From single family to multi family
Investor · Saint Joseph, MO · Member since 2016 · 69 posts · 23 votes
From single family to multi family
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Real Estate Syndicator · Phoenix, AZ · Member since 2018 · 903 posts · 1k+ votes
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- 6yCory CarlsonBusiness MemberReal Estate Broker · OR · Member since 2018 · 311 posts · 226 votes
It is not necessarily about "making much money" after selling. Thats only one piece of the puzzle. Its about recognizing the opportunity (if there is one) with your equity seeing higher returns elsewhere. All of this due diligence can be done prior to making any decisions.
Check out this analysis for a client I am working with right now. Its a lot to follow but this is just one example of selling both properties and recognizing the opportunity of the equity elsewhere. Also know my analysis below is going to be a little out of context as its tailored towards this clients needs. I also deleted some names, addresses and content to maintain my clients privacy (who has given me permission to use this example for illustrations):
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Thanks for getting the property information to me quickly. I have attached a PROSPECTIVE PROPERTY ACQUISITION COMPARISON CHART below showing the projected returns on both your Vancouver properties as well as a cumulative column. In both cases, I’ve used CURRENT rents and adjusted/stabilized the expense load to reflect your normal provided operating expenses. I also outline moderate rent increases in the Market columns to look at projected returns after utilizing any potential upside. My additional notes and comments on each are as follows:
Single Family Home 1- Current Value of $270,000 and equity position of approximately ~$219,000 as provided.
- Full scheduled rental income of $16,800 and 5% vacancy shows an effective gross income of $15,960, which is very close to your stated actual.
- Year 1 returns are as follows: Pre-tax Cashflow $646 (0.30%), After-tax Cashflow $726 (0.33%), After-tax Return + Pay down on principle $1,942 (0.89%), Total Return (After-tax + pay down + appreciation-2%) $7,342 (3.35%).
- What first stuck out to me are the operating expenses seem high at 75.6% of EGI?
Single Family Home 2
- Current Value of $415,000 and equity position of approximately ~$272,717 as provided.
- Full scheduled rental income of $21,000 and 6% vacancy shows an effective gross income of $19,740.
- Year 1 returns are as follows: Pre-tax Cashflow -$3,469 (-1.27%), After-tax cashflow $3,171 (-1.16%), After-tax + principle pay down $969 (0.36%) and Total Return $9,269 (3.40%).
You have a breakeven and a negative cash flowing investment showing a cumulative position that involves feeding your investments annually. With today’s prices of single family homes and small plex’s its common the investor has to give up cashflow for pay down or vise versa. Generally we see it is not until the investor has approximately $400,000+ of capital equity where you start to see returns that show BOTH healthy cashflow, principle pay down and a significantly improved total return. So, how much equity could you move? With a portfolio value of approximately ~$715,000 subtract fees (5% commissions + 1.5% closing/exchange costs + 1.5% excise tax) minus your loan amount provides approximately $500,000 cash available to reinvest.
The next PROSPECTIVE PROPERTY ACQUISITION COMPARISON CHART shows apartment complexes in varying market types and the projected year 1 returns to serve as illustrations using actual opportunities available today in the market place. Depending on what markets you are interested in as well as building class could see very different projections as shown. I assumed again an investor effective tax rate of 8% and conservative annual appreciation of 2% for this analysis purpose. I also attached the offering memorandums for reference.
Canby - 16 Unit Multifamily
- Purchase price of $1,850,000 with moderate leverage (66.2% loan-to-value) with an estimated ~$640,075 cash required to close.
- Current scheduled average monthly rent of ~$914/ per unit.
- Current scheduled CAP rate of 6.12% based off my estimated projections.
- Year 1 returns are as follows: Pre-tax cash flow $43,102 (6.90%), After-tax cash flow $41,928 (6.71%), After-tax + principle pay down $63,501 (10.16%) and Total Return (After-tax + pay down + appreciation-2%) $100,501 (16.08%).
- This nearly 5X's your current position but may need to have operating expenses adjusted after a walk through and running this through underwriting.
Milwaukie - 13 Unit Multifamily
- Projected purchase price of $1,950,000 and moderate leverage with 67.2% Loan-to-value.
- Current schedule average monthly rent of ~$1,093/ per unit with current CAP of 5.41%
- Projected year 1 returns are as follows: Pre-tax cash flow $30,541 (4.77%), after-tax cash flow $30,322 (4.73%) after-tax cash flow + principle pay down $53,402 (8.34%), and Total Return $92,402 (14.44%).
- I like the Milwaukie/Oregon City market, they are the next to see large development in the expanding Portland markets, similarly to Lake Oswego.
Let me know your questions and concerns? These analysis do represent actual opportunities in the market place but again are really to serve as an illustration to show with your current equity position you could significantly improve your position. Perhaps Oregon is not your market of choice, but inventory exists and it represents how far your current capital equity could go.
Constant Commercial Real Estate Inc543 Reviews - Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes6y
- Investor · Saint Joseph, MO · Member since 2016 · 69 posts · 23 votes6y
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