All Forum Posts by: Michael Moikeha

Welcome to BP! I am newer to the REI industry, but I have a passion towards the same niche. Currently our goal is to do some marketing to seniors who may have the 10 - 20 unit complexes that they have had for years, and see if they are interested in selling. Then we will go from there, depending on the deal we may group with investors, or assign it to someone else.

Our end goal is to leverage places till we own 500+ units.

Wish you the best of luck!

The more amenities there are in a complex, the more you charge for rent, and that extra is added into that margin. This applies to places that are runnin smooth, and there is no deferred maintainence. If there is, then you really run into the risk of having things go bad, and that is negotiated before closing.

@Tyler Robertson

CAP rate is a term used in multifamily properties, and it is the NOI over the cost/value of the property.

Starting off, your best option will be to purchase local, and in a proximal area, as this will make it easy to visit all your properties. As you gain skills, you can create teams, but you ALWAYS want boots on the ground in the area you are buying.

I tell everyone to find a local REI group. Network, set up informational interviews, and between this resource, and that, you will be able to gain all the knowledge you need!

Good Luck!

@Nick Fitzpatrick

Stream line your approach by leveraging local experts. Have a general idea of the market you would like to invest in, then call up the top commercial brokerage firms and set appointments; at least 3 of them. Pick their brains on the best and worst places within your market, ask for any market reports that they create as a firm, then leverage the data across all 3 sources.

Finish it up with some due diligence on the exact areas you are narrowed down too, and make sure all their facts line up.

First quarter 2014 market reports should be available now.

location effects the type of people you will be able to fill the units with. Nicer area means nicer people. Nice people tend to avoid dangerous locations, and this means high turn over, or shady renters.

In places like this, you run into more people who have no respect for your property. Your management costs will be higher, and your repairs and cleaning between tenants will be more costly.

Now, you could get lucky and fill the place with great tenants, but the above would be the risk you would run.

Weigh the risks, and decide if it's worth the extra TLC it will require to manage, for a better cash on cash.

@Luke S. There should still be cap rate information that a local commercial broker can offer you. I have 3 Market reports for my region for the first quarter of 2014, and they survey the market, and offer stats. One of them has by area, cap rate ranges for pre 1990 and post 1990.

That would be the best place for you to find out the average cap. If your cap is "10%", and your local market average is 6.5, then you know you can raise the price by 3.5%.

Technically though, you shouldn't refer to it as raising the cap rate, because you shouldn't sell your place at the same price you purchased it at. I know that sounds obvious, but that would be the only way you could then say the cap rate is 10%. If that makes sense.

What you are actually doing, is increasing the value of the property, because your CAP rate should typically remain around the market average when the place is operating at its prime.

In commercial, it is typically understood that actual numbers are going to be expected before an offer is given. In SFH you can determine market value through comps, but in MF properties, the value of the property is based on the numbers.

There must be some disconnect between what she is asking for, and what you are asking for.

@Justin Williams

I don't understand what you are trying to say in the #2 portion of your answer to @Wendell De Guzman on the 70% rule.

From my understanding, it is 70% ARV less flipping costs.

So, if I have a home that is $200,000 ARV, and it will cost $20,000 for the flip, then you wouldn't pay any higher than $120,000.

In that $20,000 dollars, all the items and fees you mention in your #2 as why the 70% rule isn't sound should be factored in. You mentioned that this doesn't offer a very accurate estimate on what you are doing.

So what category do all these other "things" fall into that you described, and why is this not a good estimate, as when you are using the rule properly, you are factoring those "things" in?

Typical expenses on a commercial MF property is 40%- 50%, and part of that money goes to building your reserve. make sure you allow room for that in your expenses when you are calculating the NOI, and evaluating your cash on cash and ROI.

The weather did mess with any type of normal conditions that would naturally be seen in past years. That probably was the largest factor. Bill S. is also correct, you don't want it to be cheaper that int should be or you seem like a shady landlord.

I heard a story from an investor who was promising 10%-15% return on investments, and the people he was pitching thought he was trying to rob them. They "knew" that in the investor market, 5% was an average return on investments. The investors didn't understand the RE market. After he lowered their returns, and repitched the project, people signed on, and he came away with a larger profit because of it!