30 Day Challenge – Small Multifamily Property Analysis

Multi-Family and Apartment Investing
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30 Day Challenge – Small Multifamily Property Analysis

John Leavelle
Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes

Hello BPer’s, in my continuing effort to take actionable steps towards real estate investing I have started the 30 day analysis challenge (Analyze 30 properties in 30 days).  Here are my basic parameters:

Target Market:  San Antonio, Texas

Neighborhood(s):  Primarily areas just north of downtown (older neighborhoods and prime rental market).  Secondary will analyze properties in other areas of town if I need to.

Properties:  2-4 units multifamily and some small apartments.

Strategy: Buy and Hold utilizing the BRRR process (Buy, Rehab, Rent, and Refinance)

Finance: For my quick look analysis I will use the List Price with 20% down payment to determine a conventional 30 year mortgage on Zillow (typically will use 4 – 5% APR). However, for more detailed analysis for actual offers I would be using Creative Financing for purchases.

Cash Flow Goals:  Minimum of $100 per unit per month to warrant more thorough analysis.  Ultimately the property must be able to cash flow and average of $200 a month once stabilized (and refinanced).

I will use two methods to conduct my preliminary analysis.  First I will use the List price and any Seller/Broker provided Performa data to determine cash flow.  Secondly, since I will ultimately be using Creative Financing to purchase properties I must use very conservative methods in my evaluation. I will be adopting concepts used by BP Pros like @Brandon Turner and @ Michael Blanks.  I will use 55% of GAI for Expenses.  That will cover a full cosmetic rehab, capital expenses, vacancies, property management, and other normal expenses.  I will also develop 4 price points to work with any potential offer.  From the List Price, Strike Price (90%), Goal Price (80%), down to a Base Offer Price (70%).

The last part will be Action Required – Move on to next property, Keep on watch list, or Conduct a more detailed analysis.

I will post my analysis results on this post as I have the opportunity .I work a lot of hours so they may happen several at a time.  So if you are following please be patient.  Also, please provide comments or suggestions …. Keep me moving forward.

Lastly I have started a Blog here on BP to record my travel on the road to REI success; https://www.biggerpockets.com/blogs/7176-follow-a-texas-rei-newbie

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Nick B.
Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
11y

@John Leavelle,

Your look at this exercise from a wrong perspective :-)

Forget the list price. Start from comparable sales. That'll give you ARV or "after repair value".

Then subtract whatever rehab you need to do to make that property on par with the recently sold properties in the neighborhood.

Then subtract your transaction costs

Then subtract your desired equity capture (say $15K as a bare minimum)

That's your maximum offer price.

Then check the rents comps to see if your projected rents * 90% (vacancy factor) less PITI, less management/maintenance/reserves/etc. is greater than your desired cashflow.

Calculate PITI based on ARV, not on your offer price.

For example, a 4-plex that rents for $600/mo:

ARV: $200K
Rehab: -$30K
Trans. costs: -$5K
Equity: -$15K
Max offer: $150K

Rent: $600*4*12*.9=$25920
PITI: ($720 (30yr @ 4.5%, 75% LTV) + $200 tax) * 12 = $11040
Other expenses: $6000 

Cashflow: $13880/year

In this case your loan is 75% of your ARV or $150K.
Your out of pocket is $35K and your retained equity is $15K.

You may want to build an Excel spreadsheet with all these formulas and play with the numbers to see what kind of a deal you want to pursue.

Nick

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  • Nick B.
    Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
    11y

    @John Leavelle,

    Your look at this exercise from a wrong perspective :-)

    Forget the list price. Start from comparable sales. That'll give you ARV or "after repair value".

    Then subtract whatever rehab you need to do to make that property on par with the recently sold properties in the neighborhood.

    Then subtract your transaction costs

    Then subtract your desired equity capture (say $15K as a bare minimum)

    That's your maximum offer price.

    Then check the rents comps to see if your projected rents * 90% (vacancy factor) less PITI, less management/maintenance/reserves/etc. is greater than your desired cashflow.

    Calculate PITI based on ARV, not on your offer price.

    For example, a 4-plex that rents for $600/mo:

    ARV: $200K
    Rehab: -$30K
    Trans. costs: -$5K
    Equity: -$15K
    Max offer: $150K

    Rent: $600*4*12*.9=$25920
    PITI: ($720 (30yr @ 4.5%, 75% LTV) + $200 tax) * 12 = $11040
    Other expenses: $6000 

    Cashflow: $13880/year

    In this case your loan is 75% of your ARV or $150K.
    Your out of pocket is $35K and your retained equity is $15K.

    You may want to build an Excel spreadsheet with all these formulas and play with the numbers to see what kind of a deal you want to pursue.

    Nick

    6Reply
  • John Leavelle
    OP
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    11y

    Property #1:

    4-Plex, $199,900. Built in 1945, Reno 1980.  3,136 sf.  “C” neighborhood.  All 2 Bed/2 Bath, Rents $575 (Vacant), $350 (Occupied), $500 (Occupied), $575 (Occupied).  Separate Electric and Gas, common water meter.  Total tax $2,303.08 (2013).

    Seller/Broker Performa

    Gross Scheduled Income:  $2000 month ($24,000 year)

    Expenses:  Not listed.

    Additional Information:

    Rents are on the low end for the area; 35 2B/2B rentals in .33 mile radius:  Median $750, Average $780, 60% $608 - $952 / 80% $517 - $1042.

    My Quick Analysis

    NOI = (GSI) $24,000- (Expense/55%) $13,200 = $10,800 ($900 month)

    Price Point Evaluation

    A. List: $199,990 - $39,980 down (20%) = $160,010; 4.125% APR (30 yr); $775 PITI; $900 - $775 = $125 month Cash Flow ($31.25 per unit); No Go.

    B. Strike: $179, 910 (90% of List) - $35,982 down = $143,928; 4.125% APR (30 yr.); $698 PITI;$900 - $698 = $202 month Cash Flow ($50.5 per unit); No Go.

    C. Goal: $159,920 (80% of List) - $31,984 down = $127,936; 4.125% APR (30yr.); $620 PITI; $900 - $620 = $280 month Cash Flow ($70 per unit); No Go.

    D. Baseline Offer: $139,930 (70% of List) – $27,986 down = $111,944; 4.125% APR (30 yr.); $543 PITI; $900 - $543 = $357 month Cash Flow ($89.25 per unit); No Go

    Since none of these price points meets my minimum requirement of $100 month Cash Flow (per unit) I would pass on this property.

    Remember this is not suppose to be a detailed analysis.  Only a quick look to determine if I should move on, keep an eye on it, or request more information for a more detailed look.

    What do you think

    0Reply
  • Nick B.
    Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
    11y

    If your market rent is $750 your GSI should be at least $750*4*12 = $36000.

    0Reply
  • John Leavelle
    OP
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    11y

    @Nick B.

    Thanks for the input.   Since I plan on using creative financing for actual purchases, I do not intend to pay List, for properties I acquire.  It is just being used as part of my initial look (a starting point).  I will be using comps and similar evaluation methods, like what you suggest, when I request more detailed information from Seller/Broker. 

    1Reply
  • Nick B.
    Investor · North Richland Hills, TX · Member since 2013 · 1k+ posts · 1k+ votes
    11y

    @John Leavelle, what kind of creative financing are you going to use? The only thing that makes sense for your plan is either hard money or private money to finance your acquisition and rehab at 70% of ARV. Then do a refinance into a conventional loan at 75% LTV. I don't think you can get 80% LTV in Texas on non-owner occupied properties.

    In your example, it is actually a deal (~$160/mo/door) if you can buy it below $180K (all-in, including rehab and transaction costs) and raise rents to $750. 

    There is another thing to consider though. Small multis (2-4) attract similar tenant profile as bigger apartment complexes but are valued as SFHs. In other words you get worst of both worlds: high maintenance tenants and comps-based valuation.

    0Reply
  • John Leavelle
    OP
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
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    @Nick B.

    Right, If I were purchasing this property I would work to raise the rent to that level.

    0Reply
  • Shannon Keating
    Investor · Redondo Beach, CA · Member since 2015 · 43 posts · 14 votes
    11y

    John,

    Great challenge including your willingness to put yourself on the line by doing this within a forum. I'm following your action to learn and likely put myself to a similar challenge.

    0Reply
  • John Leavelle
    OP
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    11y

    @Nick B.

    I plan on using the BRRR system. Buy with Private money, Hard Money, or Seller Finance. The Refi with Portfolio Loan once property is stable. I am actually putting this one on a short list to watch. Still need to get a team together (Realtor, GC, PM, etc) before I move on anything.

    Also, rent info is from RentoMeter.   How reliable is that site.  Still want to drive the area to get better feel.

    0Reply
  • John Leavelle
    OP
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    11y

    Thanks @Shannon Keating for the support.  Jump in and enjoy the ride.  @Nick B. is already making it worth the time.

    0Reply
  • Cory Damon
    Investor · Austin, TX · Member since 2015 · 42 posts · 21 votes
    11y

    @John Leavelle

    I applaud you and thank you.  For those of us that are newer to BP, we quickly come to understand the importance of taking action.  But this must be done with diligence.  You are an example of both.  I love this idea and I'm excited for you and this journey you're on.  I will travel it with you... keep blazing a trail :-)

    @Nick B.

    Thank you for sharing your insight, keep it coming!  Questions and comments like yours help us think it all through - a needed process.  

    1Reply
  • Chirag Parikh
    Rental Property Investor · Tucson, AZ · Member since 2014 · 63 posts · 37 votes
    11y

    @John Leavelle 

    I love this! I'm interested in multifamily as well and need the practice. You've inspired me to do the same challenge for myself. I just finished reading Steve Berges book The Complete Guide to Buying and Selling Apartment Buildings and it is an excellent primer on how to do all of this analysis. Keep it up!

    0Reply
  • Jamane Y.Pro Member
    Greensboro, NC · Member since 2013 · 169 posts · 29 votes
    11y

    @John Leavelle I'm following this too. I need to learn this because I want to own multis in the future. Not too distant future that is.

    0Reply
  • Neal Collins
    Developer · Portland, OR · Member since 2014 · 732 posts · 490 votes
    11y

    While analyzing listed properties may potentially help you get familiar with the math involved, I would strongly recommend you put your time to better use. 

    The 30 day challenge should be spent with boots on the ground with a list of sold properties in your area. Learn values, talk to neighbors, and drop off hand written notes on distressed looking owner occupied places. Write down any that look like great MFRs to research ownership. 

    What your doing now is not going to get you close to your goals of investing in a multi family apartment building. After the 30 days are up do it for the next several years, scaling where appropriate. Not only will you get your fair share of analysis in, but it will also make you a very successful investor.

    1Reply
  • John Leavelle
    OP
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    11y

    @Cory Damon, @Chirag Parikh, @Jamane Y.

    Thanks for the support and interest.

    @Neal Collins  Thanks for the comments.   I would love to get my boots on the ground like you say, however, like I have mentioned in my blog, 

    https://www.biggerpockets.com/blogs/7176/blog_post...

     , I work an average of 60 - 70 hrs per week.  I do drive some of the streets in my target area, on my way to/from work, when I can.  Therefore, this is my best way to get familiar with the market area. 

    I will not be paying List Price for any properties I purchase.  It is and has been very beneficial to me.  I plan on using creative financing for my purchases (No or Low money Down).  Like @Brandon Turner says I must be extremely conservative in my analysis.  That's why I am using @Michael Blanks method of analysis using 55% for expenses.

    This process has already given me a few properties to take a more in-depth look at.  Once I finish the 30 days I will be looking/needing a Realtor to get off market properties and additional info on those I identify.

    Again, Thanks for the support and comments.  :)

    John  

    0Reply
  • John Leavelle
    OP
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    11y

    30 Day Challenge:  Property #2

    Property description:

    List $123,900, San Antonio Duplex, 1748 SF, built 1984 Reno 1988, “B” neighborhood, 2B/2B – Both rent for $795, has foundation issues. Separate Electric, common water meters.

    Seller Performa:

    GAI:$18,000

    Expense:$3,600 (incl: tax, ins., Maint., PM)

    NOI:$14,400 ($1,200 month)

    Vacancy: 6%

    Tax: $2215 (2013)

    My Analysis:

    GAI:Rent $795 x 2 = $1,590 x 12 = $19,080

    Expense (55%) = $10,494

    NOI:$8,586 ($715.50 month)

    Finance:List Price $123,900 - $24,780 (20% down) = $99,120 mortgage; 4.1% APR (30yr) = $473 PMI

    Seller Cash Flow:  $1,200 - $473 = $727 ($363.50 unit)

    My Cash Flow:  $715.50 - $473 = $242.50 ($121.25 unit)

    Additional Info:

    (Rent-o-meter): Based on 36 2-Bed rentals in 1.26 miles.  Rent ($795) is at market rate.

    Median: $755; Average: $769; 60% $604 - $933; 80% $517 - $1020

    Sellers numbers do not add up for GAI based on rent stated.  His expense amount ($3,600) also is not correct (6% vacancy = $1,145; tax = $2215; that leaves  $240 for ins., maint., and PM).

    There are foundation issues, therefore, I would not be able to get bank financing. Options would be Seller Finance, Private or Hard Money Lenders, or cash partners.

    This property still meets my minimum standards of $100 per unit cash flow at List Price.  It would warrant more in-depth analysis.

    Alternative Price Points:

    List:$123,900

    Strike:  $111,510 (90%)

    Goal:  $99,120 (80%)

    Low Offer:  $86,730 (70%)

    Follow-up Actions:

    1.Request additional info from Seller/Broker.

    2.Get comps for area.

    3.Find financing.

    Please provide any coments

    0Reply
  • John Leavelle
    OP
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    11y

    30 Day Challenge:  Property #3

    List $152,000, San Antonio Duplex, 1,428 SF, Built 1920 Reno 1981, “C” Neighborhood, Both 2 Bed/1Bath and rent for $725/$695, Separate electric and common water meter.

    Seller Performa:

    GAI:  $17,040 ($1,420 month)

    Expense:  $3,950 (Tax & Ins.)

    NOI: $13,090

    Vacancy: 0%

    Tax:  $2,029

    My Analysis:

    GAI:  $17,040

    Expense (55%):  $9,372

    NOI: $7,668 ($639 month)

    Finance: List $152,000 - $30,400 (20% Down) = $121,600 mortgage or $589 PMI

    Seller Cash Flow = $1,091 - $589 = $502 month ($251 unit)

    My Cash Flow = $639 - $589 = $50 ($20 unit)

    Additional Info:

    Rent-o-Meter.  Rents ($725/$695) are close to market rate.

    Median:$750

    Average:$755

    60% $632 - $879

    80% $567 - $944

    Follow-up Action:

    1.  Property does not meet my minimum Cash Flow requirement of $100 per unit to justify any further analysis.

    2.  Pass on this property.

    0Reply
  • John Leavelle
    OP
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    11y

    30 Day Challenge:  Property #4

    List $249,900, San Antonio Tri-Plex, 1,842 SF, Built 1949 Reno 1989, “C” Neighborhood, 1 Bed/1 Bath ($600) Occupied, 2 Bed/1 Bath ($750) Occupied, 1 Bed/1 Bath ($650) Handicap Access – Vacant.  Separate electric and common water meters.

    Seller Performa:

    GAI:  $24,000 ($2,000 month) – Fully Rented

    Expense:  $4,000 (Tax & Ins.)

    NOI: $20,000 ($1,667 month)

    Tax:  $3,670

    Vacancy:  8% ?? ($1,920)

    My Analysis:

    GAI:  $24,000

    Expense (55%):  $13,200

    NOI: $10,800 ($900 month)

    Finance: List $249,900 - $49,980 (20% Down) = $199,920 Mortgage 4% APR (30yr) or $954 PMI.

    Seller Cash Flow:  $1,667 - $954 = $713 ($238 unit)

    My Cash Flow:  $900 - $954 = -$54 (-$18 unit)

    Additional Info:

    Rent is close to market rates for the area.  However, Sellers numbers are way off so I will go by my analysis.

    Further Action:

    1.  Property does not come close to minimum Cash Flow requirement ($100 per unit).  The property price would need to be almost 50% of List to be profitable Cash Flow.

    2.  Pass on this property.

    0Reply
  • Neal Collins
    Developer · Portland, OR · Member since 2014 · 732 posts · 490 votes
    11y

    @John Leavelle Your busy work schedule is precisely why I would recommend switching it up. This is a waste of your precious time and it does not get you any closer to buying a property. 

    I've been where you are, believe me. This is analysis paralysis at its finest. It feels comfortable to crunch numbers, but you aren't actually growing. Also, why would you need a realtor for an off market purchase? 

    I'm being completely genuine when I say this...this is moving you in the wrong direction. Try this instead: for the next 30 days put one handwritten letter that says you want to buy their house on properties that look outdated. This can be done on your drive home from work. 

    This should scare the living day lights out of you. That's how you know you're doing it right.

    0Reply
  • Steven Torrez
    Real Estate Investor · Salem, OR · Member since 2015 · 60 posts · 16 votes
    11y

    I think what he is going for is getting comfortable with the numbers. And 30 days to get comfortable with the numbers seems like a completely legitimate use of time. He has a set number of days so I think it will help him stay on track instead of getting analysis paralysis. Not all of us are ready to pull the trigger on a property today. 

    And I am very appreciative of him posting this. It gives me a great applied analyzing technique to observe. 

    0Reply
  • John Leavelle
    OP
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    10y

    30 Day Challenge Update

    Hello again BP faithful.  Completing the analysis of all the properties and posting the results on a regular basis has been difficult due to lack of time off and other demands for my personal free time (my Wife).  However, I have actually finished analyzing 30 Small Multifamily properties.  Hooray!!  I was able to analyze mostly properties in my target area, north of downtown San Antonio, with a few others scattered around other parts of the city.

    I am adding some additional post following this one for you to review.  I did not include my analysis on every property.  It would take up more time than I feel necessary.  So I grouped a few together that provides a good representation of what I found.  Some were groups of identical properties with either different price points, and/or income/expense data.  I summarized those highlighting key differences.  Other properties did not have enough information provided to complete a decent analysis (i.e. missing number of beds per unit).

    Here is a summary of some information I gathered for future reference:

    Unit Type, Number Analyzed, List Price

    2-Plex, 9, priced from $123,000 to $365,000.

    3-Plex, 1, price $249,900.

    4-Plex, 14, priced from $88,500 to $460,000.

    6-10 Unit, 6, priced from $239,000 to $369,000.

    Rents Related to Market

    7 were below market rates an average of $200.

    3 were at market rates.

    14 were above market rate (some were way over).

    2 were not applicable due to being Vacant.

    4 did not provide Rent information.

    What’s next?  I will be requesting additional information from the listing broker on those properties, that are still on the market, I deemed needed more in depth analysis.  I will drive by those properties to get a firsthand look at them.  After that I’ll decide if I need to tour the properties and submit a bid or Keep looking.

    As always your questions and comments are appreciated.

    https://www.biggerpockets.com/blogs/7176/blog_post...

    0Reply
  • John Leavelle
    OP
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    10y

    30 Day Challenge – Property # 9 & # 10

    Property #9:  $290,085 List Price

    4-Plex, 3,024 sf, Built 1930, Reno 1970, separate gas & electric and common water meters.  “Updated and Excellent Condition”.  Unit 1 – 3B/1B,$775, Unit 2 -2B/1B, $725, Unit 3 – 2B/1B, $600, Unit 4 – 1B/1B, $600, All occupied.

    Seller Performa:

    GAI = $32,400

    AOE = $4,750 (incl. tax and ins.)

    Annual Tax = $2,151.55

    Vacancy = 0%

    NOI = $27,650 ($2,304 mo.)

    Bank Finance = $290,085 - $58, 017 (20% down) = $232,068 [email protected]% APR (30yr) = $1,091 P & I.

    Cash Flow = $2,304 - $1,091 = $1,213 month ($303.25 unit)

    My Analysis:

    Expense = $32,400 x 55% = $17, 820

    NOI = $14,580 ($1,215 mo.)

    Cash Flow = $1,215 - $1,091 = $121 ($31 unit)

    Additional Info:

    Rents are a little lower than Market – 3 Bed, 35 rentals in .60 miles, Avg. $895, 2 Bed, 35 rentals in .45 miles, Avg. $785, 1 Bed, 34 rentals in .41 miles, avg. $600. (Rent o Meter)

    Conclusion:

    1.  My gut feeling is to pass on this one due to my cash flow ($31 unit).  Also I intend to use creative financing to purchase properties, so, I need a “Great” deal.  Not just a Good one.  The price would need to be closer to $200,000.

    2.  However, I will request additional info to validate seller’s income and expense numbers as practice.  Is there still room for upgrades to this property?  Other than a little on the rent I don’t think so!

    Property #10:  List Price $369,800

    Small 2-story Apartment, 10 units (I think it is actually 8 units/10 Beds), Vacant. 9,198 sf. Built 1967, Reno 1985. Estimated CAP rate is 31%. Not operating due to lack of management and needs repairs. Sold as is, no repairs will be done. Next door property (10 units of townhomes and 8 studios), mostly occupied, is also available to right buyer. You may purchase as package deal with owner financing and easy terms. Common Water and Electric meters.

    Unit 1 & 2, 2B/1B, $900

    Unit 3 – 8, 1B/1B, $775

    Seller Performa:

    (Provided on Redfin and Realtor)

    GAI = $108,000

    AOE = $32,000 (incl. Ins., Maint., Mgmt., Utilities, and Misc.)

    Tax = $7,644

    Vacancy = 100%

    NOI = $76,000

    (LoopNet)

    GAI = $146,400

    AOE = $74,000

    NOI = $71,500

    Additional Info:

    1.  Rents stated are high for the area.  2 Bed – 34 rentals in .47 miles, Avg. $708, 1 Bed – 35 rentals in .45 miles, Avg. $550.  (Rent o Meter)

    2.  Both GAI numbers provided do not reflect stated rents.

    My Analysis:

    GAI = $77,400 (based on $900/$775 rent rates) 2 - 2 Bed/6 - 1 Bed

    My expense (55%) = $77,400 x 55% = $42,570

    NOI = $34,830 ($2,902.5 mo.)

    Refi = $258,860 (Using 70% LTV if List is Market Value) @ 5%APR (30yr) = $1,390

    Cash Flow = $2,902 - $1,390 = $1,512 mo. ($189 unit)

    Alternative Analysis using Market Rent Rates:

    GAI = (2 x $708) + (6 x $550) x 12 = $56,592

    My Expense (55%) = $31,125.6

    NOI = $25,466.4 ($2,122 mo.)

    Cash Flow = $2,122 - $1,390 = $732 ($92 unit)

    Conclusions:

    1.  This property(s) project would be too big for my first purchase.  But, I am still interested, it might be good for a partnership (if numbers work).

    2.  Stated data (income, expense, rents) does not add up correctly.  It may include the other property.  Need more information before making good decision.

    3.  Pass for now.  I will keep an eye on it for future project.

    0Reply
  • John Leavelle
    OP
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    10y

    30 Day Challenge – Properties # 15 – 19

    These properties are all 2-Plex on same block.  They have some differences; List Price, Square Footage, Rent rate, and Number of Bedrooms.  They all have similar cash flows.  All have separate electric and common water meters.  I will show analysis on the lowest and highest priced to provide examples.

    #15 - $140,000, 1,584 sf, 2 – 1B/1B, $710, Built 1964, Reno 1985, Occupied

    #16 - $140,000, 1,584 sf, 2 – 1B/1B, $710, Built 1963, Reno 1985, Occupied

    #17 - $160,000, 2,088 sf, 2 – 2B/1B, $810, Built 1951, Reno 1982, Occupied

    #18 - $160,000, 2,088 sf, 2 – 2B/1B, $810, Built 1951, Reno 1982, Occupied

    #19 - $180,000, 1,992 sf, 2 – 2B/2B, $910, Built 1969, Reno 1984, Occupied

    Property #15:

    Seller Performa:

    GAI = $17,040

    AOE = $2,979.14 (incl. tax, Ins., Maint.)

    Tax = $2,067.14

    NOI = $14,060.86 ($1,172 mo.)

    Finance = $140,000 - $28,000 (20% down) = $112,000 mortgage @ 4.20% APR (30yr) = $548 P & I

    Cash Flow = $1,172 - $548 = $624 ($312 unit)

    My Analysis;

    GAI = $17,040

    My Expense = $17,040 x 55% = $9,372

    NOI = $7,668 ($639 mo.)

    Cash Flow = $639 - $548 = $91 ($45.5 unit)

    Property #19:

    Seller Performa:

    GAI = $21,840

    AOE = $4,201.88 (Incl. Tax, Ins., Maint.)

    Tax = $2,941.88

    NOI = $17,638.12 ($1470 mo.)

    Finance = $180,000 - $36,000 (20% down) = $144,000 mortgage @ 4.5% (30yr) = $730 P & I

    Cash Flow = $1470 - $730 = $740 month ($370 unit)

    My Analysis:

    GAI = $21,840

    My Expense = $21,840 x 55% = $12,012

    NOI = $9,828 ($819 mo.)

    Cash Flow = $819 - $730 = $89 month ($44.5 unit)

    Additional Info:

    1.  Rents are well above average market rates. 1 Bed, 35 rentals .57 miles, Avg. $550.  2 Bed, 34 rentals .55 miles, Avg. $708.  (Rent o meter)  This means there will be no room to increase rates.

    2. Again, Seller does not provide much for expenses. Management, CAPEX, Vacancy, Utilities, and others are not included. This justifies using 55% in my analysis.

    3.  This might be considered a good opportunity for some investors, but, I am looking for “Great” properties.  So I will pass on these.

    0Reply
  • John Leavelle
    OP
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    10y

    30 Day Challenge – Properties #20 – 27

    Here is another group of properties (8 4-Plex) on the same block.  The Seller is requesting the same List Price ($218,750) for each one.  In this group they all have the same bed configuration (2 – 1B/1B, 2 – 2B/1B), the same square footage (3,069), all separate utilities, and fully occupied.  The difference is the Tax, Expense, and Rent rates.  Again I will show analysis for 2 properties (Best and worst cash flow) to give the range on these properties.

    Cash Flow per unit comparison:

    #20 – Seller $378.13, My $113.13

    #21 – Seller $340.75, My $93.33

    #22 – Seller $394, My $121.56

    #23 - Seller $404.69, My $127.19
    #24 - Seller $379.19, My $113.69

    #25 – Seller $378, My $113.01

    #26 – Seller $387.69, My $117.81

    #27 – Seller $387.69, My $117.81

    Property #21:

    Seller Performa:

    GAI = $29, 688 (2 Bed Rents $750/$750, 1 Bed Rents $649/$325 ?)

    AOE = $4,453 (Incl. Tax, Ins., Maint, Mgmt.)

    Tax = $3,674.58

    Vacancy = 0%

    NOI = $25,235 ($2,103 mo.)

    Finance = $218,750 - $63,750 (20% down) = $155,000 Mortgage @ 4.125% APR (30yr) = $740 P & I

    Cash Flow = $2,103 - $740 = $1,363 ($340.75 unit)

    My Analysis:

    GAI = $29,688

    My Expense = $29,688 x 55% = $16,328.40

    NOI = $13,359.60 ($1,113 mo.)

    Cash Flow = $1,113 - $740 = $373.00 month ($93.25 unit)

    Property #23:

    Seller Performa;

    GAI = $33,300 (2 Bed Rents $725/$725, 1 Bed Rents $650/$675)

    AOE = $4,995 (Incl. Tax, Ins., Maint., Mgmt.)

    Tax = $3,649.43

    Vacancy = 0%

    NOI = $28,305 ($2,358.75 mo.)

    P & I = $740

    Cash Flow = $2,358.75 - $740 = $1,618.75 ($404.69 unit)

    My Analysis:

    GAI = $33,300

    My Expense = $33,300 x 55% = $18,315

    NOI = $14,985 ($1,248.75 mo.)

    Cash Flow = $1,248.75 - $740 = $508.75 ($127 unit)

    Additional Info:

    Rents rates are close to Market.  2 Bed, 34 rentals .55 miles, $749.  1 Bed, 35 rentals .57 miles, $576.  (Rent o Meter)

    Conclusion:

    1. All cash flows are within my preferred minimum ($100 per unit) using my expense rate (55%). Seller did not provide all needed expense information (CAP Ex, Vacancy, and other). Those that he did provide seem very low (i.e. for #23; $1,345.57 for Ins., Maint., and Mgmt.). Again it justifies using 55% expenses in analysis.

    2.  I will be requesting additional information on these properties.  I must also get comps for this area.

    3.  I cannot pay 20% down payment for this Price.  I would have to negotiate a lower price in order to use creative financing.

    4.  We will see going forward.

    0Reply
  • David Song
    Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
    10y
    Which zip code are those properties in? I am in California, but am interested in Texas market.
    0Reply
  • Kathy Stewart
    Rental Property Investor · Dallas, TX · Member since 2015 · 243 posts · 70 votes
    10y
    John: Welcome and congratulations on your commitment. I invest in Texas, including San Antonio. Let me know how I can help.
    0Reply
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