All Forum Posts by: Edgar Collado

@Aly W. Thanks for the note.  I'm relatively new to the area and don't know Palm Beach County well.  I'll have to start researching.  Maybe if you don't mind we can get together for coffee and a quick chat at some point.  I'll PM you.  Thanks.

@Wendell De Guzman You just gave me a great idea of how to kick start my real estate career.  I will become one of those wholesaling guros and make tons of money by giving people bad advice!  You have to admit, these guys are pretty genius in their ability to get people to sign up.

Hi @Aly W. That's a good point.  I know there is a lot of competition from foreign investors, but never thought about the fact they would rather just invest in something than have the money sitting.  Tough to compete with when I'm actually looking to make a good return!  I was hoping to stay in Broward for now and will keep trying to learn the market.  Might have to consider SFRs if the numbers don't work on MFs.  Uhum... (clearing my throat), you wouldn't have a property you are looking to sell by any chance. :-)

@Kevin Tran I agree with you 100% and my focus on this was on cash.  @Account Closed was asking about cap rate so thought I'd justify my use of it a bit, but it is no way how I would base this decision. I think both cap rate and GRM on their own are meaningless, but either one when compared to another property or market will provide insight (or feel) to whether the price of the property is in line or not with the market. End of the day, decision is made on whether the $$ out of the property justifies the purchase price. Like you said, on this one I just can't see it. The seller and agent is trying to use cap rate to lure someone in, but they ignore reserves and vacancy in their allowance...and are using their current taxes (maybe fair), but I know the taxes will be based on my purchase price not the current rate. Thanks to both of you for your feedback.

@Account Closed Cap rate on it's own means nothing to me...I simply use it as another metric to compare properties. To your point, however, it is difficult to know what is a good cap rate without knowing market cap rates, but the way I see it if "market" cap rate is 6-8% (major assumption) and I can get 10% then I'm doing better than market. Either because I got in at a good price or can maximize NOI somehow. I do look at GRM...for this deal using my numbers and the $450K price the GRM is almost 9, which if I recall is very high. During my real estate days we were looking for GRMs of 5 or less, but again it is all relative. At a GRM of 5, the price would be the same $250K I derived using the cash flow. GRM would definitely be easier to discover if I could find sold properties and determine gross rents. For this example, however, my focus was on the cash flow and COC. And the difference between the stated returns and my numbers are vastly different. Thx.

Nathan Rich welcome to BP and good luck!

Hi Gustavo AL and welcome. I too am in the Miami area. I agree that the market seems competitive but feel that there are always deals to find. That being said I'm still very new to this area and am trying to learn as much as possible. The issue here is the influx of cash from South America. Especially from Venezuelan exiles and Brazilian expats. They are buying everything up and paying cash! Immerse yourself in this community, in your local investor crowd, and think out of the box and your chances might improve. Best of luck and feel free to reach out if I can ever be of any assistance.

Bob Bowling Excellent question. I don't have them. I'm new in this market and still researching. Most of the listings I see claim a pro forma cap rate of 6-8% but I don't know what is reasonable for the area. I do know (or think) that 2% is too low and my target is 10%. That is definitely on my short list of data points to research. Any suggestions on how I can find it for comparable properties? I'm going to try to get a sense by talking to local investors but don't know of an "official" source. Does loopnet keep a database of sold listings? Thx.

Hi Jeff James and welcome to BP! Good luck!

Hi all, so I have been scouring MFs listings that I see in my area and find that it is almost impossible to make the numbers work. I am curious to get your thoughts on a property that popped up on Loopnet. Now, I know MLS, Loopnet, etc. are not necessarily the best sources, but I am just baffled by the numbers that I see. So much so that I wonder what is going through the seller's mind. Are they 1)Completely oblivious, 2)out of their mind, or 3)are looking for a sucker. Anyway, here is the deal that I saw today. On the left is what the listing agent (who I think is also the owner or at least a partner) provided and on the right is my analysis. I would appreciate all of your general thoughts on this seller's motivation (or lack thereof) and on my breakdown of the costs below. Granted, I have not seen the property or verified all costs so this is just a rough sketch. Am I not seeing something here??? Thanks.

Property Detail

6 unit multifamily in Broward County, Florida, 5 1/1's and one 2/1, Owner pays water, garbage and electric (I assume for common areas). From the pictures the property looks clean and well maintained. Based on tax records looks like it was last sold in 2011 for $300K or so. Current rents average around $760/month/unit. I looked on Rentometer and looks like the 1 bedrooms are at or near market, but he 2 bedroom could be a few hundred below market. 3 of the units have one year leases, other three are on month to month.

Financials

Asking price $450,000

                                                 Listing/Agent #s         My numbers

Gross Rent                               4,560                          4,560

Taxes                                       (620)                            (713) – I know tax rate is ~1.9% of purchase price

Insurance                                 (190)                            (375) – Owner provided seems very low especially given hurricane, flood and the high rate of insurance in Florida

Utilities                                      (750)                           (750) – took as given, but would verify

Mtce & Misc                              (320)                           (456) – Owner low, assuming 10%

Capex reserve (0) (456) – assume 10%

Prop Mgmt                                   (0)                             (456) – assuming 10%

Vacancy                                        (0)                             (364) – assuming 8%, appx 1 month

Total Exp.                                 (1,880)                          (3,570)

NOI (Mnthly) 2,680 990

NOI (Yr) 32,160 11,880

Cap Rate%                                  7.1%                           2.6%

Now, if I assume a traditional commercial loan, just for comparison purposes I’ll assume I put 25% down, plus 3% closing costs (not sure if this is reasonable), and am assuming no immediate repairs needed. Total initial out of pocket is $126K and total loan amount is $337,500 @5%.

Mnthly PI                                   $1,812                           $1,812

Mnthly CF                                  $868                               ($822) – negative cash flow! All you need is a major repair for this to happen.

Annual CF                                $10,416                          ($9,864) Ugh! Imagine losing $10K a year

COC 8.2% -7.8% loss!

Hope this makes sense. If it doesn't let me know your thoughts. I would appreciate your feedback if I am missing anything, or am being too conservative w/ my assumptions. Based on my numbers not sure I would pay more than $250K for this property. Then again, I do have a ton of reserves here that if the property is well maintained can convert to cash flow. I look forward to your comments.