What to pay for existing, cash-flowing properties?
Member since 2021 · 27 posts · 10 votes
What to pay for existing, cash-flowing properties?
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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
4y@John Timmerman I think the confusing part here is you said market value for all three properties is $400K and seller is asking $825K. Market value is what the properties are worth in todays market. That means the seller is asking double fair market price or you are misusing the term "market value".
Their net operating income isn't including repairs, CAPEX, management or vacancy. In fact, the 2021 don't even appear to be precise numbers, because they are all even numbers. Since 2021 has already passed, they should have exact numbers for 2021 and it is hard to believe they had no repairs or CAPEX across 8 units. This is pretty common with real estate agents. They put up some fluffy and unreliable numbers to make the CAP rate look great. I wish they wouldn't do this, but they hide behind the declaimer, "All information provided is deemed reliable but is not guaranteed and should be independently verified."
44 Replies
- Member since 2021 · 27 posts · 10 votes4yThat’s the plan for my future. But right now these are turnkey/cash flowing, and I have 3 other businesses as my day job.
Quote from @Robert Beardsley:
the question is why wouldn't you just go buy 8 properties at 400k and rent them out. this is very confusing post
it’s a good fit for my lifestyle. - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
I am baffled @John Timmerman, you clearly do not know how to evaluate these properties (and have been honest to such), so I am confused how you believe the outcome of acquiring a business that you don't know enough about to even be able to evaluate it will result in anything but a flaming dumpster-fire?
And as an owner of other business's as regular profession...... I am just baffled this base-line requirement of comprehension in a business acquisition didn't immediately hit you as common sense.
There is layers to this onion, MANY layers. For example, are you aware that commercial financing is considerably different than standard residential? That the appraisals are considerably different? How about maintenance, where does that stand, is there any deferred maintenance? Or zoning, is there any impending changes in that directions of things? What is management impact like? There is so many factors that go into assessment and underwriting that it looks like your running into this totally blind and that all but assures disaster.
If you don't know, HIRE someone who does, that's basic law of business and life 101, right.
- Member since 2021 · 27 posts · 10 votes4y
Quote from @James Hamling:
I am baffled @John Timmerman, you clearly do not know how to evaluate these properties (and have been honest to such), so I am confused how you believe the outcome of acquiring a business that you don't know enough about to even be able to evaluate it will result in anything but a flaming dumpster-fire?
And as an owner of other business's as regular profession...... I am just baffled this base-line requirement of comprehension in a business acquisition didn't immediately hit you as common sense.
There is layers to this onion, MANY layers. For example, are you aware that commercial financing is considerably different than standard residential? That the appraisals are considerably different? How about maintenance, where does that stand, is there any deferred maintenance? Or zoning, is there any impending changes in that directions of things? What is management impact like? There is so many factors that go into assessment and underwriting that it looks like your running into this totally blind and that all but assures disaster.
If you don't know, HIRE someone who does, that's basic law of business and life 101, right.
Wow, thanks for the welcome to this community. Pretty sure that's why I'm here @James Hamling...trying to learn. Isn't that what Bigger Pockets is for?
- 4yMatthew Irish-JonesBusiness MemberReal Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
@John Timmerman fair is relative to the market you are in and the asset condition of each property.
No one can answer your question unless they know your market and have seen each asset. If your agent is an investor focused agent he should have a formula for how he is coming up with the valuation. You should ask him for it instead of throwing numbers at the wall.
From my experience off market deals are usually priced through the roof because someone says “sure I will sell off market if I get this high price”
To give you an example to reverse engineer. I am in the Buffalo market. We get around 8% cash on cash returns for B class properties in good shape.
So I would take the cash on cash returns for Syracuse and run the equation backwards to get a sale price. Then I would subtract all or a portion of major CapEx expenses.
CapEx and maintenance are your two most variable cost. On a portfolio this big if you don't know how to predict those two line items you could
Have a nightmare on your hands instead of an asset.
Irish Jones Realty4.947 Reviews - Member since 2021 · 27 posts · 10 votes4y
Quote from @Matthew Irish-Jones:
@John Timmerman fair is relative to the market you are in and the asset condition of each property.
No one can answer your question unless they know your market and have seen each asset. If your agent is an investor focused agent he should have a formula for how he is coming up with the valuation. You should ask him for it instead of throwing numbers at the wall.
From my experience off market deals are usually priced through the roof because someone says “sure I will sell off market if I get this high price”
To give you an example to reverse engineer. I am in the Buffalo market. We get around 8% cash on cash returns for B class properties in good shape.
So I would take the cash on cash returns for Syracuse and run the equation backwards to get a sale price. Then I would subtract all or a portion of major CapEx expenses.
CapEx and maintenance are your two most variable cost. On a portfolio this big if you don't know how to predict those two line items you could
Have a nightmare on your hands instead of an asset.
@Matthew Irish-Jones THIS, was very simple, and helpful. I just did it and now makes total sense. Thank you so much man!
Here is what they came out to be:
Single Fam = $160k (good condition)
Duplex = $145k (ok condition)
5-unit = $300k (ok condition)Total hits at $605,000 with some wiggle room. We wrote an LOI for $650k with the intention of trying to get them to come down after fully reviewing the property to get closer to $600k.
I've got work to do, but this is great. Thanks!
- Member since 2019 · 22 posts · 4 votes4y
I'm with @James Hamling - you're not ready to be buying these properties. Unless you're an eccentric billionaire. I think there have been several responses so far on this thread that question all your numbers. 400-800k range and wanting to "just pick a number". You need to hit the breaks. Hard.
I think others have already commented on some of the items, but one thing I noticed - you keep calling these cash flowing properties. They MAY be cash flowing for the current owner (who doesn't have financing cost that you will have) but that doesn't mean they'll cash flow for you.
You're here for BP advice - here it is: Know your numbers. If you were on Shark Tank, they would kick you out. Advice and help isn't always going to make you feel good. Reality hits hard.
This may end up being a nice opportunity but based on the information on in your posts you have no idea if it is or not. And for that reason - I'm out.
- 4yMatthew Irish-JonesBusiness MemberReal Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
@John Timmerman. Sure no problem. If the numbers work forwards and backwards don’t listen to others that want to Make it rocket science.
Cushman and Wakefield is a solid reputable company and it sounds like they did their homework and presented you with what the asset should be worth. That’s a quality agent.
Last thing to note is although you can have a great investor focused agent on your hands that doesn’t mean he is great at asset analysis. Even home inspectors can really screw this part up.
Old rust belt cities have knob and tube wiring, asbestos tiles inside and out, asbestos wrapped boilers, lead paint, lead plumbing, mixed metering, and other things that can turn an investment upside down.
The age of the home is far less important than the age of the mechanicals. If they are pre 1940 homes you need to do a hard check of the mechanical systems. If you don’t know how to look for that stuff make sure you quiz your inspector on it before hand.
Good luck on the sale.
Irish Jones Realty4.947 Reviews - 4yMatthew Irish-JonesBusiness MemberReal Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
@John Timmerman
Also… cushman calculates net bases on operating cost and rent, they don’t build debt service in. So it’s technically net but, it’s NOT cash flow.
I prefer to calculate with debt service so I know if I’m cash flow positive or negative, that’s another key point if you are just starting to analyze properties.
Irish Jones Realty4.947 Reviews - 4yJaron WallingPro MemberRental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
@Ryan Jones The truth hurts. haha
I agree with your statement and for that reason I'm out as well.
- Member since 2021 · 27 posts · 10 votes4y
Quote from @Matthew Irish-Jones:
@John Timmerman
Also… cushman calculates net bases on operating cost and rent, they don’t build debt service in. So it’s technically net but, it’s NOT cash flow.
I prefer to calculate with debt service so I know if I’m cash flow positive or negative, that’s another key point if you are just starting to analyze properties.
Thanks @Matthew Irish-Jones I ran the numbers on my own and by offering $600k with 25% down and the rest financed at 4.75%, after adding all expenses and PM costs they are cash flowing at $13k a year together ($3k, $3k and $7k). All at around 8% CAC and about 7% CAP. This is a long-term investment for me. Not concerned about the cash flow as much as the land and location.
Thanks for the tips on the mechanicals though. we haven’t been able to get into the property to inspect it yet, but hopefully in the next week or so.
- Member since 2021 · 27 posts · 10 votes4y
Quote from :
I'm with - you're not ready to be buying these properties. Unless you're an eccentric billionaire. I think there have been several responses so far on this thread that question all your numbers. 400-800k range and wanting to "just pick a number". You need to hit the breaks. Hard.
I think others have already commented on some of the items, but one thing I noticed - you keep calling these cash flowing properties. They MAY be cash flowing for the current owner (who doesn't have financing cost that you will have) but that doesn't mean they'll cash flow for you.
You're here for BP advice - here it is: Know your numbers. If you were on Shark Tank, they would kick you out. Advice and help isn't always going to make you feel good. Reality hits hard.
This may end up being a nice opportunity but based on the information on in your posts you have no idea if it is or not. And for that reason - I'm out.
Thanks for the insight.
I have to say, The barrage of people telling me I don’t know what I’m doing wasn’t what I expected when joining Bigger Pockets to “ask questions about what to do” 🤔 .
I don’t need to be told that I don’t know what I’m doing. It’s exactly the reason I’m here lol.
Thanks to the 2-3 people who are helping 🙏 @Matthew Irish-Jones being one of them - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
Quote from @John Timmerman:
Quote from :
I'm with - you're not ready to be buying these properties. Unless you're an eccentric billionaire. I think there have been several responses so far on this thread that question all your numbers. 400-800k range and wanting to "just pick a number". You need to hit the breaks. Hard.
I think others have already commented on some of the items, but one thing I noticed - you keep calling these cash flowing properties. They MAY be cash flowing for the current owner (who doesn't have financing cost that you will have) but that doesn't mean they'll cash flow for you.
You're here for BP advice - here it is: Know your numbers. If you were on Shark Tank, they would kick you out. Advice and help isn't always going to make you feel good. Reality hits hard.
This may end up being a nice opportunity but based on the information on in your posts you have no idea if it is or not. And for that reason - I'm out.
Thanks for the insight.
I have to say, The barrage of people telling me I don’t know what I’m doing wasn’t what I expected when joining Bigger Pockets to “ask questions about what to do” 🤔 .
I don’t need to be told that I don’t know what I’m doing. It’s exactly the reason I’m here lol.
Thanks to the 2-3 people who are helping 🙏 @Matthew Irish-Jones being one of themPeople keep saying you don't know what your doing in an effort to help protect you from a setup for failure. They should be following up with clarification (and i believe are not out of assumption that it's just known common sense in this field) that as you don't know what your doing, you NEED and should be HIRING your weakness, hiring someone who DOES know what they are doing. An REI Acquisition Consultant to advise you, to analyze the deal.
It does not seem like your open to the advice and direction in an open honest manner, just seeking affirmations of what pre-decided to hear. I get that sense.
- Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes4y
Quote from @Jaron Walling:
@John Timmerman Something is very wrong with your market valuation or the seller is insane. Those properties in decent condition in my market are worth way more than $400k, and it's cheap here. I'd connect with an agent or other experience local investors and get the real numbers.
Given the current market conditions do everything you can to keep this deal off market. It's the best chance you have to find a good DEAL.
Are you familiar with the Syracuse market? Or the area of these properties?
- Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes4y
Seller wants a price that puts the properties way under the 1% rule, in a state with high property taxes. No way you give near that amount.
- Member since 2021 · 27 posts · 10 votes4y
Quote from @James Hamling:
Quote from @John Timmerman:
Quote from :
I'm with - you're not ready to be buying these properties. Unless you're an eccentric billionaire. I think there have been several responses so far on this thread that question all your numbers. 400-800k range and wanting to "just pick a number". You need to hit the breaks. Hard.
I think others have already commented on some of the items, but one thing I noticed - you keep calling these cash flowing properties. They MAY be cash flowing for the current owner (who doesn't have financing cost that you will have) but that doesn't mean they'll cash flow for you.
You're here for BP advice - here it is: Know your numbers. If you were on Shark Tank, they would kick you out. Advice and help isn't always going to make you feel good. Reality hits hard.
This may end up being a nice opportunity but based on the information on in your posts you have no idea if it is or not. And for that reason - I'm out.
Thanks for the insight.
I have to say, The barrage of people telling me I don’t know what I’m doing wasn’t what I expected when joining Bigger Pockets to “ask questions about what to do” 🤔 .
I don’t need to be told that I don’t know what I’m doing. It’s exactly the reason I’m here lol.
Thanks to the 2-3 people who are helping 🙏 @Matthew Irish-Jones being one of themPeople keep saying you don't know what your doing in an effort to help protect you from a setup for failure. They should be following up with clarification (and i believe are not out of assumption that it's just known common sense in this field) that as you don't know what your doing, you NEED and should be HIRING your weakness, hiring someone who DOES know what they are doing. An REI Acquisition Consultant to advise you, to analyze the deal.
It does not seem like your open to the advice and direction in an open honest manner, just seeking affirmations of what pre-decided to hear. I get that sense.
@James Hamling I’m VERY open to constructive criticism and advice. I am not an expert here. I know that I do not have any of the answers. I am here to get advice.
but I am Not open to criticism with out advice. The world already dishes out enough of that.A few people have given me great advice, and I’m grateful for that. I did listen, and it’s helping. So thank you.
- Member since 2021 · 27 posts · 10 votes4y
Quote from @Eric James:
Quote from @Jaron Walling:
@John Timmerman Something is very wrong with your market valuation or the seller is insane. Those properties in decent condition in my market are worth way more than $400k, and it's cheap here. I'd connect with an agent or other experience local investors and get the real numbers.
Given the current market conditions do everything you can to keep this deal off market. It's the best chance you have to find a good DEAL.
Are you familiar with the Syracuse market? Or the area of these properties?
I’m familiar with the area. But still gathering all the details to make a smart investment. I think with this property, it’s a matter of getting them to accept a price low enough to make it make sense (based on some others feedback).
- Member since 2021 · 27 posts · 10 votes4yGood point. Thanks for the insight.
Quote from @Eric James:
Seller wants a price that puts the properties way under the 1% rule, in a state with high property taxes. No way you give near that amount.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4yFair enough point, and in foundation I rather agree as I find frustration with those who only add negative without at least providing a positive to balance.
Quote from @John Timmerman:
Quote from @James Hamling:
Quote from @John Timmerman:
Quote from :
I'm with - you're not ready to be buying these properties. Unless you're an eccentric billionaire. I think there have been several responses so far on this thread that question all your numbers. 400-800k range and wanting to "just pick a number". You need to hit the breaks. Hard.
I think others have already commented on some of the items, but one thing I noticed - you keep calling these cash flowing properties. They MAY be cash flowing for the current owner (who doesn't have financing cost that you will have) but that doesn't mean they'll cash flow for you.
You're here for BP advice - here it is: Know your numbers. If you were on Shark Tank, they would kick you out. Advice and help isn't always going to make you feel good. Reality hits hard.
This may end up being a nice opportunity but based on the information on in your posts you have no idea if it is or not. And for that reason - I'm out.
Thanks for the insight.
I have to say, The barrage of people telling me I don’t know what I’m doing wasn’t what I expected when joining Bigger Pockets to “ask questions about what to do” 🤔 .
I don’t need to be told that I don’t know what I’m doing. It’s exactly the reason I’m here lol.
Thanks to the 2-3 people who are helping 🙏 @Matthew Irish-Jones being one of themPeople keep saying you don't know what your doing in an effort to help protect you from a setup for failure. They should be following up with clarification (and i believe are not out of assumption that it's just known common sense in this field) that as you don't know what your doing, you NEED and should be HIRING your weakness, hiring someone who DOES know what they are doing. An REI Acquisition Consultant to advise you, to analyze the deal.
It does not seem like your open to the advice and direction in an open honest manner, just seeking affirmations of what pre-decided to hear. I get that sense.
@James Hamling I’m VERY open to constructive criticism and advice. I am not an expert here. I know that I do not have any of the answers. I am here to get advice.
but I am Not open to criticism with out advice. The world already dishes out enough of that.A few people have given me great advice, and I’m grateful for that. I did listen, and it’s helping. So thank you.
Although, I believe the fault was with assumptions and expectations, not respondents responses.
You pointed out John that you don't really know things and came here, into this arena, expectation to be provided answers and solutions. This is not that, this is a forum of open discussion, comment and dialogue, not a Help Desk for Real Estate woes.
Yes, at times it really is a fine line but in end I believe intent really defines where that line is. Your intent was not for discourse but specific answers for actions to be taken, that is Help Desk.
And remember, you don't really know anybody on here. For all you know the advice you take and act upon, could have come from a 12yr old who has painted himself a 57yr old landlord from Trachoma.
Point is this is not a Help Desk, it is a forum of open discourse and one must expect it as such, including not receiving the advice expected in the manner expected, to just receive opinion. - Member since 2021 · 27 posts · 10 votes4yUnderstood. Thank you.
Quote from @James Hamling:
Fair enough point, and in foundation I rather agree as I find frustration with those who only add negative without at least providing a positive to balance.Quote from @John Timmerman:
Quote from @James Hamling:
Quote from @John Timmerman:
Quote from :
I'm with - you're not ready to be buying these properties. Unless you're an eccentric billionaire. I think there have been several responses so far on this thread that question all your numbers. 400-800k range and wanting to "just pick a number". You need to hit the breaks. Hard.
I think others have already commented on some of the items, but one thing I noticed - you keep calling these cash flowing properties. They MAY be cash flowing for the current owner (who doesn't have financing cost that you will have) but that doesn't mean they'll cash flow for you.
You're here for BP advice - here it is: Know your numbers. If you were on Shark Tank, they would kick you out. Advice and help isn't always going to make you feel good. Reality hits hard.
This may end up being a nice opportunity but based on the information on in your posts you have no idea if it is or not. And for that reason - I'm out.
Thanks for the insight.
I have to say, The barrage of people telling me I don’t know what I’m doing wasn’t what I expected when joining Bigger Pockets to “ask questions about what to do” 🤔 .
I don’t need to be told that I don’t know what I’m doing. It’s exactly the reason I’m here lol.
Thanks to the 2-3 people who are helping 🙏 @Matthew Irish-Jones being one of themPeople keep saying you don't know what your doing in an effort to help protect you from a setup for failure. They should be following up with clarification (and i believe are not out of assumption that it's just known common sense in this field) that as you don't know what your doing, you NEED and should be HIRING your weakness, hiring someone who DOES know what they are doing. An REI Acquisition Consultant to advise you, to analyze the deal.
It does not seem like your open to the advice and direction in an open honest manner, just seeking affirmations of what pre-decided to hear. I get that sense.
@James Hamling I’m VERY open to constructive criticism and advice. I am not an expert here. I know that I do not have any of the answers. I am here to get advice.
but I am Not open to criticism with out advice. The world already dishes out enough of that.A few people have given me great advice, and I’m grateful for that. I did listen, and it’s helping. So thank you.
Although, I believe the fault was with assumptions and expectations, not respondents responses.
You pointed out John that you don't really know things and came here, into this arena, expectation to be provided answers and solutions. This is not that, this is a forum of open discussion, comment and dialogue, not a Help Desk for Real Estate woes.
Yes, at times it really is a fine line but in end I believe intent really defines where that line is. Your intent was not for discourse but specific answers for actions to be taken, that is Help Desk.
And remember, you don't really know anybody on here. For all you know the advice you take and act upon, could have come from a 12yr old who has painted himself a 57yr old landlord from Trachoma.
Point is this is not a Help Desk, it is a forum of open discourse and one must expect it as such, including not receiving the advice expected in the manner expected, to just receive opinion.
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