A couple of question hope this is the right place:
1. Cap rates in my area SFV of Los Angeles. Where is a good place to find realistic cap rates for the market and submarkets.
2. Resources of find multifamily for sale?
I know of craigslist and loopnet what are your opinions
on these and the is it worth the money to pay for loopnet?
Are there any better ones?
3. Auctions for multifamily do they happen? I saw some in the
REDC book, but are they a good value play? does anyone
track results of auctions?
4. Downpayments people talk about 0% down what is a real downpayment need for the banks to loan on a property?
5. Software, can you guys recommend good software to help analyze a multifamily deal?
1. Forget cap rates - they provide almost no useable information because they are based on operating expense data that doesn't exist. Even if they did serve their intended pupose (they don't), all they would tell you is what the losers paid for their buildings (on all but very large commercial projects). Look up the previous discussions on this topic using the search function.
2. I get almost all my buildings through personal contacts. In real estate, it's WHO YOU KNOW. That doesn't happen by accident.
3. Yes, auctions do happen for multi-family.
4. I've purchased most of mine with no money down.
5. I don't use software to analyze properties and don't know what software would do to help.
Most of us here can not emphasize enought to Do Your Own Research. The more properties you buy the more you will realize the numbers you were given are bogus. Plus the more you will both have a feel for the real numbers and have a track record of your own bills to which you can refer.
do you mean go out and buy a real estate course, find a forum to talk to people, go to my local real estate group or go and buy a book?
"Do Your Own Research" defeats the purpose of this site!
William, I think Christian is referring to doing your own research on the property. Listings often quote cap rates and NOI. But, they're rarely accurate. Sellers and seller's agents may tend to fudge the numbers to make the property look better. Or, they may just not have accurate records. A 300 unit complex ran by a REIT will likely have very accurate numbers. A 8 unit building ran by a person who only owns that one will probably not. Further, many significant expenses, like roof and boilers, are very intermittent. So, numbers for the last 5 years may not reflect such expenses. And, having a very low maintenance number may indicate just the opposite. There may be a lot of deferred maintenance.
The other point is that real estate is a local activity. Read and learn here and other places. Do your research on some listings and the economic situation. But there's a lot to be said for actually getting out and talking to people face to face.
Thanks Wheatie I appreciate the input, Yeah it didn’t sound like Christian was talking about the due diligence. I’m new but aware enough that you can’t talk anything for face value when money is involved, that’s why open discussions on forums like this are so important. Because when you’re at the stage of inspection it’s too late, I don’t want to waste anyone time if there are things I can learn now for the wealth of experience on this board on things to look for when analyzing a property.
There are many common mistakes that could be avoid that a novice doesn’t know to look for or ask about. This is a place to share information and ideas. Eventually we all have to step into the firebox but if we can avoid getting burned because of the generosity of likeminded people great. It’s about passing on knowledge and help your neighbor.
Thanks again.
Just trying to get knowledge.
Well, I've yet to buy an apartment building. But if I understand the process, its somewhat different than buying houses. You don't always get to have much of a look until you have a contract. Seems like for apartments, you get a contract very early, then have a fairly lengthy due diligence period where you carefully investigate the property and get the seller to prove their numbers.
William - Jon explained what I meant by research very well - to use your words it is all about the DD. I find most listings and seller provided info to be incorrect. Much of the info can be figured or looked up.
Taxes for example - millage rate times assessed value. Sometimes the millage is different for land and improvements (buildings) so the formula is a little more involved but still simple.
Trash - is it city or can a service be purchased? Do they have a dumpseter now? If so - what size? How often is it dumped? What is the cost?
You get the point. As for REI intelligence - you hit the nail on the head - it is here. There are a lot of great resources on the web - but the folks here are willing to go out of their way to explain - or debate - with you.
Prioritize your research:
1- ACTUAL gross income collected
examine this carefully and determine for yourself the quality of this income (late pays, turnover, eviction record,etc)
2- examine expenses- Concentrate on the accuracy of the most significant expenses- are they higher/lower than they should be?
taxes
utilities
insurance
-maintenance.. which is a wild card... is it low because it's being ignored? Is it high because of low quality construction? This is the area that most of seller's "creativity" is concentrated-so examine roof, plumbing, electrical, paint, applicances, and windows carefully.
It's not rocket science- Always utilize a property inspector who is not only technically literate, but just as important, is truly professional / ethical. Harder to find that kind of person, but it's worth the effort.
There's a lot of great ideas here. I would suggest using some model (Mortgage/Equity, Discounted Cash Flow etc.) to analyze the total return, the timing of your expected returns, and risk. You can partition the return into its various components (tax shelter, rental income, capital growth). Sensitivity analysis can be used to analyze the property under different economic scenarios as well. There are some great programs out there, though I would suggest creating your own model as a great learning tool.
I suggest that if you really want to learn the process, select a real property in your working area and analyze it.
Start a new thread here called something like "Learning to evaluate multi-family property" and let the forum members guide you through the process of analyzing the property.
This forum provides so much value, it's not even funny. Just take advantage of it.