Need Help Figuring Out If These Number Look Good

[Raynold Owusu]

Hello Bigger Pockets Family,

Im trying to get out of this analysis paralysis state I'm in, but I need to make sure my partners and I are looking at a good deal. I need help and the wisdom of my bigger pocket family on this one. So my partners and I are not looking at purchase bad deal. The property is a three story brick building 25 ft x 60 ft and consists of 6 total units (5 free market residential apartments along with a ground floor commercial space). The property is located in Brooklyn, New York.

•  4 of the residential units are vacant and not renovated.
•  1 of the residential units is a renovated duplex unit that is paying $2,600/month.
•  The retail store has a lease that expires in 4 years and is paying ~$2,000/month.
The non-renovated residential units can be converted to 3 bedroom/2 bath units that would generate approximately $3,200/month.
•  After renovation the property can generate gross revenue of ~$208,000/year.
•  After the retail lease expiration, the building can generate gross revenue of ~$233,000/year.
•  With the upside potential in the retail rent the property can go from a 5.7% Cap to a 6.5% Cap just by waiting out the impending retail lease expiration.

Projected Revenue Unit	Est. Unit SF	Bedrooms/Baths	Monthly Rent	Annual Rent
Retail	750	$ 1,900	$ 22,800 Lease expires in 4 years
1 - Duplex	750	Duplex	$ 2,600	$ 31,200 Gut renovated with private backyard
2F	750	3BR/2Bath	$ 3,200	$ 38,400 *
2R	750	3BR/2Bath	$ 3,200	$ 38,400 *
3F	750	3BR/2Bath	$ 3,200	$ 38,400 *
3R	750	3BR/2Bath	$ 3,200	$ 38,400 *
Total	4,500	$ 17,300	$ 207,600

*Vacant - rent project after renovation

REVENUE:
Gross Monthly Income	$ 17,300
Gross Annual Income	$ 207,600
EXPENSES:
Real Estate Taxes	$ 8,394
Gas/ Heat	tenants
Electric	$ 1,679
Insurance	$ 3,375
Water/Sewer	$ 2,700
Maintenance	3%	$ 6,228
Management/Vacancy	3%	$ 6,228
Total:	$ 28,604
Gross Annual Income:	$ 207,600
Less Expenses:	$ 28,604
Net Operating Income:	$ 178,996

Any and all input is greatly appreciated, Thank you in advance.   

[Llewelyn A.]

I am a Brooklyn Investor for the Past 2 DECADES, so I know Brooklyn VERY well. I also hold 7 Multi-Family buildings so I have a LOT of experience.

I just wanted to comment that when it comes to CapEx, you cannot use the same generic one size fits all for every single piece of Real Estate.

When you purchase Property, there are TWO things you are purchasing, the Buildings, which is where the CapEx is being generated and the LAND, which does not have the CapEx expense.

For those that really don't invest in Major Metro Areas, there are some real differences between those that are NON-Major Metro areas.

A funny story can illustrate how this works.

There was a fight between a Couple that owned a Town House in Manhattan valued somewhere around $5 Million. They divorced and the Wife got the Building. The Husband decided to disconnect the Gas line in the Basement and blow up the house so she wouldn't get it. Unfortunately for him, he got caught in the explosion and they both Died!

When all the smoked (pardon the pun) cleared, the property was demolished. It then went to an Estate Auction and sold for $6.5 Million! It was worth much more because of the LAND value. You will typically see that in the Center of Major Metro Areas.

I can also illustrate that with one of my own properties in Brooklyn. I had an appraisal done for a ReFi. The Replacement Value of the property was less than $1 Million but I can sell it today for $3 Million.

What I normally do is to thoroughly inspect the property with a team of my trusted Contractors as well as doing a detailed Inspection Report. I then add up all of the costs of all the things that will need to be replaced and/or repair in 10 years (roof, heating system,appliances, etc.), add some padding to it like an extra $20k or so and then divide by 10 to get the Annual CapEx. So if my Contractors and detailed Inspection Report suggest I need $50k in CapEx in 10 years, then I may add another $20k in the 10 years and divide $70k by 10 = $7k per year or approximately $600 per month.

Funny, you would think that a $3 Million, 3 Family building would be ultra-lux, but it's just a regular multi-family building in a good neighborhood in Brooklyn. My Ranges will cost only about $500 brand new (I just bought a new one today).

I don't think the one shoe fits all works for $100k multi-family buildings in low income areas versus high Multi-Million Dollar multi-family buildings in dense and desirable areas where you can command high income.

The two kinds of investments need different calculations and strategies.

I absolutely know these differences because of my other friends that decided to invest in non-Major Metro areas outside of my Area. I'm not going to harp on the results except to say yes, my friends did ok. However, their property values are cashflowing today, but there is a HUGE contrast between my properties and theirs.

I have these examples from my personal experiences where I contrast the differences in the Calculations. Just add me as a Colleague and go through my posts. You'll find some of them.

Investor Llew