All Forum Posts by: Tristan S.

@Gino Barbaro, the inspection was an idea to show an official report proving that there are issues and that more issues will come with deferred maintenance.

Do you know if commercial lender also lend you money for the rehab costs ?

Thanks

@Cory Binsfield, I understand your point but I am pretty new to this and even if the deal goes nowhere, doing the math truly help me to practice on a real case. I wouldn't see that as wasting my time.

@Gino Barbaro, we do not really know if the owner would even be willing to sell. All I know is that, taking into account the way that this 6 plex is not managed and maintained. It is just a matter of time before some serious stuff happens. In addition, they definitely do not like dealing with the tenants and see the managing side as a chore. I hope we can convince them.

Would you recommend getting someone to take a look at it, just to see if there is any big problem on the verge of happening ? (bad roof, mold, ..etc). I feel that it could play in our favor if we can point out tall the issues that the building has or will have in a near future.

@Gino Barbaro thanks for the answer. Here is a preliminary analysis that I started to make (I will have to fine tune the assumptions as I get more information).

Actual Rent : 

$4,000 a month = $48,000

-Vacancy ($4,000)

-Maintenance (13%=$6,240)

-Management (10%=$4,800)

-Taxes ($11,000)

-Insurance ($2,000, I assumed 48 cents per square foot)

-Water ($3,600, I assumed $300 a month)

NOI = $16,360

-Cap Ex (5%=$2,400)

Cashflow (assuming the property is owned free and clear )= $1163 per month.

Let's assume a Cap rate of 10%, that would give me PRICE = $163,600 which seems incredibly low ! (the land alone is apraised at around 300k)

The reality of the property is that the only expenses actually paid and accounted for are the taxes/insurance/water. If I do the analysis again, excluding vacancy,maintenance,management and Cap Ex, I end up with PRICE = $314,000, and a cashflow of $2617 per

According to your own experiences, what is the correct analysis to present ? I feel that the owner would not agree with the first analysis, since he does not include any of those expenses.

Now, let's say that the property get a proper rehab and that the units can be rented for market value, here is what the analysis would look like :

$8,000 a month = $96,000

-Vacancy ($8,000)

-Maintenance (13%=$12,480)

-Management (10%=$9,600)

-Taxes ($11,000)

-Insurance ($2,000, I assumed 48 cents per square foot)

-Water ($3,600, I assumed $300 a month)

NOI = $57,320

-Cap Ex (5%=$4,800)

Cashflow (before paying the loan)= $4,376 per month.

Let's assume a Cap rate of 10%, that would give me PRICE = $573,200.

Please let me know what you think of the analysis and the assumptions that I made. Please feel free to correct me, it would be really helpful. 

Thanks a lot for everybody's help !

Gino Barbaro , that is the problem. The only expenses they pay are the taxes, the insurrance, the sewer /water. They do not do any maintenance at all ! So is it fair to include average maintenance, cap ex, management as a percentage of the rents in the NOI? I am confused as how to obtained the most realistic NOI for the valuation of the property. Thanks

@Hubert Washington, thanks for the input once again, great information.

@James Evertson, indeed to make sure that the deal would make sense, we will definitely have to include a lot of rehab money. We probably will have to get a GC to walk the property with us to help us get an estimate.

@Michael Delpier, I have not listened yet to that episode, I think i'm at episode 70 (I started from the beginning in september 2015). I will definitely try to get in touch with Kevin Wood to see if he would be willing to share some advice.

In addition, what exactly are the conditions to qualify for commercial lending ? Would they include the rehab cost in the loan ?

The 6 plex is listed under an LLC name, what is the best way to determine who is the true owner and the person to deal with ?

Thanks again for taking the time to answer my questions, I truly appreciate.

@Tyler Bernhard, thanks, that is actually a good point. My friend would definitely let us walk his place.

@Hubert Washington, it makes total sense. I'll contact some property manager and/or multifamily broker to get a more precise ideas about the expenses and the cap rate.

Another question, I am sure that the valuation price will come down to be way lower than the appraised price. How to help the owner understand that logic ? I feel like they will not want to hear anything if our offer is less than the appraised value.

Thanks

@Hubert Washington, but since there are not doing any maintenance at all, would it be fair to assume the average maintenance cost for such a property to be included in the NOI ?

I think that the owner just want to keep it and live off the rents but do not seem to realize that deferring all the maintenance is going to make the place falling apart at some point ! and obviously they hate dealing with their tenants.

@Hubert Washington, thanks for the tips. I will definitely look into that.

I'm sure that the valuation will come way lower than the taxes appraisal. What is the best way to convince the owner that our valuation is actually what it's worth in the actual condition ?

Thanks

Hello everyone,

I am trying to get a hang at analyzing multi family properties in Houston. It is actually a property where a friend of mine is renting. We are trying to evaluate it. It is a 6 plex in the heart of the city (montrose/midtown area). The landlord is a slumlord, there are no leases in place, no maintenance is ever done, the rent are easily 50% below market.

Firstable, I would like to know if anybody knew what would be a realistic cap rate to assume for this neighborhood (Montrose/Midtown districts of Houston) ? 

Then I was going to calculate the NOI and determine the actual value of the property. For the NOI, what shall I assume for maintenance, lawncare ..etc since the landlord actually never spends any money on that. I am not sure what shall and shall not be taken into consideration, knowing that it will directly impact the valuation of the property.

Thanks for your help.

Cody L. , How did you get such a list ? Is it sold somewhere ? Thanks