Deal Analysis Help!!

8 Replies

Hello! This deal is about a commercial / residential deal. I have the guy down to 125k and I was wondering what everyone thinks about this. Is the 25K down worth the $1300 cash flow and the $3000 in equity I will build the first year? Thank you!!

@Mark Benevento  the short answer to your question above: 5% won't cut it. Assuming your calculations and assumptions in your underwriting are correct, that deal won't make you happy. 

We don't settle for less than 9% CoC, 15% IRR. There are tons of numbers and interconnected relationships going on in our professional commercial multifamily spreadsheet. Judging from your posted image above, I might assume that you will have missed "a few" items. CREI is an exciting strategy to get into since it provides more scalability and leverage than any other field of RE. 

But I haven't met many successful 'self-made' CRE investors who haven't lowered their pain factor, crunched their timeline or increased their learning curve without seeking out a mentor or two on the way. Just check out a few biographies of the best and successful people in any field or industry - they provide incredible insights to the value of the right tools and mentorship.

Hit me up with a PM, I'd be happy to untie a few knots and give you more insights to make better and more educated decisions for your RE journey.

Cheers, Ken ;-)

@Mark Benevento Some of your assumptions are too aggressive in the first place. Maintenance, Taxes, Insurance will never stay the same. Keep in mind, taxes increase with the new ownership and then they change (normally go up) annually. Your vacancy is way too aggressive. I'd bump it up to at least 10% or above. Plus a lot of other expenses are missing: I don't see water, electric, gas, lawn, etc... Lastly, I wouldn't lump together CapEx and Maintenance. Those are two separate lines.

@Alina Trigub  @Mark Benevento  if this is a condo purchase then his expenses may be ok. His vacancy is conservative, taking into consideration two months for turnover. 

As long as tenant is paying all utilities then I think you can keep expenses low as you have underwritten. If its a new unit, then you can get away with your cap ex budget but if not then make sure you have some other $$ set aside for things to go wrong. 

Bigger point though is that there isn't enough meat on the bone here for non owner occupied investment. You can get 8%+ in most syndications and all you have to do is just write a check. 

Keep looking and good luck!

It all comes down to whether one wants and has the bandwidth to be an active or passive investor?!

Originally posted by @Ellis Hammond :

@Alina Trigub  @Mark Benevento  if this is a condo purchase then his expenses may be ok. His vacancy is conservative, taking into consideration two months for turnover. 

As long as tenant is paying all utilities then I think you can keep expenses low as you have underwritten. If its a new unit, then you can get away with your cap ex budget but if not then make sure you have some other $$ set aside for things to go wrong. 

Bigger point though is that there isn't enough meat on the bone here for non owner occupied investment. You can get 8%+ in most syndications and all you have to do is just write a check. 

Keep looking and good luck!

It's good to see that you are thinking down the road and aiming to underwrite cash flows for 5 years - all of that is good.

Let me paint you a picture:

Let us say you have 3 options. 

Option 1 - 5% COC that you sell after 5 years for the same price you paid.

Option 2 - 15% COC that you sell after 5 years for less than what you paid.

Option 3 - 5% COC that you sell for 50% more than what you paid.

Now, I know this is very whitewashed, but which option is the best, do you think? 

Let's start there. Ping me in your post and I'll take you to the next step.