds like a big if and I could see some investors getting caught up on this number as fact instead of fiction. I’m not saying it couldn’t happen but I think the price you pay should be based on actual numbers and not potential. Would you agree?

Another note here is that they also run the gross expenses against this fictional number and add in Asphalt Repairs, Payroll and Management fee. Just something to be aware of because that adds according to their estimate about $32k in upcoming fees. 

Now for the cap rate. When I run the numbers not using any Vacancy Rate % I get 7.24%. If I add in a 10% Vacancy Rate I get 6.02%. 

With that out of the way and using the numbers above, I get this as a result.

NOI $218,321

Cap Rate 7.53

NOI * Cap Rate = $1,643,957

That is a difference of $1,256,043 or 57% of the asking price.

So is it typical to run into numbers that differ so greatly?

I’m sure there is a number somewhere in between that is a happy medium but when you start this far apart is it even worth it trying to make this a deal?

If I run the numbers using a 10% Vacancy Rate and then 50% expenses/ROI after that my number is even worse at $1,248,171. (Using this number makes the cap rate 13.28%)

This also gives a first year COC return of 33.52% (assuming a 5%, 20 Year with 25% down). This is vs a 6.46% COC return when I run the same calculation with the figures they listed in the statement.

Sorry this is so long but I am really trying to understand it or see how well I understand it. After running preliminary numbers I would most likely pass on this deal and move on to the next one. I do know however there are caveats that I did not cover such as location, population growth and Jobs but just looking at raw numbers it appears that what the seller wants and what the buyer would need to make this a good deal are pretty far apart.

I would love to hear anyone’s thoughts on this and hopefully, any discussion that follows becomes a learning experience for all.