All Forum Posts by: Paul Smythe

@Account Closed the seller just wants to feel comfortable with you and your ability to run the property by "underwriting" you. Explain to them your past investment experience. I wouldn't include include education unless it's relevant. No need to get too personal. Just explain what makes you qualified to run this investment.

Do not just walk away from this investment because information isn't readily available to you. It's entirely possible that you have a potential opportunity here.

A few notes regarding points I've read so far that I strongly (respectfully) disagree with:

• Current financials on the property are absolutely relevant as the bank will want to see what income the property generates.
• That said, you shouldn't walk from an investment just because you can't get financials. This strikes me more as an opportunity for you than as a problem. You could be looking at getting the property for a significantly discounted price because some information is harder to get. I don't know your area, but multifamily rentals don't have much problem filling up right now in a lot of areas.
• You can absolutely use market rents to underwrite the deal, provided you can get inside the units and see if they are up to par for the market. That, or you could find out what it would take to get them up to par. Either way, you should definitely look at what the property could generate by running a conservative market rent analysis.

Keep working to find funding. You "may" be able to find a lender who will lend to you on a distressed deal if you put the $150k down, which would be close to 40%. I bet there's a hard money lender in your area who would look at it to give you short-term, bridge financing. Cash partner would be preferable, though. Just keep searching.

@Sara Als.

I wouldn't really worry too much about what the price was a few years ago. That's useful information that you should ask for, but it shouldn't make or break the deal for you. Maybe they rehabbed it and it's in really good shape now. Maybe the area is on the rise and rental rates are shooting up. Who knows?

What really matters is whether the property in its current state is worth the current price. Things change. Plenty of areas in Atlanta have seen significant growth over the last few years (residential and multifamily). It's not unrealistic to see property values increasing significantly in a new, hot area.

If the cap rate (net income divided by purchase price) meets your target, then it's worth looking into. If it doesn't, probably not.

@Ruel K. "trust but verify"

It's not like that with all brokers. I assume you're looking at bottom of the barrel listings that have been listed for a while and aren't selling. Those listings just stick out because they're priced terribly and are hoping to trick someone into buying. There are a lot more properties that don't last forever because they a fairly priced and realistically represented.

I always try to represent my offerings in the most honest and accurate way possible. Misleading numbers are a waste of time for everyone involved. Buyers can see through it, brokers have more trouble selling because of lost credibility, and sellers have to wait longer to sell because the property is marketed improperly.

I'll come at it from another perspective and say some buyers are too conservative to the point where it isn't realistic and they'll never acquire anything. Being conservative isn't bad thing (especially you're newer), but you want to be conservative and accurate at the same time. I've seen fancy excel analysis spreadsheets/models that churn out pure crap and make a legitimate, cashflowing investment look like a money pit that would push an owner into bankruptcy after a few months. I'm all for being conservative and feeling comfortable with making an investment, but there's got to be a balance.

@Nicholas J. Capital expenditures are not included in the Net Income.

Your goal to nail down the true number is spot-on. Unless this is a situation where you are turning the property around significantly, I'd only use the owner's current numbers to structure your offer.

Some experienced buyers are paying higher prices because they know they'll be able to come in and execute their plan properly. There's less risk because they know what they're doing. If you're newer, I'd be careful and only work off of current numbers.

I think this is a fun exercise, and it sounds like the conversion could be worth it. That said, I think you're operating under a few big assumptions here. None of them are necessarily wrong, but they are important to consider:

• The big one for me is you are assuming that the market cap rate is 4.4% for this property. I would double check that just in case because it's on the lower end. It's clearly a nice property in a nice area if you can get $1,250/month for each unit, but 4.4 is low.
• I would double check the $1,250/month rental rate, as well. Most markets probably won't support that type of rent to live in one unit of a triplex, but it sounds like yours might. Still, I'd do some more research on that.
• The expenses are pretty low, especially if you're converting to a commercial property. Most commercial buyers aren't going to trust your 28% expense ratio and will run their own numbers at closer to 50%. I would run the numbers at a 40% expense ratio and see how they shake out, because that is a little more realistic and would be something a typical buyer would accept.

I don't think it's a bad idea, especially at the numbers you gave. It can be a great way to pull some extra value out of a property, but I'd be cautious. Make sure your cap rate, rents, and expenses are all actually correct/make sense.

@Kevin Martins Without knowing specific knowledge of your market I would say what you're looking at is closer to Class D.

Class C shouldn't have that many problems unless you've got a 1000+ unit property and it's a numbers game where you're bound to at least get a few calls because of how many people there are.

I am looking for a multifamily buyer interested in properties around the Atlanta metro area. Potential off-market opportunities will be available for a buyer interested in $10m+ assets at a 6% cap rate. Some owner financing may be available on some opportunities.

Give me a call at (770) 288-5000 or email me at [email protected].

The expenses are at least 100k too low (unless there's something very unique about the property pushing rents up or expenses down). Realistically you will be looking at 250-300k expenses (40-50% of gross rents). With those updated expenses, the NOI is going to be around $310-360k and a 5.5-6.5% cap rate.

At that point it becomes a question of what your investment requirements are and what type of return you'd like to see. You can do better, but it also doesn't mean it's a bad investment. I'd recommend finding out what the cap rates are for the area.

@Jason Bruning historic buildings can be a huge pain with permits and other similar things, but that shouldn't prevent you from considering the deal. If the numbers make sense and you think you have a good plan in place then it's worth a look.