All Forum Posts by: Sohrab Ansari

Sohrab Ansari i would show the agent the numbers and explain the NOI is $27k and based on that I will offer X. I have other deals I can look at where the NOI is similar and can get them at a 7% cap

One word of caution, don’t assume insurance can be cheaper (next to lake) and for electrical if they are all off one meter or units are wired together to Submeter could be near impossible or very expensive.

You make a great point about insurance. I offer $430 and they backed out and thought was insulting. I guess I have to make the offer if they don't accept I need to move on. Electric is 3 meters, I was thinking of charging tenants flat rate for electric, gas, trash, water etc.

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I have a 10 unit under contract. It is in a decent area with decent school district. It is in a two acre lot.

Property details

3 two bedrooms
3 studios (very small)
4 1 bedrooms
10 feet deeded lake access. it is not being used now.
Most units are really clean and recently updated 7/10 units.
Recent roof
rents are about ~$150-200 under market value.
you can add a unit by building one
100% occupied, most tenants have been there more than 2 years.

Under contract for $512,000

Last year gross income was 80K.

Expenses based on actual

Insurance $9050 (They paying too much for this. I am sure I can decrease to half but like to see what others are thinking)
repairs $5500
Supplies $1600
Taxes $12,561 (based on my assessment, this expense will increase to $16K after sell)
Utilities $13309 (Will have tenants pay this. The current owner paying all expenses)
Others (snow removal, labor, etc) $11,939 (most of half of this expenses is non recurring)

NOI = $27K (without management fee and vacancy)

Cap rate of 7% valuation = $385K

At stabilization (after rent increases, passing on the utilities, controlling expense, etc) the NOI will be = $52K

Value at stabilization = ~$750K

Negatives are

1. It be hard to reseller in the future due to weird buildings out lays and small units ( but I am not planning to sell it. My plan is to refinance and get my down payment back in 18-24 months.)

The agent presented that the NOI is 47K but after due diligence the NOI is 27K. How can I negotiate the price down? I offered $430K the owner thought this was an insult. What would you counter offer after finding the NOI is not what they presented and it also needs the electric box to be replace (~4k) and insulating the attic (~8K).

Please look at the pictures. Would you pursue it or look for better deals. What would your counter offer be or would you buy at price that is under contract? thanks

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Still cannot decide. Anyone else like to share their thoughts? Thanks

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Originally posted by @Matthew Paul:

I dont know the area , But it looks to me like a non conforming use . the price may be high , but depending on the zoning the value could be in the land . And if its a non conforming there will be no comps to compare it to .

What is non conforming use?

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Originally posted by @Nicholas Weckstein:

In my opinion it seems like the seller/agent valued and did the “underwriting” wrong.

You said at a 7% cap would be roughly 385k?
What are cap rates in the area ?

Seems to me like that 500k price you have it under contract for is way to high.

I underwrite properties like this

Gross rental income
-all expenses (utilities, lawn care, insurance etc)
-10% vacancy
-10% cap ex
-10% management fee
———————————-
= NOI

Seems that the seller didn’t value properly.

At the sale price your talking about roughly a 5% cap rate. That’s not to great nor worth the hassle. Unless the place will go up in value.

So again you have to say what type of return would be the least I would accept. Find that number and that’s the most you should pay.

The market cap is 7-8%. Idk how people will response to the increase in rent and utilities. I am sure I will have some move outs. The property is rented 150-200 a unit very conservatively lower than market. I am sure there is room to increase rent. some tenants have been there for 8 years and pay the same rent. The owner is 74 years old

1 Vote

bump

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I have a 10 unit under contract. It is in a decent area with decent school district. It is in a two acre lot.

Property details

3 two bedrooms
3 studios (very small)
4 1 bedrooms
10 feet deeded lake access. it is not being used now.
Most units are really clean and recently updated 7/10 units.
Recent roof
rents are about ~$150-200 under market value.
you can add a unit by building one
100% occupied, most tenants have been there more than 2 years.

Under contract for $512,000

Last year gross income was 80K.

Expenses based on actual

Insurance $9050 (They paying too much for this. I am sure I can decrease to half but like to see what others are thinking)
repairs $5500
Supplies $1600
Taxes $12,561 (based on my assessment, this expense will increase to $16K after sell)
Utilities $13309 (Will have tenants pay this. The current owner paying all expenses)
Others (snow removal, labor, etc) $11,939 (most of half of this expenses is non recurring)

NOI = $27K (without management fee and vacancy)

Cap rate of 7% valuation = $385K

At stabilization (after rent increases, passing on the utilities, controlling expense, etc) the NOI will be = $52K

Value at stabilization = ~$750K

Negatives are

1. It be hard to reseller in the future due to weird buildings out lays and small units ( but I am not planning to sell it. My plan is to refinance and get my down payment back in 18-24 months.)

Please look at the pictures. Would you pursue it or look for better deals. What would your counter offer be or would you buy at price that is under contract? thanks

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Originally posted by @Olivia Jones:

Well, @Sohrab Ansari, I cannot believe that a property of that age needs to repairs. When was the property renovated and updated? I think maintenance figures are low. That's great for insurance. And do you know and trust property management people? And shouldn't they be handling grass, etc?

The property had major deferred maintenance. I decided not to pursue it. It set me back about $1,700 in inspection fees. Lesson learned was to do a walk through first before ordering inspections.

I have another 10 units under contract. It is in a very desirable are for $512.5K.

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Originally posted by @Chinmay J.:

Some things obviously stand out...

Cost of Repairs only $5000 - What kind of repairs are needed in this case? You need to do thorough inspection of the property and make the list yourself. How old is the roof? How old are the water heaters? $5000 would just get eaten up in painting all the 11 units. You can't just trust whatever the seller tells you.
Does the building use commercial cooling system or they have window units?
Who pays for the utilities?
How are the rent rolls? What kind of lease the tenants are on? MTM or Long Term lease? You can't just raise the rent in the middle of the lease.
Why is the downside that the property was built in 1950? There are plenty of old properties out there. As long as there aren't any foundation issues, and most things replaced, you should be fine. At that point the only thing that is from Eisenhower era is the frame.

I would advise you NOT do such a big deal right off the bat. Your first at bat doesn't have to be a grand slam. A single is just fine. If at all you want to do this, I would advise a very, very experienced commercial real estate agent to represent you.

Just because you have money and might have achieved success in corporate world doesn't mean you won't make costly mistakes in this world.

These are some of things I could think off the top of my mind. I am sure some experienced folks can come up with lot more insightful points.

It don't need any repairs. It was cost of my closing 5000. Haven't done any inspection yet.

It is a converted to multi units. 3 of them efficiencies or studios (these are small units on slab on the side of the building) 1 building 4 units and another building 4 units. I don't know what they use right now.

Roof was replace in 2005.

Part of the utilities are paid by the landlord. Looking to bill the tenant.

The property is back on the market because the buying couldn't get financing. The price they negotiated is 475K. I will make an offer tomorrow.

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Originally posted by @Joel Owens:

Are you currently paying above,below,or at market rents for the type of business and space you occupy?

You need to talk with your tax accountant for tax planning strategies.

Lenders will generally only go up to a max of 75% of appraised value to pull any money out. Some are more conservative then that.

No legal advice given.

Below market rents. The type of business and facility rents from 25-35/sqft. It is 1833sqft.

My tax accountant said don't do it to save taxes. We never spoke about evaluation of the building.

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All Forum Posts by: Sohrab Ansari

Sohrab Ansari has started 12 posts and replied 49 times.

Post: Help me analyze this deal. Thx

Post: Help me analyze this deal. Thx

Post: Help me close this deal or NOT...

Post: Help me close this deal or NOT...

Post: Help me close this deal or NOT...

Post: Help me close this deal or NOT...

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Post: Help!! what is keeping me from NOT doing this. :((((

Post: Help!! what is keeping me from NOT doing this. :((((

Post: How can I raise my property value?