All Forum Posts by: Shane Craig

 I would look at Michael Blank's multifamily stuff IMO.   I got a sweet deal calculator from his services several years ago and it is my mini-bible in this kind of decision.

My personal thought is if it cash flows, even low, then I like equity.   You just need some reserves for issues and you can take out the equity when the interest rates drop to keep on keepin on with a new property.   That is my style though, both approaches can be appropriate.  

@Shane Craig Normally I would say that you should have a combination of cash flow and equity but that is an awful lot of equity. The concern that comes to mind is what your exit strategy options are. Whenever you decide to sell, who is your end buyer? If there is little to no cash flow, how much can you sell these properties for? You may not be able to sell them to an investor at market value. If that's the case, how much equity will you really have. The other concern that comes to mind is that there doesn't seem to be a lot of opportunity to increase cash flow through increased rents. The data that I see shows rents fairly flat in your market. Just some things to consider but I don't think you can ignore the potential for that kind of equity if it's real.

@Shane Craig Normally I would say that you should have a combination of cash flow and equity but that is an awful lot of equity. The concern that comes to mind is what your exit strategy options are. Whenever you decide to sell, who is your end buyer? If there is little to no cash flow, how much can you sell these properties for? You may not be able to sell them to an investor at market value. If that's the case, how much equity will you really have. The other concern that comes to mind is that there doesn't seem to be a lot of opportunity to increase cash flow through increased rents. The data that I see shows rents fairly flat in your market. Just some things to consider but I don't think you can ignore the potential for that kind of equity if it's real.

@Shane Craig

Do you need the cashflow now or can you wait?

Quick thought… Can you sell off 10-12 houses to pay off the loan and keep 5 - 7? By doing this you can have a cashflow of 4000-5000+ per month and own them free and clear. Yes it may take time to sell them off but its the same equity amount (ish) but more then twice your projected cashflow…

Sounds like a decent deal if your ok with waiting on the cashflow and equity..

@Shane Craig asset rich and cash poor!

How many can you raise the rents on?

What's your projected CoC return? Unless you have better opportunities at your disposal, it sounds like you're getting a pretty good discount given the volume. Is there opportunity to reduce expenses/operate more efficiently?

Shane - I think you need to treat this as a multifamily analysis and do an "As Is" cash flow assuming the current rent and current expenses, but then also do a "pro forma" cash flow assuming future rents and future expenses. I would look at ways you can increase the income (especially if below market rents) or decrease the expenses (insurance payments, property management fees, etc...). I would compare each property's rents to current "market rents" and if their is opportunity to increase $100-$200 per house without or very little improvements/renovations that might be enough to change your perspective. However, if each house's condition is not good and you need to put $10-$20k into each house in order to garner "market rents" that would be a different story. Happy to talk off line if that would help. Also, if you're getting a loan on the deal the lenders might look at this from a multifamily perspective and not give as much weight to the residential ARV and they may look at overall Net Operating Income from the entire deal and apply a cap rate to come up with a value. Therefore, the operations/income of the deal could impact value (and therefore your equity) depending upon how your lender reviews the deal. I would share the mechanics of the deal with them and inquire how they would underwrite it. Good Luck!

Cash flow keeps you afloat/retaining, but equity/appreciation make you rich. If I had to choose one vs. the other, then I would prefer cash flow since it keeps me owning/alive with my properties.