Can't make numbers work for my first deal

30 Replies

Hi all... I've been analyzing a lot of deals from realtors and loopnet and I just can´t make numbers work. The price that comes out of my math is just to low that I don't know if I should even try to make an offer. 

My math is simple: 1) Gross Schedule Income - 7% vacancy - 50% Opex - loan payment = cash flow (I'm expecting 100 dollars per door) 

2) NOI (adjusted form realtor with the above criteria) / 8% cap rate (Florida market).

Appreciate your comments!

Best                        

Remember what ever is left on Loopnet have been looked at by subscribed members on Co-Star..  but I am sure there are some under the radar deals that got overlooked 

Sometimes its frustrating but dont force yourself for the sake of being antsy 

@Carlos Castañon I feel bad for you because if you can't even get $100 per door, then it's not worth doing. I wouldn't do it for only $100 per door, but if that is your criteria, then cool. You would be better off buying a bar of gold and burying it in the back yard than borrowing hundreds of thousands of dollars, dealing with tenants, taxes, termites, and toilets for only $100 per month. The S&P 500 index has averaged 11.3% over the past 80 years. 

MLS and Loopnet are where picked over deals go to investors who pay too much and excuse their purchases by sayings like, "It may not cash flow but in 30 years it will be paid off."

Very rarely I will find something on MLS. Never on Loopnet. Those are retail markets. Find off market deals.

@Carlos Castañon It's definitely a numbers game.  You'll have to look at a lot of deals before you find one that makes sense.  For starters, as @Hai Loc alluded to, Loopnet is not the place you find deals on.  Occasionally, you might find one that works on there, but you're better off using Loopnet to practice your underwriting as you're starting out and to connect with new brokers.

Furthermore, an 8% cap rate is very tough to find at this point in the market cycle.  I look at a lot of deals on a regular basis and only seem to find deals with 8% cap rates in the "hood" or in areas that have very little going on in them economically.  So if you do actually find one that has an 8% cap rate that works for you financially, I'd suggest really doing your due diligence on the area to make sure that you really want to invest in it.

If you're looking for smaller multifamily deals (less than 50 units), then you have different options available to find them.  If you're looking larger multifamily deals (50 units or more), then your best bet is to get them through brokers.  To get good deals from brokers, you'll have to build good relationships with them and also establish yourself as a credible buyer.

With regard to submitting low offers, the best advice that I can offer you is to speak with the broker and see what they say before submitting it.  My general rule of thumb is that if my price is 10% or more off from their price, then I don't submit it unless the broker tells me to do so.  If you submit too many offers at very low prices, eventually you'll start to lose credibility and brokers will be much less likely to send you good deals.

Originally posted by @Charles Seaman :

@Carlos Castañon It's definitely a numbers game.  You'll have to look at a lot of deals before you find one that makes sense.  For starters, as @Hai Loc alluded to, Loopnet is not the place you find deals on.  Occasionally, you might find one that works on there, but you're better off using Loopnet to practice your underwriting as you're starting out and to connect with new brokers.

Furthermore, an 8% cap rate is very tough to find at this point in the market cycle.  I look at a lot of deals on a regular basis and only seem to find deals with 8% cap rates in the "hood" or in areas that have very little going on in them economically.  So if you do actually find one that has an 8% cap rate that works for you financially, I'd suggest really doing your due diligence on the area to make sure that you really want to invest in it.

If you're looking for smaller multifamily deals (less than 50 units), then you have different options available to find them.  If you're looking larger multifamily deals (50 units or more), then your best bet is to get them through brokers.  To get good deals from brokers, you'll have to build good relationships with them and also establish yourself as a credible buyer.

With regard to submitting low offers, the best advice that I can offer you is to speak with the broker and see what they say before submitting it.  My general rule of thumb is that if my price is 10% or more off from their price, then I don't submit it unless the broker tells me to do so.  If you submit too many offers at very low prices, eventually you'll start to lose credibility and brokers will be much less likely to send you good deals.

 Well put Charles. One has to look at a lot of deals these days to make one work. Loopnet is not the best source because the properties have already been looked at by many experienced investors. Occasionally folks will find a needle in that haystack, but it typically requires extensive market knowledge.

@Carlos Castañon

Look for properties that have been on the market for extended periods. Properties where the prices have been lowered and yet they still remain. When speaking to a seller you want to qualify the seller and determine whether or not he is a distressed seller. You find out what their motivations are for selling and you may find out that there is desperation behind the words. This is more likely to be a flexible seller. Flexible sellers are what you're looking for along with the right property. It's a combination of flexible seller and price. Sometimes you can make the price happen by finding the flexible seller and finding what it is that he needs and providing him with A creative finance option that gets him What he means while still providing you with An opportunity to take A decent deal and make it even better for you. The seller does not always know what he wants to do until you show him a way where you can both win

Don’t use Loopnet to find deals. The best deals won’t be on there. Instead use Loopnet to find brokers, email and network with them. Ask them to add you to their email list saying that your interested in some deals.

Brokers see deals before they hit the market. Tell them your requirements and they’ll assist on finding you properties that meet your requirements. Brokers are willing to do this because they only get paid a commission when a property is sold so they’ll work with tons of investors and find their ideal properties to maximise their commissions.

@Carlos Castañon You're welcome.  Different places and people might be one thing, but perhaps modifying your investment criteria might also help.  It's going to be very tough finding a deal with an 8% cap rate in any decent area at this point in the cycle.  Are you buying deals with your own capital or syndicating them?

thanks @Sam Martin , of course those properties have been long in market for some reason. They may carry more risk in terms of location or rehab. But I get that it is part of the game and that by taking those risks you´ll be able to find deals. 

Originally posted by @Hai Loc :

Remember what ever is left on Loopnet have been looked at by subscribed members on Co-Star..  but I am sure there are some under the radar deals that got overlooked 

Sometimes its frustrating but dont force yourself for the sake of being antsy 

tks! agree with going slow with this first deal. It´s just that I can´t find the right channel to get deals. 

I just received a lot of good advice from other BP members. I´ll get to work on it. 

 

Yes there can be issues, but it can also be that the seller has been inflexible. You may come across a seller that finally realizes that there are answers to his needs that he never imagined.  Your creativity can present him with solutions that he wasn't ready to accept until he met YOU.  If you don't ask...you'll never know . Be creative 

@Carlos Castañon another thing to consider is what typical market cap rates are specifically for the asset class you're investing in. There can be a pretty large difference between cap rates in a SFR property and a large multi-family property, simply because the investors that make up the demand for these properties expect different returns for different levels of risk - all other investors set the market for us. The best way to get an idea of what cap rates look like in your market would be to ask other investors you know that own in your target asset class!

Another thing to consider is hammering out your OpEx assumptions a little more. It pays to be conservative when underwriting a deal, but being too conservative will price you out of a lot of legitimate opportunities. 50% seems a little high to me. If you can hammer down your assumptions and you can get that number down to 40% you'd really be moving the needle on your pro-forma. If we assume $1,000 in rent, that gets you the $100 you're looking for. 

Best of luck to you! 

@Lee Nestlerode Costar is the primary listing service for commercial deals. It is an expensive subscription service. Loopnet has some free access, is a less important site and tends to be lesser deals.
Originally posted by @Lee Nestlerode :

@Hai Loc

Can you expand on what you mean by these are the left overs from costar?

 Co Star is the mother company of Loopnet.. paid subscribers get the first look on all listings.. they attack like hungry wolves.. i think it's a 5-10 day period before its live publicly on Loopnet.. sometimes wont even make it live

Originally posted by @Ned Carey :
@Lee Nestlerode Costar is the primary listing service for commercial deals. It is an expensive subscription service. Loopnet has some free access, is a less important site and tends to be lesser deals.

Thank you.

Originally posted by @Hai Loc :
Originally posted by @Lee Nestlerode:

@Hai Loc

Can you expand on what you mean by these are the left overs from costar?

 Co Star is the mother company of Loopnet.. paid subscribers get the first look on all listings.. they attack like hungry wolves.. i think it's a 5-10 day period before its live publicly on Loopnet.. sometimes wont even make it live

Thank you. Good to know.

 

 Some good pieces of advice in this  thread: Loopnet/Costar are  good place to find some hustling new brokers; or just brokers in general.  Reach out directly and ask ask them if they have any other deals that aren't listed.  Be prepared with your criteria.  Ask to be put on their lists and then stay in touch with them.  

Make sure you don't stop there.   Research their Brokerage, and find out if there are any deals on their website.  Take note of other players in the asset type you are interested at the brokerage and reach out to them.  

Find those Agents that are similar to you.  If youou are still establishing yourself as an investor, look for agents that are looking to establish themselves and begin building a relationship.  

Go to meetups; you never know and it doesn't hurt to meet other like minded individuals.

If you are looking for anything over 8 doors, MLS is not the place for you.

Begin interviewing property managers, let them know you are actively looking and that you are searching for the right partner in the market to help manage.  

Finally, if your numbers don't make sense, certainly don't force it.  It never hurts to reach out to an agent/broker and get their thoughts.  They might think its overpriced and ask that you submit so it strengthens their story to the owner.  They might tell you that the owner has just decided to come off his number.  Never hurts to communicate; but it does if you criticize.  Be careful of this difference.  

Happy Hunting.

@Carlos Castañon

Florida sucks right now, caps are low and many investors don’t seem to care.

Many say good deal are created.

The best way to make the deal great is through your model: will you stabilize, add value, increase rents, increase NOI, and Force equity.

Additionally, your best deals are going to come by way of direct contact with a seller.

Take the properties your looking at on LoopNet

And use them as reference to target neighboring properties that are not currently listed.

Additionally, in Florida and many other states

Building and owner info is available on the county website, you can populate list and export into excel, filter it again target properties owned for more than 10 yrs. At this point the current owner has had a taste of ownership and has likely even dealt with or is in the middle of a severely mismanaged asset.

Send lots of letters ( you will need to work on this letter and make sure it is concise and comes across as genuine)

I did this and sent out a hundred, and got 2 responses ( so my open rate was 2%)

I spent $50.00, so each lead cost me $25 each.

Nothing became of these, as the owners wanted more than I wanted to pay.

If I send a 1000 letters it would cost 500.00

And with an open rate 2% it would bring me 20 leads.

Typically your chances get better after re targeting the leads that didn’t call or send a letter back. My best results on similar campaigns come after I have sent an owner the 4 th correspondence.

Last thing, on LoopNet make sure to set you filters and set a minimum cap of 8% (for Florida that is high) what that will do is show you the listing that are higher potential for bargains.

Last you may find better success looking at a different State. Build a rockstar team: Realtor/ Broker, property manager, contractor, banker

Treat it like a business and not a hobby then you can scale. The asset being out of state may be a blessing, in that you must learn to delegate to the team you created and empowered.

Define your model now. Not later.