All Forum Posts by: John Leavelle

@Nick B.

Thanks for the input.   Since I plan on using creative financing for actual purchases, I do not intend to pay List, for properties I acquire.  It is just being used as part of my initial look (a starting point).  I will be using comps and similar evaluation methods, like what you suggest, when I request more detailed information from Seller/Broker. 

Property #1:

4-Plex, $199,900. Built in 1945, Reno 1980.  3,136 sf.  “C” neighborhood.  All 2 Bed/2 Bath, Rents $575 (Vacant), $350 (Occupied), $500 (Occupied), $575 (Occupied).  Separate Electric and Gas, common water meter.  Total tax $2,303.08 (2013).

Seller/Broker Performa

Gross Scheduled Income:  $2000 month ($24,000 year)

Expenses:  Not listed.

Additional Information:

Rents are on the low end for the area; 35 2B/2B rentals in .33 mile radius:  Median $750, Average $780, 60% $608 - $952 / 80% $517 - $1042.

My Quick Analysis

NOI = (GSI) $24,000- (Expense/55%) $13,200 = $10,800 ($900 month)

Price Point Evaluation

A. List: $199,990 - $39,980 down (20%) = $160,010; 4.125% APR (30 yr); $775 PITI; $900 - $775 = $125 month Cash Flow ($31.25 per unit); No Go.

B. Strike: $179, 910 (90% of List) - $35,982 down = $143,928; 4.125% APR (30 yr.); $698 PITI;$900 - $698 = $202 month Cash Flow ($50.5 per unit); No Go.

C. Goal: $159,920 (80% of List) - $31,984 down = $127,936; 4.125% APR (30yr.); $620 PITI; $900 - $620 = $280 month Cash Flow ($70 per unit); No Go.

D. Baseline Offer: $139,930 (70% of List) – $27,986 down = $111,944; 4.125% APR (30 yr.); $543 PITI; $900 - $543 = $357 month Cash Flow ($89.25 per unit); No Go

Since none of these price points meets my minimum requirement of $100 month Cash Flow (per unit) I would pass on this property.

Remember this is not suppose to be a detailed analysis.  Only a quick look to determine if I should move on, keep an eye on it, or request more information for a more detailed look.

What do you think

Hello BPer’s, in my continuing effort to take actionable steps towards real estate investing I have started the 30 day analysis challenge (Analyze 30 properties in 30 days).  Here are my basic parameters:

Target Market:  San Antonio, Texas

Neighborhood(s):  Primarily areas just north of downtown (older neighborhoods and prime rental market).  Secondary will analyze properties in other areas of town if I need to.

Properties:  2-4 units multifamily and some small apartments.

Strategy: Buy and Hold utilizing the BRRR process (Buy, Rehab, Rent, and Refinance)

Finance: For my quick look analysis I will use the List Price with 20% down payment to determine a conventional 30 year mortgage on Zillow (typically will use 4 – 5% APR). However, for more detailed analysis for actual offers I would be using Creative Financing for purchases.

Cash Flow Goals:  Minimum of $100 per unit per month to warrant more thorough analysis.  Ultimately the property must be able to cash flow and average of $200 a month once stabilized (and refinanced).

I will use two methods to conduct my preliminary analysis.  First I will use the List price and any Seller/Broker provided Performa data to determine cash flow.  Secondly, since I will ultimately be using Creative Financing to purchase properties I must use very conservative methods in my evaluation. I will be adopting concepts used by BP Pros like @Brandon Turner and @ Michael Blanks.  I will use 55% of GAI for Expenses.  That will cover a full cosmetic rehab, capital expenses, vacancies, property management, and other normal expenses.  I will also develop 4 price points to work with any potential offer.  From the List Price, Strike Price (90%), Goal Price (80%), down to a Base Offer Price (70%).

The last part will be Action Required – Move on to next property, Keep on watch list, or Conduct a more detailed analysis.

I will post my analysis results on this post as I have the opportunity .I work a lot of hours so they may happen several at a time.  So if you are following please be patient.  Also, please provide comments or suggestions …. Keep me moving forward.

Lastly I have started a Blog here on BP to record my travel on the road to REI success; https://www.biggerpockets.com/blogs/7176-follow-a-texas-rei-newbie

Hello Chris, if you are talking a basic cosmetic rehab (floors, paint, cabinets, counters, plumbing and electrical fixtures .... etc) $20 per sq ft is common. Or $20,000 in your case. If you are talking higher end items then $25 - $30 would be right. Of course that does not include any CapEx items.

Hope that helps.

John

@Eddie Quispe

Do you have a set goal/standard you are looking for, i.e. Cash Flow $150 month per unit?   This is a Multi-Family property ... Cash Flow is the name of the game.  Therefore, it's extremely important to get all your numbers right.

Does the Total Operating Exspenes ($18,119) include Tax, Insurance, HOA fees, Landscape maint., any utilities? If so what is the breakdown?

You will need to include CapEx .... Something will eventually breakdown or need replacing.

So add in the Vacancy Rate (5%) = $2200

CapEx (5%) = $2200

Also, don't forget Closing Cost (2%) = $7780

Is there any Rehab/Improvements needed after purchase?  Cosmetic even!

The bank will be looking at the DSCR

NOI ($26,281) ÷ Debt Service ($291,750) = .09

This ratio needs to be over 1.0.  They will consider .09 as negative cash flow.

Bottom line .... Get more details on expenses.  If you still want this property you will need to make a much lower offer to make it CashFlow.

Hope this helps 

John

Hello David, I am still new and learning Multi-Family.   I have been analyzing a lot of properties others, like you, have been posting as well as my own.

@Roy N. Covered most of the usual numbers, so I will not rehash that.  I do have a few questions:

Physical property:

 What year was it built?

What is the square footage?

When were major Capex last replaced (roof, heat/HVAC, boiler?)?

You state you walked the property ... Did you see any obvious repairs or rehab needed?  Or is this a turn-key?   Even a basic cosmetic rehab would be a minimum of $20 per sf.  Like @Chris Sereney said ... have it inspected.

Financing:

What and when was latest Assessment Value?

Do you have cash to put into the purchase (skin in the game)?

Here is an example of a commercial loan for this type of property that I have seen in Texas. 4.5% APR 30 yrs 75% ARV excellent credit. Using @Roy N. Numbers for NOI ( $20,456);

Purchase Price........... $150,000

25% Down payment ..$  37,500

Financed ..,.................$112,500

Mortgage Payment ... $570 month ($6,840 yr).

Cash Flow = NOI - Debt Service

$13,616 =  $20,456 - $6840

That averages $141.75 per unit per month

With good terms and excellent credit!

This is a FSBO right? Will he do Seller Finance?

Hope this helps.

John

@Daria B.

If your goal/strategy is Buy/Hold you need to move past this seller.   Numbers you present are way off ... Negative cash flow.

You state it is 4 duplexes, but, show only 4 unit rent rates?  Even if you double the rent per unit listed it still is not at 1% rule.

Yes I look at listing history, he has been trying to unload these properties and can't get the price he wants. Hince, FSBO and not agent. Again, what are comps?

Buy/Hold investors are looking for Cash Flow! It applies to individual duplexes or all together.  If it doesn't move on.

On vacancy rate assume 8 to 10% unless rent rolls are provided that show otherwise.

Bottom line for me if it doesn't meet my required minimums on initial look I move on.

Hope this helps.

John

@Chungsoon Haw

I am new at this too, but, here are a couple questions.

Is that the sellers asking price (retail) or your offer price?

What is ARV? Comps in area?

What are rent comps?

Are you going to have an inspector or contractor go with you to the house to verify only $4,000 needed repairs?

Otherwise sounds good to me.  Good luck

John Leavelle

Thanks Chad,

I also am a newbie and plan on attending.  Since i work rotating shifts this will be one of the few meetings I can attend.

I'm interested in buy and hold small multi-family properties.   Would also like more info on the new crowdfunding available in Texas now.

Looking forward to being a sponge and absorbing as much as I can.   Also can't wait to meet eveyone.