Potential Multi-family deal in 89015

6 Replies | Henderson, Nevada

Hey all, 

I'm looking at two off market properties for sale in Henderson, right off of Lake Mead/Boulder area.  One is an 8 unit with all 2bed/1bath, currently renting for $750 per unit.  The other is a 6 unit that rents 4 units for $750 and 2 of the units being 3 bedroom and renting for $850 per unit.  I'm still working on getting some numbers from the owner but as of right now, what I have is that all units are rented out, tenants pay for power and the owner pays for water/gas/sewage/trash.  The owner hasn't specified what the properties are worth to him but he said that he's interested in selling both and to give him an offer.

Multifamilies are few and far between in Henderson so I'm having trouble finding comparisons therefore I need to do a little more homework on typical cap rates, rents, etc.  If anyone has first hand knowledge with Henderson's market feel free to chime in.  I'd also love to work with someone with more experience if there is anyone wanting to get involved.

I'm going to need to finance the deal, so based on the current information and current income ($10,700) , I'd like to start by offering about $750,000. If my numbers are correct, mortgage would be around $4,000 which leaves $6,700 and then 50% rule $5,350 leaves us with $1,350 cash flow which would be just under $100/door.  I already see room for improvement which could drive the rent up but I'd like to get other people's opinions on the deal. 

The other thing I'd love to do is figure out numbers that would work with seller financing that would avoid the bank and give us a lower down payment. 

Any input is appreciated.  Thank you!

Hey Frankie,

Congrats on finding some off market deals, and getting direct contact with the seller, that puts you in a good position right away.

you didn't specify what type of property it is and what the area is like. But I'm just going to assume it's a C class property in a ok neighborhood.

And before firing any kind of offer over I'd ask for some more information, so that you can get a better understanding of the property and the valuation. You'll need the t-12(the trailing 12 months income and expenses) and the rent roll.

But just to give you a down and dirty quick calculation again without knowing anything more apart from the numbers you gave.

On the 8 unit that's rented out at $750 each-

Calculations made on an annual basis 

750x8=6000

6000x12=7200

72000x0.1(10%vaccancy)=7,200

72,000-7,200=64,800

64,800x0.5(50%expenses)=32,400

NOI-$32,400

Market cap for C class is about 6-6.5% 

So let's be conservative and use 6%

Value is NOI/cap rate

So 32,400/0.06(6%cap)

=$540,000 valuation 

You can apply the same calculations to the 6 units and that should also give you and idea of where the value is.

I hope this helps, feel free to reach to me with any further questions, I'll be glad to help In any way I can!

Cheers 

Barri 

Are there any property managers in the area that can help you figure out rents?  The other thing you could do is to call classified ads that are renting properties.  Go check them out and see how they compare to yours.  This way you can get an idea of how to price them so they will rent fast and be profitable for you.

@Barri Griffiths Thanks for the quick response! I appreciate the breakdown. I need to remember how to break this down for future valuations. Look forward to meeting you at the local meetups.

@Benjamin Fredricks That is great advice. I'll definitely look into classifieds. I need to start making connections with property managers, etc. for help.  Thank you!

Update on the property. The property owner wanted me to give him a ballpark offer based on the rents and the fact that the properties are in "good condition". My offer number I came up with using the same template that Barri mentioned was $625,000 for all 14 units. This is taking into consideration vacancy, 50% rule, and what I'd be paying monthly for financing PMI. Using Barri's template, here's what I did.

14 total units : 12 @ 750 and 2 @ 850

750x12=9,000

850x2 = 1,700

9000 + 1700 =10,700 monthly rental income

10,700x12= 128,400

128,400x0.1(10%vacancy)=12,840

128,400-12,840=115,560

115,560x0.5(50%rule)=57,780

NOI-$57,780

Market cap for C class is about 6-6.5%

So let's be conservative and use 6%

Value is NOI/cap rate

So $57,780/0.06(6%cap)

$963,000 Valuation.

$57,780 / 12 months = $4,815 NOI/month

Based off this information, and the fact that I will need to traditional finance the deal, what would you offer if you were me? I was thinking that I'd like to cashflow $80 per door monthly minimum.  This would equal $1,120 cashflow monthly.  With this in mind, I'm looking at:

$4,814 - $1,120 = $3,694  available for financing.

30 yr mortgage 

20% down

5.5% interest 

$300/unit/yr insurance x 14 units = $4,200 annual insurance

$5300 annual taxes

I'd be able to safely offer $625,000

Seems super low.. What do yall recommend?  Valuation is $963,000 but I can only offer $625,000.  

Would it be better to throw out the 50% rule and use the actual expense history that the owner has and maybe add in a percentage for error? or use the 50% rule and lower my cashflow expectation.

Dropping cashflow to $50 per door would allow me to offer $725,000 with 20% down. 

I have a feeling that still won't be enough.  May just not be a deal that works for both parties.

Either way, I have a meeting set up with the owner and he's agreed to let me pick his brain a bit.  He owns other multifamilies that he may be willing to sell as well.  Deal or no deal, I think I'll be able to gain a lot of knowledge out of this one.  Funny thing is, it all started with a simple call on a "for rent" sign.

Thanks again for the help.

Recently discovered from a beginners guide REI book I read, a loan program called FHA 203(k) loan. They specifically loan for these small unit type fix/flip type apartments. Up to 800,000k in certain states like California. They don’t require much down payment, if your veteran even better. But look them up on the FHA website 203k not the b, k. The b is for regular FHA 203b residential loans. Good luck!

My advice to you is to be prepared before talking numbers, research, research, research! :)