I am testing the waters of commercial real estate and was wondering if anyone could look over the numbers I currently have available. Here is how I see the deal.
Asking Price- 600,000
# of units- 13
Gross Operating Income- 71,820
Repairs- 6875 (added 25% to estimated price, )
Utilities(common area)- 400
Net Operating Income 56,848
Mortgage Payments 46,800
Cash Flow 10,048
Now I will not be offering $600,000 but really wanted to check with some of you experts to make sure I'm not forgetting anything. Also, since my cash on cash return is not stellar, should I just pick my percentage of return and just work backwards to figure out my max offer?
PS-I absolutely love this site.
Seems high to me. Is the gross rent the gross collected or the gross scheduled? You can argue about the "50% rule", but I've heard this from multiple sources for apartments. Things are more expensive when you're dealing with this sort of property.
If the $71,820 is scheduled gross, then knock off 50% for expenses. Then $1300/month ($100/unit/month). That leaves $1692/month for a payment. At 8% for 20 years, you get $202,000. Even at 30 years, you get $230,000. Add on 25% (your 20% downpayment), and you get $252K or $288K
But, you should investigate what you can get for loan terms. And use your own goal for cash flow.
The number was the average rents for the last two years. If I did not take out the property management fee and vacancy it would be 80k for the gross rents.
Here is how I see this deal:
Gross Rents: $6,666
Operating Expenses: $3,333
Mortgage Payment ($600,000, 30 yr, 7%): $3,991
Monthly Cash Flow: $658 LOSS (OUCH!)
In my opinion, this is a terrible deal!
Thanks for the responses guys. Both of you two have helped me out with all of your very helpful posts!
Mike, so it seems that since my NOI really will be around $3333 a month, then I need to subtract $100/unit to this to figure out my maximum monthly payment I can afford.
-$1300 (13 units)
So this would be around what purchase price? I assume around $210,000? Would you investors even waste your time with such a discounted offer or is that just part of the numbers game? Or is it more time effective to just simply put an offer in with a due diligence clause?
Thanks again for everyone's insight.
With a mortgage payment of about $2,000 per month, you could do a purchase price of about $300,000. You can always make an offer, but it most likely a waste of time. I don't make a bunch of low ball offers on retail deals, I find DESPERATE sellers who are selling at a huge discount.
That is not a deal you will be paying out of your pocket the minute the occupancy rate falls.Keep searching or just negotiate a better deal I say bbuy at $485,000.00 and you should be ok.
GET THAT MONEY MAN!
Mike, I see you have a book for sale. Do you go into how exactly to find these desperate sellers to begin with? If you would rather PM me, feel free. Thanks!!!!
If you want to find desperate sellers learn from wendy patton or Vena Jones Cox.
Their courses are also sold on ebay cheap.
Basically, its use a bunch of marketing methods to get a huge amount of leads so you dont have to try to make every deal work.
Direct marketing is a biggie.