Quote from @Ricardo R.:
@Scott Johnson Looking over your financials for the property I think I need a bit more information or at least clarification. Scott, you're saying you say the purchase price is $1,175,000 and you are financing with a 5yr. balloon on 20 years at an interest of 7.5% at 80%LTV ==== 80% LTV means you are putting 20% as a down payment and the bank (lender) is lending 80% BUT your notes on the financials say that you are only putting down $86,323 which is only roughly a 7.35% down payment - Did you overlook this? OR is the value of the property substantially more than the listed price of $1,175,000 ???
A quick look over the financials:
- I didn't see any insurance factored into the Actuals by the Seller, I do see that you have annotated it but it is not factored in, also for a 12 unit $2,200/yr. insurance seems relatively low, although it may be your area - you should certainly follow up and ask the seller who they use.
As a side note looking at the monthly rent roll, the vacancy for the bldg. is @ 29.65% (economic/physical) or at least it is for the rent roll you provided for that month but is currently @ 12-13% vacancy so far YTD but in 2022 it was around 35.2% vacancy (maybe slightly lower but not much if rents have gone up since then)
If I run the financials you provided the cashflow is negative by @ $4,324/mo. and that's by running it in favor of the property i.e. 20% down payment at 7.5% on 20 years | 12 units rent average of $572/mo. | w/ actual vacancy
Using the numbers you provided the property makes $1/mo. cashflow at a purchase price of $504K
If I run the financial you provided BUT instead using 8% vacancy on the MARKET RENTS - it would start cash flowing @ $831K and lower.
Also, you are missing laundry room income and/or there is potential for a value add in this area
Not sure you and @Charley Gates will truly know how much I learned from your responses. I really appreciate you gentlemen! Here's my updated analysis:
https://cdn.carrot.com/uploads...
Ricardo,
Apologies for the confusion. The down payment for of $86,323 was reflective of the performance numbers, not the purchase price of $1.175 million. I updated my sheet to reflect numbers based on the Listing and numbers based on the properties performance. This also helped me understand your subsequent comments regarding the negative CashFlow.
I found that insurance would be around $4,200/year for the property. I added this into the Actuals and the Pro Forma until I hear back from the listing broker about what the seller's insurance cost has been.
I had to educate myself on 'Economic Vacancy' but I was able to match the numbers you mentioned with what I learned, so I added that to my analysis. I was struggling with figuring out how to use the concept of vacancy in Multi-Family analysis, so this helped me a ton!
In lieu of the 'Court Cost', 'Late Fee', & 'Misc' income in the Pro Forma, I input the 'Vacancy' based on the Economic Vacancy. While I'm not matching your numbers exactly, I feel like I'm close enough to be comfortable with the outcome (even with your 8% Vacancy example which left me at a $812,059 Purchase Price).
Charley,
That's a really interesting concept! I added it to the Listing Information side of my Summary:
Since the Cap Rate is lower than the Mortgage Constant, it shows me immediately that there's negative leverage 😄
