Need Help Figuring Out If These Number Look Good

Multi-Family and Apartment Investing
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Need Help Figuring Out If These Number Look Good

Raynold Owusu
Lender · Brooklyn, NY · Member since 2015 · 8 posts · 2 votes

      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.   

1Reply
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Most Popular Reply

Llewelyn A.
Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes
9y

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

4Reply
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  • Kevin Siedlecki
    Investor · Madison, CT · Member since 2014 · 710 posts · 458 votes
    9y

    @Raynold Owusu. Two things I want to point out to make sure you've got all your bases covered. I don't see any CapEx. And vacancy and management probably shouldn't be combined, and definitely shouldn't be combined at 3%. I understand Brooklyn is a popular market, but you should be planning for at least at least 8% Management and 5% Vacancy. Add 10-15% CapEx and you'll have better numbers.

    1Reply
  • OnYango Williams
    Real Estate Agent · Brooklyn, NY · Member since 2016 · 45 posts · 11 votes
    9y

    The income you would be getting is good. I don't know, if you know this but it's said that Brooklyn is the new Manhattan. In two years your equity will probably go up. If the initial purchase price for something like this didn't scare you; you should purchase and wait for your equity to come rolling in.

    0Reply
  • Raynold Owusu
    OP
    Lender · Brooklyn, NY · Member since 2015 · 8 posts · 2 votes
    9y

    @Kevin Siedlecki Thank you Kevin, I completely forgot to add the CapEx to the equation. I knew I was missing something but couldn't put my finger on it. An I will separate management and vacancy percentage. I can see by doing that the numbers were grossly miscalculated. My NOI well definitely be less that what is currently showing. But with the CapRate at 6.5% after renovation I have concerns. I've heard that the CapRate to shoot for is always 10%. Is that always the case or is that based on various markets.

    0Reply
  • Raynold Owusu
    OP
    Lender · Brooklyn, NY · Member since 2015 · 8 posts · 2 votes
    9y

    @OnYango Williams Yes after renovations the income does look good, but I was concerned about the 6.5% CapRate. I've that you should look to have a CapRate of 10% so I was trying to figure if that CapRate is works for this market or is this something to look into further.

    0Reply
  • OnYango Williams
    Real Estate Agent · Brooklyn, NY · Member since 2016 · 45 posts · 11 votes
    9y

    Raynor a 10% CapRate in New York right now is unheard of at the present moment. It's hard to get above a 5%Cap right now. Especially, with the cost of borrowing going up. I would take that rate and run. Some may differ and, if they do, please tell me where in the five boroughs they are buying property.

    0Reply
  • Llewelyn A.
    Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes
    9y

    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

    4Reply
  • Raynold Owusu
    OP
    Lender · Brooklyn, NY · Member since 2015 · 8 posts · 2 votes
    9y

    @Llewelyn A. Thank you so much for your insights and sharing your personal experiences. It was very helpful.   

    1Reply
  • Adam K.
    Investor · Brooklyn, NY · Member since 2015 · 127 posts · 57 votes
    9y

    @Raynold Owusu So based on your cap rate estimates the price is like $3.6MM? Are you buying this in cash? What would the renovation costs be? A 3 bed/2 ba w only 750 sqft sounds very small. If you're only getting $2600 for a duplex w backyard why do you think you'll get $3200 for the renovated units? Are you planning to self-manage? If so, 3% vacancy is fine. But yes you need to add CapEx.

    Too many unanswered questions to know how good a deal it is.

    0Reply
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