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Multi-Family and Apartment Investing

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Trevis Kelley
  • Rental Property Investor
  • Buffalo, MO
9
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51
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10 unit Multi-Family value

Trevis Kelley
  • Rental Property Investor
  • Buffalo, MO
Posted Oct 22 2014, 13:40

Hi!  I have only posted here a couple of times, mostly because I like to find the answers on my own.  I am having trouble with MF value.  I have read many, many forum posts, blog posts, and heard it talked about again and again on the podcast, but I am thick-headed in some things and this seems to be one of them.  I am currently looking at an MF that is being sold by an investor who is retiring.  He's been in the game for 40 years and wants out.  I see this as an opportunity to be able to come at a guy with numbers and walk away with a deal that will cashflow decently while at the same time giving this guy the ability to retire from a solid investing career.  Here's my issue: it only cashflows at 35% equity or more.  I am new to the game, but I see that as a problem.

I will post this deal later for analysis, but right now, I am trying to figure out value for the property. I understand the NOI/CAP rate, but I cannot for the life of me figure out why that would be important. I also do not understand NOI. Sometimes it includes all expenses, sometimes it seems to be income-mortgage, sometimes it seems to cherry pick. And here I was thinking that MF values were easier to determine. So, back to my question: how should I come up with a number to show this retiring investor?

I could determine based on CAP rate, but it seems like the thing should at least break even at 0% and be pretty cash rich at 20% down. Is that pie-in-the-sky dreaming by me? Or is that what everyone else is seeing? Shouldn't value be more determined on where the property breaks even? I know I am bucking the system (I tend to do that a lot), but it doesn't make sense to me, and I am beginning to get frustrated. So, I thought I would turn for help. I would really like to buy this at a price that cashflows for my partner and I (OK, I admit it - it's my dad), but I really don't want to put more than the normal 20% down.

Any and all advice is welcome!  Thank you BP community!

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