Deal Analysis Statement of Net income and Cash flows What could be done?

8 Replies

I could not find how to upload excel sheet for this.... Please see attached PDF.

Here is the deal as they currently have their financial situation. This house is a converted house to separate apts and the financials look horrible, but is there hope? Please see the financials I've compiled and any advice or opinion is welcomed. 

P.S. they would not give me the mortgage service pmts so It's safe to say this property is in the hole for the past 5 years even if there payments were $500 a month. Also I don't think this property will qualify for anything but private loans given a physical condition. 

CASHFLOW Potential. Keep in mind Debt service needs to be filled in meaning based off my calculations they lose money every year. 

1. They are still getting back to me on what they would want, personally I don't care what they want for the property if it doesn't fit my threshold of an acceptable deal, 

2. but realistically thinking of Cap rates and what could be done to increase the value of the property once bought. Say right now 10% cap rate could purchase the property for 50K. But then What? 

3. Make renters pay for water and electric? Increase value another 50K and or 

4. if paid for by cash take interest expense out? BTW how would one figure the increase in value based off Interest being taken off the table? I understand $/Cap rate but how does that factor VIA interest rates which can fluctuate from investor to investor? 

5. Honestly, they are losing money via debt service anyways, I think the only way to make this a deal is to take over the property and take it off there hands and Find out what they owe on the loan and see if they can cut there loses. 

Any advice or opinions are valued 

Hi Ryan,  I think you need to do more diligence on this property.  How much deferred maintenance has gone on and how much are you going to have to put into this property to get better rents? I would look at the rent rolls if they only gave you Excel spreadsheets as well.  I would be hesitant if the seller is holding back vital information, such as the debt service on the property.  As a new investor, it is really easy to get caught up in the excitement and talk yourself into a property being a good deal rather than walking away and waiting for a better one.  You have to get all the information you can and buy the property at a price that makes sense in its current condition, not what it could be.  I would also research what the rents are in the current area, as you can only increase rents to what similar rentals are going for.  It is always better to have rents below the max and keep them rented.  These spreadsheets don't show much in the way of maintenance expenses and there is nothing included for property management, buy I guess you can manage them yourself if you have time.  But, how much is your time worth is yet another factor for a minimal return.  Ultimately, any property can be good if purchased for the right price. Of course if the seller is upside down with the mortgage, you may be spending a lot time for nothing unless the lender is willing to do a short sale.  I noticed the spreadsheet only shows interest only on the mortgage, which would be a red flag for me.  Most likely a private or hard money loan on the property?

Without eyes on the property, I can't really tell you if this is a deal or not.  As a CPA looking at these numbers that appear to be annualized, there is not enough cash flow buffer for the unknowns.  

Be careful and proceed with much caution and due diligence.  Good luck!

@Ryan Esslinger , you said "Say right now 10% cap rate could purchase the property for 50K", but wouldn't you have to pay ~$100k for that 10% cap rate? Or put another way, if you could get it for $50k, wouldn't you be getting a cap rate return of  around 20%?

Certainly, arranging for tenants to pay utilities would be a big plus (but the rents might need lowering a bit at the same time)?

As for (your) mortgage or otherwise, you would be using your own circumstances in your calculations, not the Sellers' circumstances. Why does everyone worry about what the Seller owes? I agree when you said:- "personally I don't care what they want for the property if it doesn't fit my threshold of an acceptable deal", (which should also be able to be read as "personally I don't care what they owe on the property if it doesn't fit my threshold of an acceptable deal")! Cheers...

How many units is it?

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