Rental Property Investor · Mountain Grove, MO · Member since 2016 · 44 posts · 6 votes
I'm going to start by apologizing if I have posted my question in the wrong spot. I have entered into a partnership with a local investor in my hometown. He advises me against financing deals that can't be paid off within 10-15 years. I found a 12 unit apartment that could feasibly cash flow 1k-1.2k per month with a 20 year note and 20% down. I came to this conclusion using the BP analysis tool. I have to do more research on the deal but I think it's defiantly worth looking into. If someone could please point me to some insight on what would make a good or bad deal based on amortization periods I would appreciate it thank you.
Investor · Fort Walton Beach, FL · Member since 2015 · 568 posts · 966 votes
10y
@Kyle Lane I'm not sure I understand the question. If you provide more details of the property (purchase price, estimated rents, rehab estimate, expenses, etc.), people may be able to answer your question better. Whether it's a good, mediocre, or bad deal rely on a lot of factors.
@Kyle Lane I'm not sure I understand the question. If you provide more details of the property (purchase price, estimated rents, rehab estimate, expenses, etc.), people may be able to answer your question better. Whether it's a good, mediocre, or bad deal rely on a lot of factors.
Basically the investor I have partnered with thinks it's not a great deal because it can't be paid off in 15 years for any price even close to the asking price which is 375k. The gross income from rent and laundry is 56,400. expenses not including management are 23,681. I would add at least 1600 to what they claim for maintenance and they don't even have anything budgeted for maintenance. I would say 5.5-6k for that.
He is more for building equity quickly rather than cash flowing. Maybe because he is like 50 and wants to have everything paid off as soon as possible so he will start cash flowing sooner. He also owns a sucessful service company. I think his investment strategies are a little different than mine.
Lender · Central Point, OR · Member since 2015 · 11 posts · 5 votes
10y
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?
Investor · Fort Walton Beach, FL · Member since 2015 · 568 posts · 966 votes
10y
@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.
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?
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?
@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.
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 I'm not sure I understand the question. If you provide more details of the property (purchase price, estimated rents, rehab estimate, expenses, etc.), people may be able to answer your question better. Whether it's a good, mediocre, or bad deal rely on a lot of factors.
Basically the investor I have partnered with thinks it's not a great deal because it can't be paid off in 15 years for any price even close to the asking price which is 375k. The gross income from rent and laundry is 56,400. expenses not including management are 23,681. I would add at least 1600 to what they claim for maintenance and they don't even have anything budgeted for maintenance. I would say 5.5-6k for that.
He is more for building equity quickly rather than cash flowing. Maybe because he is like 50 and wants to have everything paid off as soon as possible so he will start cash flowing sooner. He also owns a sucessful service company. I think his investment strategies are a little different than mine.
I meant to say "they don't even have anything budgeted for management" would you figure 10% of gross for that?
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?
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?
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.