Help me analyze this deal

5 Replies

I found a apt complex which I ran through the property analysis tool but I want check with the experts here before I decide to pass since the numbers don't seem to work. I may or may not be doing it correctly.

Here is the info from the property:

Financial Summary Proforma
Year: 2007
Scheduled Gross Income: $89,100
Vacancy: $4,455
Effective Gross Income: $84,645
Maintenance: $8,800
Taxes: $8,015
Insurance: $3,500
Other Expenses: $5,925
Total Expenses: $26,240
Net Operating Income: $58,404
Debt Service: $49,500
Pre-Tax Cash Flow: $8,904
Expenses/Unit: $800.00


Unit Mix Information
One-story units
No. Units: 3
SF: 1,036
Avg. Mo. Rent: $675


Two-story units
No. Units: 8
SF: 1,026
Avg. Mo. Rent: $675

Building Size: 11,300 SF
Lot Size: 0.67 Acres
Occupancy: 100.00%
Price: $795,000
Price/Unit: $72,272.73
Cap Rate: 7.35%
Year Built: 2002

Tell me what you think

Just looking strictly at the cash flow verses the debt, it appears that you are going to have 11 units to manage for around $700.00 bucks a month. That sounds like a full time job where you will be making around 4 dollars an hour if you are lucky. Now cut that $700.00 dollars a month in 1/2 for operating expenses and you are essentially making around $32.00 dollars a month per unit. I would never own a property and rent for $32.00 a month profit.

Unless I read your post incorrectly, I wouldn't touch this deal or touch it, but at a much reduced price. I need to get over $100.00 a month in cash flow before I would even consider buying.

Thanks

TC,

I was thinking the same thing but needed a second opinion just in case I missed something. I am going to pass on this deal but I am curious for future reference what would you offer to make the numbers work for you and how would you come to that conclusion.

Thanks,

Scheduled Gross Income: $89,100
Vacancy: $4,455
Effective Gross Income: $84,645
Maintenance: $8,800
Taxes: $8,015
Insurance: $3,500
Other Expenses: $5,925
Total Expenses: $26,240
Net Operating Income: $58,404
Debt Service: $49,500
Pre-Tax Cash Flow: $8,904

Here's the way I see this deal: $7,424 per month
Operating Expenses: $3,712
NOI: $3,712

Debt: $4,125 per month

Monthly LOSS: $413 OUCH!

Obviously, this is a loser and I would not do it!

Mike
Gross rents:

Thanks Mike,

That is why you are the Community Guru. I always value your opinion. I am glad I have guys like you to help me understand and possible save me from making too many mistakes.

Again thanks,

Antwan

I am actually not very good at just running numbers and coming up with an offer. I have to walk through a property, pull comps, then look at the numbers. Just looking at your numbers lets say that you can get a 30yr fixed at 7.5% on a commerical loan, your PITI will be $6518.33 per month. Not sure where you got $49,500/ $4125 per month.

Actual Debit service = $78,216
Rents $89,100

OP expenses lets say $30,000 per year and this is on the low side.

Leaves you with $59K or $4961 per month. Current price leaves you at neg. $1557 per month.

So if you expect to make it successful you would need to get the place for $395,000. This would leave you with a PITI of $3721 and a cash flow of $1261 or $114.00 per unit per month.

Yes, that seems pretty nuts to walk in and offer 395K for a property that someone is asking 795K for, but do you see any where I am hosing up the numbers? Remember, you don't count the DP. You have to base it off what you are paying for the property.

You could do the 70% rule based on comps and see where that gets you, but only use that if I am going to flip the place.