All Forum Posts by: Patrick Hall

Thanks So much....so.....Heat is on a central boiler so that is what the "electric" is for.  Of course that is a significant hit to the buyer/cost of operations.

So I like your input as your numbers are closer to what I assume.  I was cutting down just to see if it made sense at all.  

I concur with your thoughts. Even with a healthy down, your ROI just gets hit that much more. If you can make 10 on 20, 20 on 80 doesn't make sense!!! Right.

Thanks for the quick view.  Appreciate it greatly.

...I use a spreadsheet that is more detailed and provides more info to me than the BP calculator (which is good for sure).  I am kinda an excel guru wanna be!  Only problem is you cannot translate excel well into the BP forum!

Again thanks so much!!!  Your time is your money and I appreciate it greatly. 

Patrick

Ok...as I struggle on...can anyone let me know what I am missing in the deal analysis below......I have been running these forever and possibly the props I am looking at are just not good deals but then again, I keep seeing someone buy them so there "has"(??) to be some upside that I am missing in my valuations:

Purchase price:  495,000
Units:                      16
Rental Income:      8,400/mo
Down:                    20%
Down:                    100,000
Closing:                      6,400
Repairs:                    16,000 (assume 1,000 per unit)

TOTAL INVEST:     122,400

Costs:

  Debt:                  2,800.00 (6%) 

  Taxes:                   690.00
  Insurance:            200.00
  Sewer:                   800.00
  Heat:                  1,200.00
  Yard:                       40.00
  Garbage:              300.00
  Cap Exp(3%)        252.00 (Lower than I normally go)
  Repairs (5%)        420.00 (300.00 per yr/unit)
  Mngmnt (10%)    840.00
  Vacancy(7%)        588.00
  Screening              40.00 (tenant screening)

TOTAL COST:     7,600.00 (rounded)
Monthly CF:          800.00 (yikes...…...50.00 per unit!!)
Annual CF:         9,600.00
ROI: 7.8% (rejected)

Keep in mind, this analysis is at 8-10% BELOW ASKING PRICE...………...At 300,000, (200,000 plus less than asking, it starts making around 10-11% but that price is just crazy versus asking.

So...in my mind, its a lot of work handling a MF building for 8%...a 401k averages 8 with little effort and little risk (well until now!!!)...…..Is my analysis incorrect? Does a prudent REI take into account earned equity as profit? Depreciation? Do they Includes Cap Exp/Repairs/Vacancy in profit? I wouldn't be frustrated but for the fact that someone will buy this unit and my assumption is...will make money. Am i seeing this wrong????

BTW...the CAP on it based on the above analysis/price is 12-13% which is about right for the area.

Help?   

Thanks in advance.  

in my inexperienced mind....and feel free to teach me more BPers……..if you are getting 30-50% returns in Cleveland AND are not leveraged to the hilt on those units,  I would see no reason to part with those unless you actually have a really good plan moving forward.  I have been eyeing Cleveland for over a year now and cannot get the numbers on any props to get much past 25% (and normally closer to 15%) unless I throw in earned equity, Cap Exp, and repair contingencies and count those as profit.  Maybe I should be doing that, but I don't think so...…..   

I actually think with the stock market capping, people may start looking for alternatives such as real estate and prices are not going to drop significantly, in Cleveland anyhow.  

My guess is you have significant equity in those units and could possibly tap that for added investments.  

Again, with tax implications, fantastic returns, and presumably no hard plans, I think I might just keep smiling.  Happy is good.    

Great job getting to 120 and 40% returns!!  Gonna be you someday! 

Quick hit....anyone have a good bead on CAP rates for mid sized Multi Fams in Ohio? 25-50 unit props. Short and sweet. Thanks for any input.

Patrick

Wow....that is a devil of a question.  Nothing changes a person like cash.  Being a Christian, (hopefully that statement does not get this post banned or deleted!) I see lots of well intentioned, devout, kind, gracious fellow believers come into money or have the opportunity to come into money (worse), particularly with the great economy.  These are solid people, until they taste the cash!  Changes most of em, not for the better. Suddenly different.  Same for people in love.  All snuggles and cuddles but bring up the "green" and that can change faster than Trump can send out a tweet, particularly with all the challenges that arise AFTER the wedding.  Marriage is damned hard and I have a fabulous wife that puts up with my issues (all 4,376 of them). 

I think if you are going prenup and that's your position for whatever reason, then you better sit down on date one, before the Cesar Salad even hits the table, and let that be blatantly known.  I would hate to bring that up after popping the question.  I can guess that would be a topic of discussion at EVERY female gathering and you would be vilified (this of course is the perspective of the male!) to no end.  Your possible spouse may agree with it but seeds of doubt and anger would be thrown her way at a rate that would cover acres of bare ground...….Unless your just such an outstanding catch that the nup could be overlooked......like me....yeah....like me.  (hah!) 

That's my two cents.....state it way up front and you might survive...or you might just not ever get to "I do".    

@rajah morrison - No...I am not targeting the hood.....Don't have time to run the rigors of a Syrian rental market.  I do run numbers on some of those props (east Cleveland) but I figure on huge costs on vacancy (also called non-paying rent), legal expenses, repairs, etc) an if the reward is large enough, I may consider pulling the trigger.  

I look for somewhere I can make the numbers work, where people want to live, lower vacancy rates (sub 8%) and blue collar market is substantial.   

I want hardworking solid people that are financially capable of paying rent and are completely content to continue doing so......medical/nursing, public workers, teachers, etc.     

@Andrey Y. - That sounds really wonderful....if I was still that carefree bachelor that waited until 39 to get married and start a family...…...but alas I have 3 kids, and unfortunately and fortunately a much younger wife that I am responsible for...….damned women and children!!!  Now that college is 4,700,000 per kid and the fact that I will need to keep my wife in the green 15 years after I die, I need to ramp up my retirement portfolio.  Love the attitude though!  Right there with you...in spirit!!!!  

Ok, having read and understanding for the most part many many of the posts herein, the rookie questions that develop in ones mind are as follows:

1.  So is real estate investing a current play for a new investor or are we better off to lay low and wait?/play somewhere else?  I personally believe (and this comes with several years experience glancing at the Google stock ticker and walking by the Cramer show occasionally on in the bedroom) the market wont be spectacular over the next couple years, sub 8% at least, where does a guy put his money? 

2.  If not lower end props (say 50k-100k) then what?

3. Are lower end investments naturally a bad deal even if a thorough, conservative analysis shows a decent ROI and you don't have to leverage to the hilt? I do wonder how a bank lends on a 25k house that would cost 100k to rebuild. Strange.

 4.  If lower end investments are a bad idea, how does someone without a huge nut begin?   

I am sure these questions have been asked already somewhere within this forum but I just had to throw them out.  

Patrick. 

I used a standard 30 yr 4.8 conventional loan on this. Perhaps my calculation for CAP is wrong. I just checked it an I AM wrong. It should be about 7.5%. I was factoring in debt service.

Apologies......BP doesn't let you attach a  file for review and it reformats excel cut and pastes.  

Basically, the info is as follows:

invested - 52k

Gross Inc - 31,200 (at 100%) 

Mortgage - 8,500

Op Ex - 17,500

Net Income -  5,233.00

CAP Rate - 2.92% (market is more like 10-12)

ROI - 10.42% - not good enough

Again, my challenge is I took 10% off list price and it still doesn't look great...…..so.....????  And this is at a self managed rate.