Developer · Pierson, FL · Member since 2018 · 12 posts · 2 votes
So after years of studying real estate investment (and also years in site development) I have what I think is a nice deal put together/under contract, and it looks good to me! So why when I show it to potential investors is the response not as enthusiastic as I imagined it would be? On BP they say "if the deal is good, the money will find you"...certainly not my personal experience thus far! Is it how I am presenting it? Is my math off? At the risk of getting a royal public smack down, I am going to provide a link to what I send out to potential investors in hopes that the feedback will be a help to others as well as myself. So here it is Investor Package what's wrong with it? Thanks!
Only taking a quick look at your package my comments would be
- Margin seems low for a development deal. There is higher risk with costs and execution and longer timelines involved and yet your sale price is only 17% higher than your costs.
- Not sure why you are modeling cash flow when you plan to sell.
- Unless your cash flow model is because you're trying to calculate NOI and sale price based on that 8% cap rate. Which because these are duplexes they will be sold on comps and not income, so you need to confirm your sale price.
- I don't see any costs relating to the sale in your model. Realtor, title, etc.
Only taking a quick look at your package my comments would be
- Margin seems low for a development deal. There is higher risk with costs and execution and longer timelines involved and yet your sale price is only 17% higher than your costs.
- Not sure why you are modeling cash flow when you plan to sell.
- Unless your cash flow model is because you're trying to calculate NOI and sale price based on that 8% cap rate. Which because these are duplexes they will be sold on comps and not income, so you need to confirm your sale price.
- I don't see any costs relating to the sale in your model. Realtor, title, etc.
@Michael Le thanks! Yes cash flows were to derive sale price. There has not been any new duplexes built in our area since the 1980's, so comps were not the best. Those units were averaging $180k/per side. Maybe I am pricing these too low and that's why the margin is slim? I also ran the cashflows to make sure it would make sense to a potential investor. Good point on the sale costs.
@Jose Alvarez Your presentation needs some clarity. I thought it was 800+K for one duplex. If it is 4 doors; then for a buy and hold investor it should make them smile. I also agree with@Michael Le comments above. All the best!
What is the total potential gross income? are these two duplexes or one? what price are you looking to sell this to the end buyer? the presentation needs to be revamped and the information needs to be more clear.
If I were to invest in this property I'd need to know how much I could conservatively cash flow for in this area. And if it'd be worth the investment. What kind of caprate would this type of property get? Taxes? etc.