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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  • Jason White
    Real Estate Agent · Boerne, TX · Member since 2015 · 2 posts · 0 votes
    10y

    Hello John

    Rentometer does an ok job, I use it to get a baseline and then compare comps on the MLS

    Our leasing team would love to help out with those raised rent prices. The San Antonio rental market is doing well and we focus on rapid qualified tenant placement .  Let me know when and where we can help

    0Reply
  • Ben Thompson
    Lender · San Antonio, TX · Member since 2016 · 4 posts · 0 votes
    9y

    @John Leavelle - Just curious have you purchased the property that you desired?

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  • John Leavelle
    OP
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    Howdy @Ben Thompson

    Sorry I haven't replied sooner Ben.  My W-2 Job keeps me really busy lately.  Been trying to catch up on all my correspondence.

    To answer your question.... Yes, I have purchased 3 properties. None were listed on MLS. None where properties I analyzed in the 30 day challenge. However, all three belonged to Owners of properties I submitted offers on as a result of the 30 day challenge. So in a way it served its purpose.

    All 3 were very distressed properties. The first 2 I purchased as a package deal. A 3/2 SFR with some fire damage for $23.5 K and a Duplex (both units are 2/1) for $37.7K. The SFR needed major work (the owner had started and lost interest). We put in $38.4K in Rehab. The Duplex was also in the middle of a Rehab. We finished it for $27.2K. Both purchased with Private Money Lender at 11% (a friend) with low monthly interest only payments and balloon payment at refi. I paid 10% down both.

    When I get them refinanced we are expecting the appraised value for the SFR to be around $118K (low end). The Duplex should be around $150K. The best part about the Duplex is it is on a very large lot. I have plenty of room to bulid a 4-Plex down the road.

    The 3rd property is a 4-Plex (all units are 2/1) that was in bad shape inside and out, had tenant problems, and the owner (an elderly widow who wanted get rid it) could not afford to do repairs. She owned it free and clear, but, her husband was the one who managed the properties. We did Seller financing on this one. She wanted $182K. My contractor gave me a bid of $47.4K for the Rehab. We were getting comps for an ARV of $223K - $310K. She agreed to finance the purchase $108.7K and Rehab costs. I paid for Closing and holding costs. Win - Win.

    All three properties had tenants ready before the Rehab was finished.  Still working on 2 units in the 4-Plex.

    1Reply
  • Ben Thompson
    Lender · San Antonio, TX · Member since 2016 · 4 posts · 0 votes
    9y

    @John Leavelle 

    Fantastic!  Sounds like classic case of once you get the first the next comes easy.  I am still in my first flip (only 3 weeks behind schedule).... Just curious did you do mailers, drive for $$$, use a wholesaler or have an agent that found them off market?  Read the challenge, but I don't recall your marketing efforts.

    0Reply
  • John Leavelle
    OP
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    @Ben Thompson

    Ben I was primarily using Redfin to identify properties to analyze during the 30 day challenge.  The 3 properties were not any of the ones I analyzed.  I did submit offers for several properties based on my initial analysis results from the challenge.  All the offers and negotiations for those properties turned out negative.  However, one of the property owners had 2 distressed properties (off market) they were wanting to unload.  That's how I got the first 2.  A Realtor saw us working on one of the properties.  She said she had a client who's husband recently passed away and was wanting to sell all their properties.  We bought the 3rd one that way.

    All 3 are located outside of San Antonio in small communities.  Not in my target areas, but, places I am familiar with.  

    My marketing method will primarily be using a Realtor since my time is extremely limited due to my W-2 job (60 - 70 hrs or week).  I do have search parameters set-up on most of the real estate search engines (Realtor, Redfin, Loopnet, Zillow, Tulsa) to alert me to possible properties.  When I find a little free time I have been doing some driving for dollars.

    I am waiting until summer to start really looking again.  I have a lot of personal issues that are taking up time and money (Medical, son in college, autistic daughter, WIFE, etc).

    Good luck in your investing.

    0Reply
  • Amber Koontz
    Houston, TX · Member since 2015 · 204 posts · 68 votes
    8y

    @John Leavelle What an inspiring post, I love the creative financing!

    0Reply
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