All Forum Posts by: Nick L.

@Simon Cox Looks like you have thought of all operating expenses. You're right around 50% of rents which passes the sniff test. 

One thing I would check is whether you might be liable for a large property tax increase as the place gets re-assessed to the purchase price. 

I don't know the DFW market specifically but from the rents it sounds like this would be on the rougher end of the tenant base. So make sure you are accounting for plenty of vacancies and repairs. 

Are there any major deferred capital expense issues?

As for financing you might look at HUD FHA multifamily loans if the loan size is large enough. They are a great deal if you plan to hold the place for 10 or more years but there are pre pays if you sell before that.

@Account Closed You make this type of comment every time someone mentions a cap rate. Do you have a keyword set so you can pick the same argument every day? It's very tiresome. 

@Andre Smith For each potential deal, you need a careful and conservative analysis of

- Gross potential rents minus vacancies

- Operating expenses including management (even if you self-manage, since your time is not free), landlord-paid utilities, landscaping and a fund for long term capital expenditures, in addition to more obvious items like taxes, insurance and HOA fees

From this you can derive the NOI. With the NOI, price and required rehab you can derive the cap rate.

You can also subtract financing costs from the NOI to determine your cashflow, ROI and ROE. Adjust for differences in expected future performance due to future rents and tenant quality.

Most likely you will see that one deal will outperform the others financially. My guess is that it will be the 70s one. 

It's a huge topic. This forum on BP is the best place to learn about it. You can cut to some of the most important information with a Google search like "site:biggerpockets.com pre-foreclosure". There are some decent books around too.

Foreclosures and pre-foreclosures are very state-specific. You can get a general idea of how it works from reading around, but when you have the concept down you will want to search for or post about specific questions for your state.

Without a doubt, Aaron Mottaghi and @Carrie Hiner at Morris Green Properties. Super professional, very business-minded and very reasonably priced.

@Andre Smith I'm with Leon and Brent. The 70s houses sound like the best deal. 

All houses require maintenance and capital expenditures over time. If the 70s ones have a lot of deferred maintenance, the price and deal structure should reflect the money you will have to put into them immediately. Other than that there's no difference. Most of my rentals are from the 1890s and 1930s, it's just how it is in my neighborhood.

You don't seem to have done a full financial analysis - your financial information is spotty. That would be a necessary next step.

You also didn't mention the quality of neighborhoods. I would pay more for a unit in a growing and popular area of town than I would for one in a blah area, due to anticipated rent growth over time.

There are plenty of markets where you can pick up foreclosures for $20k or less. Foreclosure or retail. The question is, would you want those properties?

Well - you will have a lot of stumbling blocks.

1. Zoning

2. Infrastructure

3. Nowhere near enough cash

4. Lack of experience

But that doesn't mean you can't do it. Why not talk the plan through with a local commercial lender. If it makes sense at an overall business level they might be able to connect you with a potential partner or other people who can help you move the project along.

@Derek Daun Well said. Another huge factor is the availability of financing.

@Luke S. Absolutely nothing unusual about that. You make a good purchase, increase the NOI, pay down some debt, double your equity and move on (via a 1031 if you're smart).

The appraiser won't care what you paid for it, as long it's a reasonable current cap rate vs comparable properties. I don't know anything about your market but an 8 cap sounds very fair in much of the midwest.