All Forum Posts by: Kasia Harmata

Hi Miguel, which website did you use to find your deal? Congrats! 

I am looking a certain neighborhoods and looking to find the ARV's for 2,3,and 4 unit buildings. For some of these, I can't find comps, even by searching as far back as the MLS states. If I buy a property, renovate, and refinance -- how will the appraiser figure out the value?

I have also broadened by search, but having the same issue. Another problem is that the property values change block by block. 

@Henry Lazerow

Thanks, to clarify I don’t use any of those rules of thumb at all to find properties. I can see my original post wasn’t clear about that. I use my calculator which as can be seen is highly case specific and requires extensive information. I simply was showing that the existing example, while not cash flowing, was meeting all those rules of thumb.

However, my issue was that I was estimating $250/unit per MONTH for capex and should have been per year. I ended up reducing it down but to $500/year to be conservative and now many of the previous deals I looked at are beginning to cash flow, so that’s a great sign.

Thanks everyone for the insight and thoughts!

I just realized my capex is not divided by 12... so its the ANNUAL amount, but being calculated per month. There's my issue!

Thanks Joe, I am definitely looking at my own numbers more which is why I added several return metrics such as COC, cap rate, adjusted cap, etc. I definitely didn't expect most MLS properties to be good deals as-advertised... however what makes me think I am making a mistake is that the numbers required to cash-flow aren't even close to the asking price... they're often 50% or less than asking. For example, a property asking $450k that would only cash flow at $185k, etc. This hasn't been an exception, it's been the norm. I guess I assumed properties would be listed a bit more than required to cash flow (say, 15-20% on average), but to be listed 2-3x an acceptable price as the norm seems crazy.

I appreciate all the responses, but to clarify, my question is strictly about my analysis, not where I'm choosing to look for properties. I am asking if my analyses are overly-conservative and if so, which elements.  As per my example, the property in question meets several basic criteria for finding a potentially cash-flowing property, yet the property is nowhere near cash-flowing.

I've analyzed properties all over the US, not hot markets. I live in CA but am not looking for properties in CA. Chicagoland outskirts, Indianapolis outskirts, etc. Regardless, I am not asking about where to look for properties; I just want someone experienced with investment to check my analysis and let me know if I am analyzing accurately or if I am overestimating costs somewhere.

Per my experience, anything that isn't D- doesn't cash flow. I have to look in very bad neighborhoods to find anything that seems to work. Even properties requiring tons of rehab, which is fine, don't pencil out unless they're in bad neighborhoods. 

I am absolutely willing and able to contact owners directly to find off market listings, but if they look at property values for market properties they're likely going to balk at me offering them <50% of what similar properties are selling for.

Brendan: $1,000 is based on $250/unit (this is a 4-unit) which I've seen as a reasonable estimate and hard money lenders that I've spoken to use a number similar to this when analyzing deals to fund. But maybe it's too high, interested to see what some experienced multifamily owning investors think.

Derek: thank you and I agree about CA, but I'm actually not looking for properties in California. I've been looking all over the midwest (I am originally from Chicago). Having the same problem all over it seems.

@Michael Plante

I am very confused by your aggressive response; it seems like you're implying I am lazy and looking to sit back, when all I did was ask people to analyze my calculations and help me understand why I can't find properties that cash flow. I have a full time job; I am looking for a retirement strategy, not another job. How would I manage my own properties if I am investing in other states?

Hi guys,

I’m relatively new to the world of multifamily real estate investment and I’m struggling to find any deals that come even close to making sense. In order for need to find cash flow in a given property, I often have to bring the purchase price down several hundred thousand dollars lower than what it’s at (e.g. from $600k down to $100k).

This is obviously unrealistic and therefore I feel like I must be drastically over-conservative on some of my calculations.

I have compared my custom-designed calculator to the bigger pockets calculator and it calculates similar values, so I know it’s not a coding error. I’ve confirmed all the mortgage information with my mortgage partner and it seems to pencil out correctly. Rents are based on rental comps in the area and discussions with local property management companies. Likewise, PM fees are based on those convos as well.

That really leaves me with operating expenses and capital expenditures as the two primary areas that are up to interpretation. If I had to guess, I would imagine I’m either over estimating repairs and maintenance or capex, since vacancy is based on similar numbers I see thrown around here.

Assumptions in my calculations:

• - capex: $250/unit/mo
• - insurance: $3.50 per $1,000 property value
• - repairs/maintenance: $1/sqft of the property

As you can see in the example attached, the property meets the:

• - 1% rule
• - 50% rule
• - 70% rule (example property is priced at $660k on MLS currently)

Even with all that, the property pro forma shows a COC return of -3.36%, and an annual loss of almost $4,600. This would be WITH me negotiating a 30% discount on the purchase price of the property, as well as raising rents in the top and garden units by $150/mo each, and some other value-adds like putting the majority of the utility expenses onto the tenants. If I purchased at the asking price and kept rents/utilities as-is, I would be losing over $10k per year!

Based on projections, the property would continue losing money for the entire 30-year term of the mortgage, amounting to around $80k of loss over that time, meaning it would take at least 4-5 years after paying off the property in full to break even on the property. That’s obviously not a feasible strategy for acquiring many properties over time.

To break even on this property with a mortgage at the existing rents/opex, I would need to get the property for around $375k, which is almost $300k less than the asking price.

Can you please take a look at the example attached and let me know if my math seems sound? Specifically notice the cash flow per door and cash on cash return.

Since I am specifically looking at three and four unit properties only in an effort to increase the chances of cash flow, I’m very perplexed why I am still completely unable to find any scenarios that cash flow for every property I have looked at so far. I have looked at about 200 properties across multiple states and haven’t found a single one that isn’t a D- property that would require a lot of speculative luck to come out ahead on.

I know I’m not doing this correctly because plenty of you guys find deals all the time and have built significant portfolios, so please help me understand where I am going wrong so that I can move forward. Thank you so much!

Hi all,

How do you estimate renovation costs?

I am looking to add these costs into my

Calculator but I find it very difficult as each property

Is different and will require specific renovations.

What is the average price per sq foot from the studs?