Sun Prairie Wisconsin · Member since 2016 · 22 posts · 5 votes
I am look to buy my first Multi Family deal and was hoping someone could help me analyze this deal to insure it cash flows. Being that this will be my first deal i want to make sure I am not missing anything
Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
9y
What is the debt cost? utilities (for common areas and typically water)? i dont see capX. vacancy, the annual repair number seems quite low thats only $71/year per unit, as does grass and snow you have only $55.50/mo. i doubt that covers one snowfall or grass cutting per month , you will also have garbage service you need to pay for, and if the city requires you to pay for Fire inspections, or licensing being commercial they can, as well as sprinkler system and fire extinguisher contracts, common area cleaning and maintenance, and Management. im probably missing something here yet.
so rents average $500/mo fully occupied? I dont see the numbers working, spending $41K per unit, you can get much better rent, with longer term tenants in single families. in my opinion, $32K or less per unit, or dont do it.
Sun Prairie Wisconsin · Member since 2016 · 22 posts · 5 votes
9y
24 unit 3 buildings 8 one bedroom units each
Appleton Wisconsin asking price $987,900
Total rent income $142,718
Yearly advertisement $500
Yearly tax $18,431
Yearly insurance $6750
Utilities yearly $18,409
Annual grass and snow removal $666
Annual supplies in repairs $1725
Total expenses $46,427
NOI of $96,291
Giving this a property Rate of 9.75%
Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
9y
What is the debt cost? utilities (for common areas and typically water)? i dont see capX. vacancy, the annual repair number seems quite low thats only $71/year per unit, as does grass and snow you have only $55.50/mo. i doubt that covers one snowfall or grass cutting per month , you will also have garbage service you need to pay for, and if the city requires you to pay for Fire inspections, or licensing being commercial they can, as well as sprinkler system and fire extinguisher contracts, common area cleaning and maintenance, and Management. im probably missing something here yet.
so rents average $500/mo fully occupied? I dont see the numbers working, spending $41K per unit, you can get much better rent, with longer term tenants in single families. in my opinion, $32K or less per unit, or dont do it.
Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
9y
I will also add the Turn over in 1 bedrooms is quite high, I bet they average less than 2 years per unit, probably closer to 1-1.5 year tenancy, 1 bedrooms tend to be temporary and transient tenants, till they find a significant other and start a family, or need more space. turn overs get expensive. honestly the more i think about your deal the less i would pay.
Sun Prairie Wisconsin · Member since 2016 · 22 posts · 5 votes
9y
Scott Schultz Thank you very much for your input. Numbers were not adding up for me either I agree that snow and grass are low. There is no vacancy considered in the numbers. Garbage was in there for utilities he's paying gas and water in all units and electric in common the total amount reflects it. The one-bedroom turnovers definitely make sense something I did not think of. Thanks again
RE Analyst · Arlington, TN · Member since 2017 · 10 posts · 4 votes
9y
Do you have a detailed current rent roll? I'd try to get this information so you could not only accurately determine the income per unit, but also find out the vacancy rate. The more historical data you can get, the better you can estimate vacancy. I agree, seems like a low OER (operating expense ratio) for the property type. Is the property self managed since no management fee or on-site management salary is being reported on the expense side? I'd try to tie down the rent rolls, occupancy and above the line expenses. Vacancy and collection loss are very important in either a direct cap or DCF analyses.
What kind of lending terms are you being quoted? I only ask because you could use the mortgage-equity band of investment and debt coverage ratio to develop a cap rate based on "you" and compare to any market caps in your area. You can also use the lending terms to include a loan in your DCF to calculate your leveraged cash-on-cash returns.
Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
9y
are the units electric heat? also what are the buildings assessed at? the Tax amount seems quite low for a property of that value, if the assessment is lower, remember at a higher sale price it will be re assessed, and the taxes will go up. I looked it up, Nice buildings, but I think the assessment may be closer to a accurate value, still more than i would pay, he is over priced by about $160K in my opinion.
Sun Prairie Wisconsin · Member since 2016 · 22 posts · 5 votes
9y
I will be doing 20% down with a 5year/25 year balloon interest rate. i'm calculating my monthly payments would be somewhere around 4K per month rounded to about 50 K per year
Sun Prairie Wisconsin · Member since 2016 · 22 posts · 5 votes
9y
Scott Schultz it is a boiler system for heat (water) he is paying for all units heat and water. He priced out to run separate boilers and water lines for each unit so everyone would be paying their own heat and water would be 30 K per building at three buildings equals 90 K
Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
9y
@Josh Shaw what are you getting for interest rate quotes? the rates have jumped, and are probably going up again real soon, a lot will depend on March 15th debt ceiling action in congress
Sun Prairie Wisconsin · Member since 2016 · 22 posts · 5 votes
9y
Scott Schultz They have not locked me in on anything right now seeing that I looking and haven't made any offers. Any suggestions? or do you know of any other deals out there that have good cash flow? Seems slim out there
Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
9y
@Josh Shaw if you need to conventionally finance, you are stuck with running on market deals primarily, there are deal out there if you can take on projects that most cant or wont, I have seen a few 100% vacant properties in other states going cheap.
Personally I cant make most multi's come out right now, and the "big players" in Multi's are sitting on the sidelines and even selling right now, as institutional investors are coming in for 1% or even 0% returns expecting appreciation.
I am buying Single family and doing well with it in small rural markets that have few investors, but deals are drying up, im considering a slow down in acquisition and sitting on the sidelines and stacking cash till we have a correction, I believe that correction is coming sooner than later, but im just a guy that doesnt know much.
Investor · Milwaukee, WI · Member since 2016 · 389 posts · 193 votes
9y
@Scott Schultz I would move slowly but persistently. My two to four year plan is moving into the multifamily game (I need to buy some cheap houses and stash some cash first), but I'm reading and preparing now. I ordered several amazon books, the most helpful in getting general concepts of multi family analysis so far has been The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges.
You have more cash, so you could likely make a play well before me, however...
My point is not that you should get lost in analysis, but that you should analyze dozens and dozens of properties before you actually make a play and are confident in your numbers and particular strategy.
If some of those numbers are coming from the seller, I wouldn't trust them at all. As previous poster mentioned, some of those seem strikingly low. 9.75 cap is really impressive, but probably too good to be true depending on the area in which you're investing and the type of property.
You can do it, I'm sure of that, but just don't hop into something with pro forma data trusting a cap rate you may never come close to achieving. Invest your hard earned cash very wisely.
Investor · Milwaukee, WI · Member since 2016 · 389 posts · 193 votes
9y
@Scott Schultz "I'm just a guy that doesn't know much," lol, great line.
As for that correction, I have no idea, and I haven't been in this game long enough to see, but the rapid appreciation I see in certain areas of my market is a little bit scary - great for flippers, but kind of scary for some of the buyers I'm working with a the moment. But, like you, I'm just a guy who doesn't know much.
Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
9y
@Joshua Martin I currently have 14 SFR's and did 4 flips in 2016 and 1 this year already, (20 since 2008) I have been analyzing multis in WI since i got my RE license in 2006 and just cant get an adequate return. now to be fair I run my numbers assuming 100% financing even though thats not actually happening, but my cash is worth something. and I bump the interest .5-1 point for security reasons, I also calculate taxes based on purchase price or assessment what ever is higher, and round up all the stated expenses. I dont figure income tax advantage, I see that as a bonus, since it can change overnight with the stroke of a politicians pen. most make little to no money.
For example i just saw a deal close in town here for $610K using only the sellers numbers its $2,500 positive per YEAR, no i did not mistype this, i ran it by my banker (very bright commercial guy) and he knew the property well, he said to stay away, it doesnt make any money. this is pretty typical of what I have seen over the past 11 years.
I think I will stick with my Single families where i can get $200-300/mo positive on 15 year financing, and be quite liquid if i need to sell one here or there, with good management in place it really doesnt matter if they are all under 1 roof or you own a bunch of roofs, it just runs with little intervention.
@Josh Shaw I think these are slightly over priced and there is clearly some expenses missing, but the power of multifamily is the ability to value add. This MAY exist here. The owner has already looked into replacing boilers. It was not cost effective to do this. To separately meter them, but it may be cost effective to replace and install with new high-efficiency boilers. WE have experienced 30% plus savings in gas consumption. It has ran between 5-6K to change out an 8-unit. It cost less than $300 last month to heat an 8-unit building whereas last year it was over $500 with the old boiler. I have had these results on multiple occasions.
The next thing i would look into is upgrading common area lighting to LED, this has saved nearly 30%. As far as the water goes, low flow shower head and air faucet aerators, save about 15% in consumption. Focus on Energy will do the lighting and water upgrade frees via their direct install program and they currently have a $500 rebate for boilers. I would check this out.
Next are the rents to market? Can you get 25-50 more with some cosmetic upgrades? New lighting, ceiling fans, flooring? I can do the fixtures, kitchen and bathroom vinyl for about 350 bucks if I time the menards sale right.
As far as 1 bedrooms go I would disagree they are completely transient, we have multiple 5 plus year tenants..They do attract a limited pool though.
The asking price is not what it will sell for. @Scott Schultz might be pretty close on its current value?? But with value adds it may be worth asking price when complete.
Doing these things, our 20 unit that we paid 725 appraised for 900. Our 16 we paid 565 appraised 720. Our 8 unit paid 300 appraised 350....No need to sell anything just go harvest some cash if you wish..(I have a investor friendly portfolio lender)
This is why I prefer large multis vs sfr. And is why it merits a closer look.
Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
9y
@Peter B. Great input, i have been trying for years to pencil the numbers on a multi's to make money even close to my singles, i think one of my hold backs is my own risk tolerance/debt adversity, and I will not do partners, so its me and my wife. i currently am running 23% debt on $1.1MM portfolio, and have set an internal cap of 40% I know this goes against most common belief, but its what i am comfortable with. I dont have a desire to to make a million per year, Im happy with $100K and almost no debt, when you dont owe, you have no worries. I tend to be overly conservative, but I saw lots of investors collapse during the last crash (I was a REO Listing Broker in a small town), and never want to be in that situation, it will happen again, its just a matter of when.
Great to see what everyone is doing out there!!!
BTW I was able to get LED Light bulbs (we put them in all of our units) at Menards, 4 packs for $1.99 they have been great so far, that upgrade is super cheap.
Investor · Appleton, WI · Member since 2012 · 1k+ posts · 464 votes
9y
I would not recommend purchasing that property. It is not a great area. I would not be scared to walk there at night, nor any area in the fox cities but that location along with the Jefferson park area in Kenosha is about as bad as it get in the fox cities in my opinion. That area has a ton of rentals in the area and has a higher crime rate than most.
There is not a ton out there for great multifamilies that I have seen lately. I have been watching for good 4 unit plus properties for a while. I have one 6 unit property and several duplexes and a couple single families, mostly in Appleton. If the numbers were great then it might be worth the trouble but the numbers just are not that great...