All Forum Posts by: Roig V.

Thank you Charlie.  Interesting insight into the bar purchase, I hadn't thought of that.  Will definitely give that some consideration.  Appreciate the feedback!

Hello All - First off, sorry for the long post but I wanted to give sufficient context here. I am considering purchasing an 11-unit mixed use (10 residential and one street level bar/restaurant unit). The property is in average quality due to some recent capex improvements. An inspection is schedule for next week so we will have a better handle on the actual shape of the property at that time. The property is located in a B- area, not bad, low crime, directly across the street from the police station and near local parks. I don't think there is much downside risk with the area however I think material upside potential in the form of ability to increase rents or overall neighborhood improvement is probably unlikely. At my purchase price, the GRM as well as $/unit (comparing apples to apples in terms of LL expenses) is right on par with the area, maybe about $5k below the norm.

I will caveat this with the fact that my goal for real estate investing is to build a large buy and hold cash flowing portfolio for the long run.  I currently own 13 units across 3 multis (2 4's and a 5).  I recognize that long term appreciation is unlikely with this type of property however the cash on cash returns seem strong (for my area) and given the fact that this acquisition will double my units and allow me to begin generating enough free cash flow to begin funding the acquisition of additional properties, it is attractive. 

One issue giving me some concern is the limited opportunity to force appreciation with this property.  The tenants cover most expenses so there is minimal room to create operating efficiency, and the likelihood of materially pushing rents is probably low. 

Capital is not a concern, and the $120k downpayment would be diversification to an overall portfolio heavily weighted in the stock market. 

Bottom line - Is this a good deal, or one that does not offer sufficient upside? I do feel that downside is minimal as this is a relatively urban area somewhat near colleges so I do not see a circumstance where apartment demand decreases substantially.  Thank you for your insights!

My underwriting numbers are as follows:

Purchase Price: $600,000

INCOME:

Gross Income: $94,032

Vacancy: 5% (property has historically maintained strong occupancy).

EFFECTIVE GROSS INCOME: $89,330

EXPENSES:

Property Management: 7.5% = $6,700

Insurance: $5,112

Maintenance: 12% = $10,720 (I will likely modify this number after inspection one I have a better idea of the actual shape of the property)

Taxes: $8,568

Trash: $1,085

Water/Sewer/Common Elect: $6,910

TOTAL EXPENSES: $39,094

NOI: $50,236

Cap Rate: 8.37%

Debt Service: $33,672 (5 yr arm - 25 year am, 5.0%)

Net Cash Flow Before Taxes: $16,564

Cash on Cash (Assuming 20% down): 13.8%

ROE (NCF + Princip paydown): 22.1%

DCR: 1.49

Debt Yield: 10.5%

Using 50% Rule: $83.28/unit/month

Great, thanks Shaun.  I definitely check those out.  Looking forward to meeting soon. 

Thanks Shaun, I will be living in Boston so will definitely check out some of the local meetings. Looking forward to connecting.   

Hi All, I am an active real estate investor moving to Boston next month.  I'd love to connect and network with any local investors in the area.  I currently own multi-family in the Western MA area and am looking to expand my investing into larger apartment buildings.  Are there any regular meet-ups in the area?  Looking forward to meeting some folks out there in the coming months. 

Kyle

Thanks for the feedback.  I agree that it makes sense to have it as a precaution, I guess my hesitation comes from other appraisals we have gotten (while doing bank financing) that used terrible comps and regurgitated census bureau info for an area far too general to be of any value, and ended up just coming in at the purchase price anyways. Will have to give it a little thought. 

Hi All, Just went under contract on a 12-unit apartment yesterday and are about to begin the diligence period. The seller is providing good financing at 4.75% for 10 years, 30 am. We have done a thorough valuation analysis and are getting the property for about 90% of ask. My question is, do you think it is still worth spending money on an appraisal (about $1,000 for a slightly stripped down appraisal which does not include all the bank formalities), or is this not necessary? We have done a thorough rent comp analysis and are very familiar with the area. Is there information that an appraiser is going to provide that is not available via our own research (ie., surrounding rents, market cap rates, etc..).  We are obviously having all other inspections done (Engineering, Title V, etc...). Curious to know people's thoughts on this. Thanks!

PS - If you are curious, the deal points are below which were also posted in a post several days ago. 

Purchase Price: $710,000 +/-

Units: 12 (All 850 SF 2 bed / 1 Bath units)

Current Monthly Rent: $9,300/mo (There seems to be room to push this to at least $9,700)

Annual Rent: $111,600 + other income $905

Vacancy: 5% (Property is currently 100% occupied with strong occupancy history)

Effective Gross Income: $106,925

Taxes: $9453

Insurance: $6588

Management: 5% (will be partially self managed) $5,079

Utilities: $6,302 (only common area electric and electric heat, all other separately metered)

Septic: $1,000

Repairs/Maint.: $16,450

Marketing/Promotion: $1,431

Trash: $1,961

Supplies: $1,579

Water Testing: $3,177

Misc: $350

Total Expenses: $53,370

NOI: $53,555

Cap Rate: ~ 7.5%

Cash on Cash: ~12% (based on 20% down and 30 year am at 5% - still finalizing loan terms so subject to change)

DSCR: 1.46x

50% Rule ($/unit/mo): $117.17

1% Rule: 1.31%

GRM: 6.36

Debt Yield: 9.55% (based on 20% down)

Property is in overall good condition but could use some upgrading. Pending inspection there appears to be little to no immediate deferred maintenance. The area is decent, but most likely not going to experience significant growth. This would be a long term hold for cash flow and would be a stepping stone from smaller multi's (own 13 units in 4-5 unit complexes now) to larger apartment buildings.

@Jaret Harris, upon initial inspection heating system looks good, it is electric heat however my business partner who is a contractor is conducting further review and we will also have a formal inspection done.  We submitted  a preliminary offer at 700k with the seller carrying the financing.  We were countered to 735k, seller is agreeing to carry 10 years, 30 year am, between 4.75 - 5.0% fixed (still negotiating rate).  We have reason to believe the seller is trying to hit 720k.  Seller is also willing to carry at 85%, as opposed to 80%.  The lower down boosts the C-o-C however I want to make sure we don't get over-levered here.  At 720k the metrics still look solid:

cap rate: 7.5

ROE: 22.8%

C-o-C: 14.12%

DCR: 1.40x

The above is with 15% down. C-o-C goes down to 12.15% at 20% down, and DCR goes up slightly to 1.49x.

Thanks @Colleen F., there is a private well and we are looking into that.  Appreciate the feedback.  With regard to electric, we are paying common electric and electric heating expense.  I believe everything is up to code however we will dig into that during the diligence period.  Thanks again for the feedback.

Thanks @Azeez, I would say the area is very much B and slightly rural however it is within a 5 minute drive to several major colleges, employers, and what would be considered an A market.  There was some population growth in the neighborhood several years ago however my sense is that it has probably stagnated.  The area is surrounded by very solid markets.  I don't think rental increase potential would be significant however a 5% bump or so to in place rents seems do-able.  As far as historical performance, we are expecting detailed docs during the diligence period (if it comes to that).  Good question on the roof, I believe it is has some life left but I do need to confirm that.  Parking is sufficient at 2 spots per space (off street).  Thanks for the feedback.