All Forum Posts by: Account Closed
Account Closed has started 7 posts and replied 22 times.
Post: Is This 26 Unit Apartment Priced Too High?
- Investor
- Philadelphia, PA
- Posts 25
- Votes 10
Originally posted by @Todd Keith:
Hi @Account Closed - I'm suspicious about the low OpEx too, but at the same time there's that little voice in my head that keeps saying "What if...."
Just curious: If you saw OpEx of 26% would you just walk away?
Yes! If OpEx is being reported at 26% than economically speaking, the market would not support it. There would be a huge influx of dollars to that market since this would mean that the properties in this area are reporting high income and low expense. It doesn't make sense.
Again, I would stick to my rules and walk if a property doesn't show at least 45-50% Op Ex. There is no point of me digging further because I know when I underwrite, the numbers will just not work. And when it comes to DD and I find out the numbers actually do not work, then I just wasted all my time. I would advice you not think "What if..." and rather let the numbers and your analysis of the market do the talking. Hope this helps!
Post: Is This 26 Unit Apartment Priced Too High?
- Investor
- Philadelphia, PA
- Posts 25
- Votes 10
I generally wouldn't even look at a deal or offering memorandum if the broker/owner is reporting the expense less than 45-50% of the income.
Post: Is This 26 Unit Apartment Priced Too High?
- Investor
- Philadelphia, PA
- Posts 25
- Votes 10
Originally posted by @Michael Le:
Originally posted by @Todd Keith:
@Michael Le - Yeah. That OpEx does seem mighty low. My rule of thumb is usually 45%.
As for why I think it's priced high, I like to find property at $25K per door or less. At $1 million, the price per door is $38K. Aside from that rule of thumb, I shoot for $100/door in cash flow. At $1 million, with financing, this one negative cash flows.
This is what makes me think the price is too high.
If I gave the full asking price, and financed it at 5%, (10% down, 5 year balloon, 30 year amortized), I would be negative cashflowing to the tune of $-14 per month/per unit ($-364).
Underwriting
The seller is willing to finance the deal at 10% down and 8% interest. (I think I can beat that)
I'm looking at private money lenders for financing.
My quick numbers. I might be missing something.
Gross Potential Income: $163,800
Vacancy (10%): -$16,380
Laundry: $6,000
Total Income: $153,420
Expenses (25.14%): $40,104
NOI: $113,316
So you're borrowing $900k @ 5% over 30 years Am.
Debt service: $57,972
Replacement Reserves ($300/unit): $7,800
Net Cash Flow: $47,544
That seems like great returns on $100k down payment. Where does the negative cash flow come into the picture? Maybe my numbers are messed up somewhere.
This is a good analysis. Also, keep in mind there are acquisition, lender required reserves, and closing costs. So it really wouldn't just be $100k out of pocket.
Post: Age of an Apartment Building
- Investor
- Philadelphia, PA
- Posts 25
- Votes 10
For those of you who currently own/ invest in Multifamily (50 units above)- what is your criteria in taking into consideration the Age of the property? (i.e. will you invest in a property that was built in 1942? or one that is 50 years old?, or just recent ones?) Any specific criteria you have regarding age of buildings in multifamily? Would love to hear your thoughts
Post: We've Improved Our Search Experience!
- Investor
- Philadelphia, PA
- Posts 25
- Votes 10
@Mindy JensenHow do you search inside a specific forum?
Post: Due Diligence Training
- Investor
- Philadelphia, PA
- Posts 25
- Votes 10
Hi BP - Would anyone know of any Multifamily Due Diligence training (books, seminar, gurus, etc...) available? I am always trying to enhance my DD skills and would love to see what others are doing.
Thanks!
Post: Raising Money for Deals
- Investor
- Philadelphia, PA
- Posts 25
- Votes 10
Hi Zachary,
You can go the route of syndication. Issue a high (8+ %) Preferred Rate of Return and a LOW percentage of the upside to the investors. After stabilization (if value add), refinance the property, basically pay off the investors and end up owning majority of the asset.
Post: Real Estate Guys Event - How to Win Funds
- Investor
- Philadelphia, PA
- Posts 25
- Votes 10
HI BP - has anyone ever attended the Real Estate Guys program on "How to Win Funds and Influence People"?
Just wanted to know your feedback on the program if you ever attended.
Thanks
Post: First Apartment Building!
- Investor
- Philadelphia, PA
- Posts 25
- Votes 10
Congrats, Jordan!!! All the best to you
Post: Considering my first commercial property....is this a bad deal?
- Investor
- Philadelphia, PA
- Posts 25
- Votes 10
Hi Sarah,
I reviewed the offering memorandum you supplied. The expenses make up only 20.93% of the income. IMO, that seems low. There are expenses missing such as contract services, trash removal, legal fees, management fees, licenses,permits, pest control, landscaping, any maybe more etc.. But I don't feel comfortable with the fact that expenses are only 21% of the income.
Second, upon reviewing the rent roll, it seems the current rents are already above the market rents. The max current rent for a 1bd/1ba is $1525, where the market rent for the same unit is $1475. That doesn't make me comfortable either. However, it would make me comfortable if you have a plan to address your high rent compared to the market. Will you be doing any value add on this property?
Keep in mind, just one vacant unit will have a severe effect on your income.
Also, keep in mind the acquisition and closing costs related to property inspection, lead paint inspection, lender fees, 3rd party reports, title policy, survey, recording, transfer taxes, and any other lender requires reserves for closing.
In addition, just know that this is just an initial overlook based on what was provided in the OM. You will uncover much more during due diligence. What is the deferred maintenance? repairs costs?, What is the market cap rate and at what rate are you buying at? etc...
Keep these things in mind as you progress to dig further in this property. Feel free to email or call me if you'd like to talk further.
All the best to you!
Mitul