All Forum Posts by: Mark H. Porter

Quote from @Eliott Elias:

This is the last time I want to see a cash flow versus appreciation post. Appreciation should play no part in your deal analyzing. If your properties do not cash flow, and have no equity, you will be wiped out during a recession

If you’ve read any of my past responses you know I couldn’t agree more.  I’ve been playing this game for 26 years and I’ve always, ALWAYS, sought higher cash flows.  For the apartment buildings, oceanfront STR’s, and now multi-tenant commercial properties I’ve owned, Appreciation organically happens with increased NOI over time.

Hi Ryan - you may want to checkout the Meetup app and attend some of the investor meetings we have monthly here in MB and NMB.

How Cap Rate associates to what to List a property takes a little more work.

Simple version?  Operating Income minus Operating Expenses = Net Operating Income.

Net Operating Income divided by Cap Rate = price of property. Easy enough so far, but look at this from the lenders viewpoint and what is not included in NOI.

Any lender will remove the following from NOI. 2-3% CAPEX set aside (to handle capital expenditures) and as much as 10% vacancy (even if you have 5-10 year leases). After you're done subtracting these amounts the bank as what they call the "final" NOI. This is what the bank will then use to calculate Cap Rate.
 

Quote from @Joseph Maroun:

I'm starting out too.  I have good income and about 200K savings.  I'm looking to invest in apartment buildings and have started under writing from loopnet and crexi.  It would be great to partner up if anyone is interested..Please meassage me.

Thanks

Joe, get yourself a good broker who will be on your side.  There are brokers out there who love to play both sides as they get the full commission.  If they have the listing property they will never fight for you or tell you what’s a bad deal.

You may not have a choice unless you’re paying with cash.  The best rates will be found with smaller banks because the decision to approve is closer to the borrower.

But, smaller banks want to loan to the relatively local area - let's say, within 50 miles of a branch. They also are looking at 70% LTV and demanding a 1.25 DSCR. Some might find that a PITA but it works in your favor to guarantee higher NOI that won't beat you down.

Now, I also disagree with your statement of seeking appreciation over cash-flow as a new investor. You should, instead, be saying that it's all about the cash in your pocket at the end of the month. That's what pays the bills, allows you to build a reserve, buys the new hot water heater, etc. Also, savvy investors are looking more and more at CAP rate, at least when comparing properties. Non-debt cash flow, or NOI, is the key to having that property appreciate commensurate with how income rises and expenses fall.

Sell it under a 1031. The $225k will get you a $750k property at 70% LTV. You'll also probably have any reputable bank asking for a 1.25 DSCR so pay attention to the cap rate - you'll need something in the 8's.

If you can get something that fits this it may be a minor value-add (major VA would have a cap rate in the 10's or higher). You want the kind of place that someone has owned for awhile and is tired of it. Rents are low, place needs cosmetic updates such a paint, flooring, appliances, etc..,

Get these done in the first year while tenants are there then raise the rents to market. Sell it in the 7 caps with higher NOI and you've made a ton of money to do it again.

Quote from @Joshua Jones:

Quote from @Dave Foster:

@Joshua Jones, If that was a new purchase then in general terms yes.  If you sell it for $100 you have a 30K gain.  In order to 1031 you would have to have purchased that property to hold and not to flip fifst of all.  Second of all you must purchase at least as much as your net sale and use all of your proceeds in the purchase to defer all tax.  3rd, you can indeed purchase more than one replacement as long as they are on the 45 day list and their aggregate value is at least as much as your net sale.

Thanks!

Dave’s wikid smot!

The three properties are not just three you like.  It’s three that you get under contract and then go through due diligence so you can make a choice of which one (or two, or three) to buy before the 180 point.

If you have already closed on your downleg and have not started the search you are already in a precarious position.  This search and identification should have started as soon as you passed due diligence in your downleg.  You have done hustling to do.

And I would think about changing your realtor.  They should have been on top of this.

My commercial deal in June required me to be at 70% LTV in order to get to the required 1.25 DSCR. 20 years, 7%.

Annual NOI will be $29,280 which gives you a 6.7 cap. Not great in a high interest market. But…

Take away one of the incomes as you'll be moving in. The impact of that depends on if you'll be renting out what is now in our primary residence when you move.. You'll be removing $10,620 of you income taking your NOI to $18,660 with a cap rate of 4.2%. Even at a 5% interest rate at 30-years fixed you'll be out of pocket $500-$600 per month.

If it works for you then great.  I wouldn’t do it.