All Forum Posts by: Michael Newman

Jim, thanks very much.

I just want to make sure I understand the Downtime issue more specifically.  I put together some numbers based on above and the avg rent for the units in the bldg.

Overall Vacancy Rate for the building is 8% with 2% Bad Debt, which is 9.6 total unit months (8 units x 12 months total 96 unit months/yr for the building).  This totals about $10,900.

Turnover months vacant for one unit per year at 1.5 month per unit costs $1,700

Re-lease commissions at $300/unit total $2400

New Lease Commission Costs at one months rent for two units total $2300

Total vacancy/Turnover/Lease costs for the bldg per year total approx $17,300.

I had $14,300 above accounting for all--so short about $3,000.

What do you think of this calculation?

So property taxes at 2.5% of value for my price would be $18,000.  That is really high.  To get my figure I used the 2016 assessment of $200,000, which yielded a tax of $3300--actual for last year.  I then multiplied this by 4 (assuming a $800,000 new value) to yielded a tax of about $13,000.  Its so complicated to figure out taxes.  

Thanks

Michael

 Joe, 

 Two units are completely vacant. The remaining units were either rented while other parts of the building were being renovated  for a below market rate, or rented more recently in the past month or so, but still below the pro forma rate of 1250. The current range of rents is $800-$1200.

 The pro forma rate of $1250 is exactly in line with immediate area rents. The units in this building are also quite a bit larger than anything being offered in the immediate area. 

Thank. Michael

Hey all,  Hoping to get some assistance on the property analysis below.  I like this property itself--recently renovated, big units, good area, and the $ per unit while on the high end has some comps likewise in the area.  That said, in comparing the offering current/proforma numbers to my, more conservative number crunching, it doesn't yield a big profit incentive.  Looking for some feedback on whether my numbers/assumptions/planning are just plain off.  Of note, the property was just finished so in process of being rented out--so the current rent is skewed downward, and pro forma are more likely reflective of year two I figure. I have maintenance low for the first two years given the just finished renovations--but increasing in later years.  I also plan to invest in utility saving measures immediately so these expenses are reflective of that.  I typically increase rents/expenses 2-3% year on year, and try to account for all expenses I can think of.  

Lastly, I apologize for the formatting--can't seem to get the table to transfer nicely.

Ok, have at it--critical comments very welcome. Thanks. Michael.

Can you tell me the cap rate at the time of purchase for the building and what you see as the avg in that neighborhood?  Thanks. 

Warren,

 I had a similar forum post that might help you if you look it up. I have spoken to lenders, property managers, and brokers in the area as well as done some research on individual neighborhoods.  Welcome others input but the indications I first got were that neighborhoods in the southside but more towards the northern portion like Westlawn, bronzeVille, Washington Park and Jackson Park, were thought to be  more upwardly trending than those a further south. Definitely block to block though in most areas.  One of the bigger issues that I see with the area although people more immersed in it who live and work there were less concerned, is that there is a demographic outflow from the south side and there is a lot of crime.   Laws also typically favor landlord, Illinois budget is in the dumps, and real estate taxes are projected to go up 10% for this year's assessment. That said Chicago is a very economically diverse area, with the right due diligence and number crunching I think there's good opportunity there and it still on my list of locations as an investment. I however was looking at larger multi family buildings.  

Mike

Thanks for article. It is definitely a concern and I am looking at a couple other markets as well. I also am trying to be very conservative in my analysis of each property I review, and researching as much as I can before I go out and walk neighborhoods and properties in person. I am trying to focus on areas which are stable and have good growth anchor points like the Obama Library.  I also have been considering the macroeconomic forces of Chicago which to me indicate it won't go the way of Detroit, that it can be a good opportunity to get into a market early in a turn around, and I have some albeit historical familiarity there when I lived there. Nothing is set in stone, all part of my due diligence.

Appreciate the insight. Thx. 

Michael

Quick, I hope additional question on figuring out the right amount of cap reserves to hold per month. I see lots of per unit figures in the range of $250-$400, but when I account for all the things that cap reserves will need to buy in the coming 8ish years like flooring, refrigerator, hvac, oven, dishwasher, microwave, fixtures, water heater, etc...I always come up with a figure ($500-$700) that is quite a bit more than anyone else seems to use. I add up all the expenses, divide the total by 8 years and then again by 12 months. This does not even account for 20-30 yr items like roof, windows, structure that will last longer than my time horizon. What am I doing wrong? Or am I right and I just need to allocate based on my understanding?  Thanks for the thoughts. 

thanks for all the thoughts, factoring them into my research. 

Trying to narrow down locals into anchors/hubs in this regard, like the Presidential library, Mariano's, and UofC. Any others people know of?

Ben, I have a SFR in Herndon and use McEnearney property management, which I have been happy with.