Syndication Expert and Investor · Indianapolis, IN · Member since 2016 · 591 posts · 808 votes
6y
The short answer is no. If there was a plan to increase NOI and therefore increase cash on cash by year 2, you could justify the project if you were then getting a high COC figure.
I would explore different financing options. 5% is high in todays market (I'm getting quoted in the 3.5-4% range).
Have you looked at a Fannie or Freddie Small Balance Loan? Fixed rate of 5, 7 , 10 year terms with 30 year amortization vs the 25. You also can get a few years of interest only to increase cash on in the beginning. You may also be able to go 80% LTV depending on the market.
Is there a plan to increase NOI by raising rents or reducing expenses? Your expenses are on the high side at a little over 50% (usually in the 40%-45% range) and the 8% management fee doesn't help.
You should be able to cash on cash 8%+ with the right debt, especially if you reduce expenses closer to 45%.
Syndication Expert and Investor · Indianapolis, IN · Member since 2016 · 591 posts · 808 votes
6y
The short answer is no. If there was a plan to increase NOI and therefore increase cash on cash by year 2, you could justify the project if you were then getting a high COC figure.
I would explore different financing options. 5% is high in todays market (I'm getting quoted in the 3.5-4% range).
Have you looked at a Fannie or Freddie Small Balance Loan? Fixed rate of 5, 7 , 10 year terms with 30 year amortization vs the 25. You also can get a few years of interest only to increase cash on in the beginning. You may also be able to go 80% LTV depending on the market.
Is there a plan to increase NOI by raising rents or reducing expenses? Your expenses are on the high side at a little over 50% (usually in the 40%-45% range) and the 8% management fee doesn't help.
You should be able to cash on cash 8%+ with the right debt, especially if you reduce expenses closer to 45%.
Investor · New York & TN · Member since 2019 · 325 posts · 219 votes
6y
This looks like a good investment.
Your numbers are off, why calculate 10% vacancy when the property is fully occupied? With lower interest (4%) and higher income (reduce vacancy to no more than 5%), you'll find that this is a very profitable property.
Plus you're not accounting for the principal payments which will add another $15,000 or more.
Investor · Pittsburgh, PA · Member since 2015 · 35 posts · 3 votes
6y
@Peter Nikic
Thanks for the response, this property is located in schuylkill county, PA. During my due diligence period, I asked the inspector to look out for any leaks, or any other reason why the water and sewer are so high. Turns out there are no leaks or anything he could see as to why the water was so high. I’m exploring low flow filters for sinks and showers to lower this expense.
I agree 10% is high for vacancy. This property has a waiting list for low income seniors. I underwrite conservatively you give myself a realistic snapshot of what a not-so-great year might look like.
HUD made me use a management company that was approved through them, they charge 8%. Stings, but doesn't kill the deal luckily. I should be closing this deal within the next week or so.