All Forum Posts by: Michael H.

I'm not sure how the above got posted. I was attempting to edit post. My apologies

@Kathy Henley Thank you for the insight and the equations. I think that's a pretty good idea regarding the letter of intent to buy. With the amount of undetermined repair costs it is difficult to come up with a quality offer. I would be interested in you sharing your sample. My initial thoughts are somewhere in the range of $60-$75,000 in repairs. That's without going into many of the units.

Thank you for your example @Wade Sikkink. Your figures are spot on.

Here's a spreadsheet and what my offer will be based on. Can I get any and all feedback please?!!

The cap rate is 12% at the end

Total Rent when 100% occupied = $9065
Monthly Expenses based on financials received by seller
Category	Amount	%
Taxes	$501	5.53%
Insurance	$579	6.39%
Utilities	$275	3.03%
Legal	$25	0.28%
Trash	$75	0.83%
Vacancy	$280	3.09%
Management	$635	7.00%
Lawn	$68	0.75%
$2,438	26.89%
Items that I believe need to be included
CAPEX	$906.50	10.00%
Maintenance	$906.50	10.00%
Additional vacancy	$363	4.00%
$2,175.60
Total expenses	$4,613.10
Seller Asking Price	$750,000.00
Scheduled net income	$108,780.00
OPEX	$55,357.50
NOI	$53,422.50
Cap rate	7.12%
10% Cap Rate Offer	$534,220
Cap Rate	10.00%
In Current condition	$450,000
Cap Rate

@Dustin Beam feel free to chime in with any of your thoughts too. Thanks for all your help so far. 

Here are the financials he provided. I've asked several times for schedule E and last 2-3 years of rent roles. He won't provide until we agree on terms. I'm a little confused on this document too because he said the property appreciated since he purchased it 16 years ago. 

My P&I on $750,000 is $3700 

He is currently remodeling 2 units and i saw those 2 and 1 other unit. What I observed was 11 water heaters from '83, at least 3 furnaces need replaced and likely all need maintained, as the central AC units went out he replaced them with window units, active plumbing drain leaks and many locations that leaks are imminent, no less that half the units still have fuse boxes, there are a few broken window, never trimmed trees and more. 

I don't mind putting in the work if the numbers are right. If he banked the majority of the cap ex over the years am I wrong in thinking the offer should reflect that regardless of cap rate?

Thank you Philip E. I get some figures together and come back with the info.

This would be my 1st multi unit deal. I put a post on Craigslist to find an off market deal and was contacted by a guy with a 15 unit for sale. I did a small walk through and have a general idea of the condition of the property. I haven't seen all of the units yet as they're tenant occupied. 2 units are being remodeled and vacant. He said he has a 3% vacancy rate I asked the gentleman how he arrived at the selling cost of $750,000. He replied that he came up with the value based on that is the # that makes it a 10% cap rate. It is technically cash flowing well with about $3500 a month after P&I, vacancy, maintenance, insurance, management, taxes, and insurance. The issue I'm having is the gentleman has owned the property for 16 years and appears to have put very little time or money back into it. 
At a very rough guess I'd say it needs $40-50k and possibly more in various repairs like water heaters, general plumbing, hvac, paint, windows, etc. How does the fact he's banked cap ex for 16 years effect an expected cap rate /value? I'm not sure the rents could go up much higher for what they are either. There does seem to be some value add with an unfinished unit that could be completed, laundry possibilities, and storage units. Is there a good equation to use to calculate this to substantiate any offer? What am I missing? The units are in a b /b- residential area with no other apartments around. Thank you for any feedback you can help me with. Michael

I came across an off market 15 unit for sale and have a general idea of the condition of the property. I haven't seen all of the units yet as they're tenant occupied. 2 units are being remodeled and vacant. He said he has a 3% vacancy rate I asked the gentleman how he arrived at the selling cost of $750,000. He replied that he came up with the value based on that is the # that makes it a 10% cap rate. It is technically cash flowing well with about $3500 a month after P&I, vacancy, maintenance, insurance, management, taxes, and insurance. The issue I'm having is the gentleman has owned the property for 16 years and appears to have put very little time or money back into it. At a very rough guess I'd say it needs $40-50k and possibly more in various repairs like water heaters, general plumbing, hvac, paint, windows, etc. How does the fact he's banked cap ex for 16 years effect an expected cap rate /value? I'm not sure the rents could go up much higher for what they are either. There does seem to be some value add with an unfinished unit that could be completed, laundry possibilities, and storage units. Is there a good equation to use to calculate this to substantiate any offer? What am I missing? The units are in a b /b- residential area with no other apartments around. Thank you for any feedback you can help me with. Michael

@Chad Carson

I purchased for $65,500 in a pocket deal from an agent I knew. I estimated $39,000 in repairs and spent $33,000. The agent said ARV would be $125,000 and I hoped to net $15-$20k. I just wanted to get my feet wet and get in the game.

I redesigned the kitchen and moved laundry up from basement, cleaned up the bathroom, finished hardwood floors, paint in and out, and landscaping. I had most of it done but worked around 400-430 hours on it myself.

I kept track of my estimated profit throughout the process and as it was coming together I thought I would try to go for $135k. So I was starting to get excited.

With a few weeks left I had the what am I thinking light bulb moment. Why am I trying to sell this myself? So I called the agent and I told her I thought it looked great and could get $135k. She totally balked at that price without seeing it. When she came she said "let's start it at $145K" my eyes and grin must have been huge. We took 14 offers in a 3 day period and was offered as high as $166k but worried it wouldn't appraise. We landed on $157k, a waived appraisal contingency, and as is.

Thank you for your interest.

Here are some photos

http://portal.heartlandmls.com/Matrix/Public/Portal.aspx?k=463149XN7JC&p=DE-30846765-826#1

I get what you're saying @Account Closed.  I've tried to find a mentor that can give me some direction but have not found a willing individual as of yet. They're too busy with their own life and business, and I get that. Thanks for making sure I don't find the scammers and the suggestions.

@Chad Carson Thanks for the response. I have listened to your podcasts, some of your YouTube videos, and get your emails. I like your philosophy about a lot of things and experience you as having integrity and can appreciate the fact you take time to enjoy your family.

I intentionally spend time with my kids mornings and work afternoon/evenings. I want to maximize my time and I believe the right coach could bring me value in that area. I'm pretty cautious about scammers and pretty reserved to jumping in.

Thanks again and if you have any recommendations please let me know and I'll look into it.