how do i determine what the apartment will cash flow?

8 Replies

if i have a property for $5.6MM and the NOI is 320k. Is there a fast way to get a rough estimate on what it will cash flow?

does it all depend on the type of financing? 15 year vs 30 year would completely change that right?

Ballpark numbers...expenses will eat up 50% of the income. So then you’d subtract your debt service from your remaining $160k.

And I’m pretty sure that deal doesn’t cash flow at after you put $3.5m or more in debt on it.

If you put down 25% and get a rate of 4.5% 30 years you’ll cash flow about 100k per year.

Have to get real p & l from
Property owner to really dig into numbers. Usually noi doesn’t include capex where I’m from.

@Michael O. The debt service on $4.17m with the terms you entered is $316k a year. So that leaves a mere $4k left over. This deal would need to have a huge value-add component to make sense.

Disclaimer....I had just woke up when I responded earlier and read the $320k NOI as GROSS income in my mind so my earlier post was a horribly inaccurate response.

Revisiting this one....apparently I was having some major comprehension and calculator issues with all of my above posts. I entered 20 years instead of 30 for my last post. The deal looks far better with a 30 year amortization 😋

@Jeff Jerma

Amortization is huge. Obviously, 15 yr will cut cash flow dramatically, and interest rate will also be a big factor.  Get terms from a bank and use those terms in your underwriting,

Gino

@Jeff Jerma If you're NOI is $320K you still have to take into account cap-ex holdbacks and (potentially) management fees. It's easy to "massage" the NOI if you choose to replace an appliance instead of repair it, etc. So (for more simple math) let's assume it's $320K * 2 = $640K gross rents and you allocated 10% to cap-ex. You end up with $320K - $64K = $256K or $21K per month.

Then you assume that $5.6MM needs 25% down and you get $4.2MM in debt at a 5% (just for easy math) interest rate.  I can't imagine you'll get a 30 year fixed rate, it will be either 15, 20, or 25 years when it comes to an amortization table.  So monthly it's:  $33K, $28K, or $24.5K.  In any of those scenarios you're upside down when it comes to cash-flow.

Now you can mess around and *hope* that you won't have an cap-ex issues but when you do it's going to kill cash-flow for literally years.

@Andrew Johnson

I made the assumption that he could get Fannie or Freddie debt since the deal so big but without an experienced sponsor as a partner that’s unlikely.

So I have to agree with you that a 20 is far more probable.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here