How many years to finance a conventional mortgage

Question

Arianne L. · Answer

Ah, yes. @Bob Bowling is accurate.

What was in my mind was calculating the purchase cap rate given the seller's stated NOI and purchase price.

Account Closed · Answer

Cap rate stays the same.  An increase in NOI will increase the VALUE.

$50,000 NOI/10% cap rate = $500,000 value

$55,000 NOI/10% cap rate = $550,000 value.

Arianne L. · Answer

@Kyle Lane Cap rate varies from location to location. Cap rate = NOI/Purchase price

Therefore,  if you can increase your NOI by either decreasing expenses or increasing revenue, your cap rate will go up.

Chris Richey · Answer

300k looks better if the repair cost is accurate. One recent episode of the podcast has some information you might like (one the last couple, can't remember the number). He talks about how he approaches these deals. Getting an HVAC company and a roofer out there would be a good idea. He also discussed ways to possibly add value through things like sub-metering, increasing rent, making one of the units a vacation rental, etc.

Once you get all of your data together, present an offer based on those numbers and be willing to share that information so they understand the lower offer. Don't include the value adds in that number though, base it off of current income, real repair costs and your financing.

Good luck.

Kyle Lane · Answer

I meant to say "they don't even have anything budgeted for management" would you figure 10% of gross for that?

Kyle Lane · Answer

It is probably a high C in a comparable neighborhood. the cap rate would need to be over 10 for that right? what numbers do I need to play with to get the cap rate up?

Kyle Lane · Answer

I redid the calculation with the BP analysis tool. I put in a 5% cap ex. and 15k for repairs. It was built in 1973 and I know for a fact that the HVAC is not in very good shape. The purchase price would have to come down to 300k it looks like to make it any good. Would you agree?

Jeff B. · Answer

Run some amortization tables for your self with a fixed rate for differing length of times.

You will be shocked that the changes in the mortgage payments and the effects on your ROI.

Ask your partner what's the advantage to creating excessive equity when that money could have been put to work elsewhere?

There's two primary concepts to holding rentals:

• hold for 6-8 years and get out so that the Reclaimed Depreciation doesn't destroy your profits
• hold long term to maximize the ROI year over year over year

Arianne L. · Answer

@Kyle Lane From rough estimates, sounds like it is a 7.5 cap at the price you mentioned and assuming 50% expenses. So estimated. NOI would be $28,200.

It really depends on so many factors. For example, if you said that that it is a B building in an A or B area, I would probably buy it. If it is a C building in a C/D area, definitely not.

I suggest making a proforma of the income and expenses, figuring out the cash on cash return you expect, and figure out if that works for you. Most people prefer a longer amortization (20-30 years) because you can still pay it off early if you want to, but you can't have a 15 year loan and extend it.

Chris Richey · Answer

A cash flow, on the high end of your estimate, of $100/mo per door seems pretty risky for that much of an investment. Does your cash flow analysis include capital expenditures?

How many years to finance a conventional mortgage

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