BiggerPockets

I've got a great, cash-flowing deal located in Waco, Texas. I attended Baylor University for my undergrad, and this location will be great for targeting the off-campus student housing market.

It's a 10%+ CAP on ACTUALS, not Proforma.

Net Positive Cash Flow (that's after paying off all expenses, taxes, and the debt service to the lender) at current Rents and Occupancy.

AWESOME Upside in raising rents to Market Rents and increasing the occupancy. Based on these projections, the Net Positive Cash Flow will almost double! Also a 70% increase in Equity!

Potential buyers will need to sign a NCND and submit a POF.

This deal would be perfect for the single-family investor who is looking to step up into multi-family investing.

Please PM me for all this HOT deal!

How about a price and the rents? You've left out some pretty critical details.

Its an apartment building, not a bulk REO tape. Why in the world would someone need a POF and NCND to find out where it is? I take it you're just bird dogging this deal and don't have it under contract.

Has Daniel been banned I don't see any influence from him?

Ah I see it now you didn't have it before at least on my end you didn't. Must have been a glitch in the system or firefox is acting up for me,

Good Luck

Interesting that while you state expenses will be 45-50% of gross rents, you list expenses that are only $1464. I believe you're taking that 45% guideline, subtracting the two vacant units and coming up with that $1464 figure. I don't believe that's accurate because that 45-50% guideline doesn't include 20% for vacancy. 10% is more like it.

So, using 50%, I come up with monthly expenses of $2635. That would assume one vacancy, so I'll go with that, and assume filling the other vacancy as an expense that has to be covered in the rehab.

That leaves NOI of $2635 a month, $31,620 a year. At $365K, 7% and 25 years, I get a monthly payment of $2580. That leaves me a grand total of $55 a month in cash flow. Way too little.

So, what do I think its worth?

Start with the $2,635 a month NOI. Since this would be a long distance rental for me, and not exactly on my list of hot spots to visit, I have to use the 50% guideline since I'll have to hire a manager. I do want $100/unit/month in true cash flow. Subtracting $1000, I get $1,635 as my max payment. Applying your terms (7%, 25 years), I come up with a max loan (and price) of $231K.

But, I have to subtract off some other costs.

You say rehab is $1000 a unit. Sorry, I don't buy that because I've done rehabs. Paint and floors in a 500 sq.ft. apartment is going to cost me more than $1000. If this has been neglected ("Obviously, they have neglected this apartment property over the past year") it probably needs some exterior attention, too. So, knowing nothing else, I'm budgeting $3000 per unit, or $30,000 total. I also need to account for that extra vacancy, so that's $527 for six months or about $3000. Subtracting these off my price, I get $198K. We're probably too far apart to make that work.

That might seem totally ridiculous, but I do see Washington Terrace Apartments at 1615 Washington Avenue, Waco, TX 76701 being offered on loopnet for $21,000 a unit. 16 units, 8 2/1, 4 1/1, 4 studios. That does show as a REO and could well be totally vacant.

Loopnet does also show a 10 unit, all 2/1, at 4721 Hodde Drive, Waco, TX 76710 which seems similar to your unit. They have it listed at $425K. So, compared to that, you're is a better deal. But then, I consider that one on Hodde Drive to be a poor deal.

A couple of clarifications.

Were I actively considering this property, I'd ignore the provided APOD data. Its unrealistically low. It may well be correct, but then it makes me wonder what's being omitted. In light of the 20% vacancy and the under market rents, I'd assume the PM isn't doing the best job, and maybe I would need to dump this PM and get a better one. Who just might be more expensive.

You're absolutely right that I would have to stick in a hefty down payment. That would make the payment less and the cash flow more. However, I can take that same down payment and put it to work elsewhere. Hard money loans, for one. So the additional cash flow generated by the down payment is coming from my cash and is coming at the expense of alternative investments. By doing the math with 100% financing, I'm making the property pay for itself. Its a similar calculation to cap rate, where you assume 0% financing. An equally unrealistic assumption.

So, lets assume 25% down payment. I'm not sure even that's possible right now. I'm putting $91K into the deal. My payment's now $1924 and my cash flow is $700 a month or $8400 a year. 9% cash on cash return. Not really good enough in my book. I realize you would say I'm overestimating expenses, but I'm simply appling the 50% rule, which you yourself cite as a reference point.

And, yes, I do see there's upside potential in the rents. But I can't base the value on that. I can only base the value on as-is, not could be. If the sellers want the "could be" value, they need to make the changes to make that happen.