All Forum Posts by: Jorjio Hopkins

@Danny Kao

I completely agree with @Greg Dickerson.  Get really good at understanding the business and terminology first before contacting brokers and owners.  They will take you more seriously and be more willing to give you access to information you request.

I also urge you to take a step back for a moment.  Most commercial apartment deals especially publicly posted on sites like LoopNet are not worth deeply evaluating.  Seek to do a very quick 60-second analysis of apartment deals first, and if they meet your criteria during that initial scan then dive deeper, but if not, then move on.  This will save you a tone of time!

Here is a quick way I run the numbers to see if a deal is worth looking deeper into or not:

1) Find the Income: You can do this by taking the annual income of a property and subtract a - 5% vacancy factor.  (i.e. $100k - $5k = Income of $95k)

2) Determine the annual expenses using the 50% rule - which states the generally the expenses on a property will amount to about 50% of the property income.  (i.e. $95k * 0.5 = Expenses of $47.5k)

3) Calculate the Net Operating Income or NOI = Annual Income - Annual Expenses.  (i.e. $95k - $47.5k = NOI of $47.5k)

4) Determine the cap rate. Hopefully it’s listed for the property if you're looking on LoopNet, but if not you can find it a couple different ways.

- If you know the asking price for the property then you can do (NOI / asking price) = cap rate

- If price is not listed then you can look for active brokers in your general area with apartment listings and give them a call. Take this as an opportunity to start build a relationship with them (key for future business success) and casually work into the conversation ‘what’s the cap rate in this area?’

5) NOI / Cap rate = Purchase Price  (i.e. if we had a 5% cap rate then, $47.5k / 0.05 = $950k purchase price)

If all the information is present then the above only takes about 45 sec.

Spend the last 15 sec. comparing your purchase price to the seller’s asking price if it’s listed. If it’s not listed then pull up a tax assessment on the property to get a ballpark number from the assessed value.

Typically if the purchase price I calculate is within 25% or less of their asking price then I put that property on a list (excel spreadsheet) to do a deeper dive into later.  (i.e. if the sellers asking price is $1.1 Million for the analysis above and you calculate a price of $950k then you know you're within 15% of their asking price, so it's worth taking a deeper dive.)

If this number is greater than 25%, it will be tough to underwrite the property in a way that creates a good ROI, but also will be considered by the seller.

6) Rinse and repeat for all the listings you can find.

7) When you have your new list of properties that passed the first screening criteria, then I evaluate value add opportunities.

8) If you find properties on your new list that you're interested in pursuing at this point, then you dive in to contact the brokers or sellers for their T-12.  You can discuss your initial analysis of the property and tell them you need to see the T-12 and rent roll in order to provide them with a more accurate offer.

Danny, I hope this helps you hone in your commercial apartment analysis process!  If you have questions on any step, please feel free to reach out.

Hi @Pete Woelfel,

Chapter 5 in  @Brandon Turner's book "The Book On Managing Rental Properties" walks you through some great ways to market your property. 

Here are a few takeaways:

1) Define your ideal client base first. Use wording in your ads that speak specifically to that type of client. 

-Knowing your client base helps you focus in on marketing to the right audience.

2) Try to answer as many questions as you possibly can about your property in your ad.  Focus on the features, location and the benefits to the tenants in the ad.  I agree with @Corina Eufinger, listing your screening qualifications may deter some when they haven't yet been sold on your property.

- For example, list attractions to the area that appeal to that client (i.e. good schools, close restaurant proximity, safe neighborhood, Starbuck, Hipster Bar, or whatever you think would appeal to them most). 

- Here's an example ad from Brandon's book: "Beautifully remodeled 2 bedroom, ground floor apartment available in a nicely maintained complex in a residential neighborhood.  Convenient onsite laundry, walking distance to supermarket, college and mall.  Includes water, sewer, garbage.  Pet and smoke free, rent $535 + deposit."

3) Outside of the ads you're already doing, Brandon also recommends using yard signs, flyers (posted where your ideal client hangs out), and postlets.com which will post your ad to Zillow and other linked sites as well.

Hope this helps you hone in your marketing strategy a little and finds you a few good quality tenants!

@Ryan Parnow 

That’s great that you have this information. How many units is the property?

2-4 units will be priced based on comparables, while 5+ units will be priced based on the NOI/Cap rate.

You already have your NOI = $23,794

Now determine the cap rate. Hopefully it’s listed for the property, but if not you can find it a couple different ways.

- If you know the asking price then you can do (NOI / asking price) = cap rate

- If price is not listed then you can look on websites like LoopNet for active brokers in your general area with apartment listings and give them a call. Take this as an opportunity to start build a relationship with them (key for future business success) and casually work into the conversation ‘what’s the cap rate in this area?’

Take your NOI / Cap rate = Purchase Price

For example: If the cap rate is 5% then $23,794/0.05 = $475,880

This is what the property is worth, however, you should dive deeper to look for value add opportunities.

If there is any deferred maintenance or major capex items needing replacement soon then I would negotiate a slightly slower price, but also bring in enough capital and reserves to make the necessary repairs. Also look to see how the rents compare to market rents and if there is any way you could lower the expenses on the property over time. If so, then those are a couple signs of value add opportunities because you'll be able to increase your NOI and force some appreciation on the property if it's 5+ units.

Hope this helps!

@Jim Growfer

I agree with at @Justin R., those are great items to look for when you’re scanning for value add opportunities.

If you’re a numbers guy, here is another technique I use to riffle through a bunch of listings on a site like LoopNet to narrow down potential investment options:

1) Total Income - 5% vacancy factor = Annual Income

2) Determine the annual expenses using the 50% rule you mentioned

3) Calculate the Net Operating Income or NOI = (Annual Income -Annual Expenses)

4) Determine the cap rate. Hopefully it’s listed for the property, but if not you can find it a couple different ways. 

- If you know the asking price then you can do (NOI / asking price) = cap rate

- If price is not listed then you can look for active brokers in your general area with apartment listings and give them a call. Take this as an opportunity to start build a relationship with them (key for future business success) and casually work into the conversation ‘what’s the cap rate in this area?’ 

5) NOI / Cap rate = Purchase Price

If all the information is present then the above only takes about 45 sec. 

Spend the last 15 sec. comparing your purchase price to the seller’s asking price if it’s listed. If it’s not listed then pull up a tax assessment on the property to get a ballpark number of the assessed value.

Typically if the purchase price I calculate is within 25% or less of their asking price then I put that property on a list (excel spreadsheet) to do a deeper dive into later. 

6) Rinse and repeat for all the listings you can find.

7) When I have my new list of properties that passed my first screening criteria, then I evaluate value add opportunities. If there are 1-2 good value add opportunities then I add those properties to a second list to be underwritten later.

8) Underwrite the list where you know you’re in the ballpark on their asking price and there are value add components you can leverage.

Hope this helps!

@Cody Elliott 

The first thing I would do is find the typical cap rate for the area.  You can do this by going to Loopnet.com and do a local search for apartments in the area.  Look for the most active brokers (ones listing apartment buildings) and give them a call.  Take the opportunity to develop a relationship with those brokers, but also work 'what's the cap rate?' into casual conversation.

Once you know the cap rate, then find the NOI (Income-expense).

An assumption I'll make to give you some numbers is the (1/1) renting for $650/mo.  So the (650*6) + (850*6) =$9,000/mo*12=$108,000= Income

Typically expenses are about 50% the income = $54,000= Expenses

This makes your NOI $54,000

Divide that NOI by the cap rate you found and you'll get a fair value of the property.

For example: If the cap rate is 5% then $54,000/0.05 = $1,080,000 = the property value

You can adjust the numbers based on the information you find from the owner and the broker.

@Andrea Chester

All the options @Seth Ferguson & @Theo Hicks provided are great opportunities to consider leveraging.

Also, have you tried talking with several different banks?  I've found that other banks love the opportunity to win your business and would be willing to give you a better rate on the refinance to do so.

If you haven't already, try calling 2-3 additional banks for rates, then compare.

@Jeff Stansberry

If cashflow per door was the same in this area for both asset classes, which would you target?

Since you're looking for good BRRRR opportunities, outside of cashflow the next question I would ask or research are the values of said properties. After an initial scan of the inventory you could narrow your search down to properties with 30+% potential equity. Then do a deep dive on those properties to explore those specific areas and the rents those assets command.