All Forum Posts by: Nick Romano

@Matt R. I know what you're talking about!  Especially here in Boston these properties with Cap Rate of 10% and crazy cash flow are impossible to come by.  

If this property was ready to rent and didn't need work I would have finalized it today.  Instead, I have decided to retract my offer of $770k and re-offered $710k after inspection.  While the numbers would have made sense at $760k (I could have bought at $760k) the property needed work and every drip of cash flow would have been going into the property.  Also, the rents would have needed to be raised from $1150 to $1400 to really make sense (fair for the area).  With tenants of 8-15 years in the building who knows how they would react to such rent hikes.  The last thing I need is to get super leveraged then have vacancy rates I cant afford, renovations to do and a jumbo mortgage to pay.! Putting down 20% would have been about 70% of my life savings.  And going super leveraged, putting most of my savings on the line, and continuing work made me think twice on this property.  

I'm still dying to get my first multifamily under my belt but this was one hell of a learning experience.  The inspection cost me $900 today.  It was the best $900 class I have ever taken.

I'm ready for the next!!  Hoping to find my next property soon!

Thanks!

@Brett Merrill sounds like your taking all the right steps!  I'm also hooked on the BP podcasts.  Such inspiring stories they have on there.  One thing I've realized looking in the Boston area is that deals are hard to come by here.  People are willing to pay prices that don't make sense when I put it through all my calculations.  What part of western mass are you looking into?  I'm currently looking into places in Boston or south of Boston (Quincy, Southie, Dorchester areas) but its tough out there!  Best of luck!

Hi all- Please no election posts on this thread...we see them everywhere else :-).

This has been an amazing discussion with real numbers that provided a great example.

Just so we're on the same page and I know what a good investment opportunity would look like, see below. If we change a factor making the rents $1400/month and the purchase price to $755,000 THE DEAL WORKS?? According to my calculations with $755k purchase price and $5600/month in rent this property will cash flow and be a good investment. See the calculation below and let me know what you guys think.

-Rent- $5600 ($1400x4)

-Utilities: All tenants pay their own utilities (Gas, oil, heat...not water)

-Water Bill: $650/Quarterly- Paid by owner (me)- $2600/yr

-Taxes: $1700/Quarterly- $6800/yr

-Home Insurance: $4307/year (This went up from initial calculation)

-Flood insurance (needed): $2001/year

-CapEX- 12% of rent @ $672/month ($8,064/yr)

-Lawn care: $30/month

-Electric- $15/month (verified)

-Snow removal $50/month

-Vacancy rate: $168/month (3%)

-New roof 2013

-New hot water heaters

-New electrical

-Mortgage info:

-Purchase price: $755,000

-20% down: $151,000

-30 year fixed @ 3.708% (**Current level)

-Total mortgage payment (including taxes, ins, etc)= $4,193.67/Month

-Total income from rent= $5,600

-RAW Cash flow: $1,406.33/month

-Calculated Cash Flow: $471.33

-Cap Rate: 5.75% (using 12% CapEx)- This Cap Rate may be a little high but its close.

So, this would be an example of a multifamily one would look to buy?  Would we all agree on that?

 Yes I totally agree.  Of course high value properties will require smaller percentages.  But rather be on the safe side.  I have a good idea what going into tomorrows inspection with.  I'll re-evaluate the property once I get the inspection.

Thanks!

@Owen Dashner This has got to be the best community around.  You're right, I may be trying to make a good deal out of a bad one.  But while chatting with everyone on this thread I'm learning so much! 

I have recalculated CAP Rate to about 4%.

More importantly, Cash flow After including all expenses (snow, lawn, time, CapX of $500 per month, admin, electrical, and vacancy) is pretty much a break even property.

It's funny how a property can be "cash flowing" over $900 but when you back out hidden costs it can turn into a break even situation.

Thanks so much for the input on this deal everyone.  I have the inspection going tomorrow morning, which I'm going to move forward with regardless as a learning experience.  After the inspection I'll renegotiate the purchase price and if it can't get to the number that works I'll keep searching.

Thanks again BP community!  Please feel free to keep the comments rolling.  It all helps!

@Russell Brazil the property is located in North Quincy, MA (Zipcode- 02171)

@Owen Dashner one last question:

See numbers below.  Some of the CapX isn't factored in but do you still think this wouldn't cash flow?  Vacancy will be near 0%...the market is very hot.  Even if we reserved $500/month (over 10% of monthly rent ) for Capx and Maintenance it would cash flow, no?  

Do you think it would be worth it to put 25% down to get it cash flowing?

-Utilities: All tenants pay their own utilities (Gas, oil, heat...not water)

-Water Bill: $650/Quarterly- Paid by owner (me)- $2600/yr

-Taxes: $1700/Quarterly- $6800/yr

-Home Insurance: $2150/year

-Flood insurance (needed): $2001/year

-New roof 2013

-New hot water heaters

-New electrical

-Mortgage info:

-Purchase price: $770,000

-20% down: $154,000

-30 year fixed @ 3.708% (**Current level)

-Total mortgage payment (including taxes, ins, etc)= $4,004.24/Month

-Total income from rent= $4,930.00

-Cash flow: $925.76/month 

Also, if we do throw in 5% for CapX and 5% for Maintanance (totaling $6000/year) it would bring the Cap Rate down to 5%.

$59,160 (rent)-$6,800(taxes)- $2,150(ins)- $2,600(Water)- 2001.00(ins)- $6000 CapX/Maintenance /$770,000(purch price)= 5% CAP RATE 

@Lior Rozhansky here is the forum below:

https://www.biggerpockets.com/forums/311/topics/376093-low-cap-rate-but-good-cash-flowshould-i-buy-it?page=1#p2377830

@Lior Rozhansky what a great post!  I'm looking at a multi family right now and am in the middle of analyzing all the data.  The Cap Rate looks to be around 5% and cash flow looks pretty solid.  Its a 4 family house (all 2 bed 1 baths) which is being rented well below market.  Could use a facelift on the bathroom and kitchen but nothing too bad. Just had a new roof in 2013.  I've started a few discussions on it I wonder what you'd think??