Deal analysis - White Plains

[Mike A.]

Hey guys, I am hoping someone can look at this deal analysis as I am going through a multiple offer situation.  It's a 3 unit multi-family, which is vacant. The owner cleaned up the entire place. New floors, appliances, cabinets, bathrooms, etc.  It's about 1m, and should bring in between 75k - 92k a year gross.  I've added the breakdown to this post and attempted to use conservative numbers.  I find that it's vacant a plus btw.  I know I can fill the units within a month's time.

[Sean Haley]

Quote from @Mike A.:

Hey guys, I am hoping someone can look at this deal analysis as I am going through a multiple offer situation.  It's a 3 unit multi-family, which is vacant. The owner cleaned up the entire place. New floors, appliances, cabinets, bathrooms, etc.  It's about 1m, and should bring in between 75k - 92k a year gross.  I've added the breakdown to this post and attempted to use conservative numbers.  I find that it's vacant a plus btw.  I know I can fill the units within a month's time.

Are you assuming 100% percent occupancy? What is your interest rate? The return looks suspicious but I can send you a model with your deal in it if you send me all the underwriting assumptions.

[Josh C.]

@Mike A.

Maintenance and vacancy happen. We manage a tons of properties and 40-50% expenses (not including debt) is very common. If you are really scrappy maybe 35%. But over a 5 year average these numbers are too optimistic.

Good luck!

[Mohammed Rahman]

Hey @Mike A. - not to rain on anyone's parade here, but why are you being so optimistic with your modeling. I've noticed you didn't make any assumptions on vacancy or maintenance/repairs.

Sure the property might be turnkey, but its real estate and things happen & need ongoing maintenance. Just my $0.02, never assume 100% occupancy. 

[Mike A.]

Quote from @Mohammed Rahman:

Hey @Mike A. - not to rain on anyone's parade here, but why are you being so optimistic with your modeling. I've noticed you didn't make any assumptions on vacancy or maintenance/repairs.

Sure the property might be turnkey, but its real estate and things happen & need ongoing maintenance. Just my $0.02, never assume 100% occupancy. 

 I have three homes within two blocks of this home. I know the market pretty well and do most all repairs myself. I can fill with 30 days all units..  Not worried about that.

[Bob Stevens]

I stopped reading after 1 mill and 85k gross, using the avg. that's TERRIBLE, so about 3% net cap, not good. Mike you are not ready to get involved in RE just yet. Please get to your local meetings and learn. This is beyond terrible at these numbers.  Also, what about repairs and vacancy? MAX I would pay is 650k, and that would still be below avg of a deal. 

Good luck 

[Mike A.]

Quote from @Sean Haley:

Quote from @Mike A.:

Hey guys, I am hoping someone can look at this deal analysis as I am going through a multiple offer situation.  It's a 3 unit multi-family, which is vacant. The owner cleaned up the entire place. New floors, appliances, cabinets, bathrooms, etc.  It's about 1m, and should bring in between 75k - 92k a year gross.  I've added the breakdown to this post and attempted to use conservative numbers.  I find that it's vacant a plus btw.  I know I can fill the units within a month's time.

Are you assuming 100% percent occupancy? What is your interest rate? The return looks suspicious but I can send you a model with your deal in it if you send me all the underwriting assumptions.

Pre-approved at 6.5%.

[Bob Stevens]

Quote from @Mohammed Rahman:

Hey @Mike A. - not to rain on anyone's parade here, but why are you being so optimistic with your modeling. I've noticed you didn't make any assumptions on vacancy or maintenance/repairs.

Sure the property might be turnkey, but its real estate and things happen & need ongoing maintenance. Just my $0.02, never assume 100% occupancy. 

[Mike A.]

Quote from @Bob Stevens:

I stopped reading after 1 mill and 85k gross, that's TERRIBLE, so about 3% net cap, not good

 Around 5% with 25% down.

[Mike A.]

Quote from @Bob Stevens:

Quote from @Mohammed Rahman:

Hey @Mike A. - not to rain on anyone's parade here, but why are you being so optimistic with your modeling. I've noticed you didn't make any assumptions on vacancy or maintenance/repairs.

Sure the property might be turnkey, but its real estate and things happen & need ongoing maintenance. Just my $0.02, never assume 100% occupancy. 

 Its a terrible deal, 

Thanks for you 2 cents. 

[Bob Stevens]

Quote from @Mike A.:

Quote from @Bob Stevens:

I stopped reading after 1 mill and 85k gross, that's TERRIBLE, so about 3% net cap, not good

 Around 5% with 25% down.

No its not, 

[Mike A.]

Quote from @Bob Stevens:

Quote from @Mike A.:

Quote from @Bob Stevens:

I stopped reading after 1 mill and 85k gross, that's TERRIBLE, so about 3% net cap, not good

 Around 5% with 25% down.

No its not, 

 Whatever you say.  According to 

https://goodcalculators.com/cap-rate-calculator/

and other calculators, it is.

[Bob Stevens]

Quote from @Mike A.:

Quote from @Bob Stevens:

Quote from @Mike A.:

Quote from @Bob Stevens:

I stopped reading after 1 mill and 85k gross, that's TERRIBLE, so about 3% net cap, not good

 Around 5% with 25% down.

No its not, 

 Whatever you say.  According to 

https://goodcalculators.com/cap-rate-calculator/

and other calculators, it is.

 Its 3- 5%  at best, which again is TERRIBLE, walk away from this deal. It's overpriced by at least 400k, 

[Sean Haley]

Quote from @Mike A.:

Quote from @Sean Haley:

Quote from @Mike A.:

Hey guys, I am hoping someone can look at this deal analysis as I am going through a multiple offer situation.  It's a 3 unit multi-family, which is vacant. The owner cleaned up the entire place. New floors, appliances, cabinets, bathrooms, etc.  It's about 1m, and should bring in between 75k - 92k a year gross.  I've added the breakdown to this post and attempted to use conservative numbers.  I find that it's vacant a plus btw.  I know I can fill the units within a month's time.

Are you assuming 100% percent occupancy? What is your interest rate? The return looks suspicious but I can send you a model with your deal in it if you send me all the underwriting assumptions.

Pre-approved at 6.5%.

Well, you have your answer right there. Based on the numbers you provided, your cost of capital is higher than your best case cash yield (cap rate). Below is a back of envelope calculation:

Gross Revenue (Best Case) 92K
Expense Margin @ 35%
NOI 59.8K

Purchase Price 1M
CR  6%

I agree with most of the comments, this doesn’t look like a good cash flow investment. Theres always more deals, keep hunting or negotiate a price discount.

[Bob Stevens]

Quote from @Sean Haley:

Quote from @Mike A.:

Quote from @Sean Haley:

Quote from @Mike A.:

Hey guys, I am hoping someone can look at this deal analysis as I am going through a multiple offer situation.  It's a 3 unit multi-family, which is vacant. The owner cleaned up the entire place. New floors, appliances, cabinets, bathrooms, etc.  It's about 1m, and should bring in between 75k - 92k a year gross.  I've added the breakdown to thisLove post and attempted to use conservative numbers.  I find that it's vacant a plus btw.  I know I can fill the units within a month's time.

Are you assuming 100% percent occupancy? What is your interest rate? The return looks suspicious but I can send you a model with your deal in it if you send me all the underwriting assumptions.

Pre-approved at 6.5%.

Well, you have your answer right there. Based on the numbers you provided, your cost of capital is higher than your best case cash yield (cap rate). Below is a back of envelope calculation:

Gross Revenue (Best Case) 92K
Expense Margin @ 35%
NOI 59.8K

Purchase Price 1M
CR  6%

I agree with most of the comments, this doesn’t look like a good cash flow investment. Theres always more deals, keep hunting or negotiate a price discount.

 LOVE IT! ANOTHER pen and paper analysis, Coffee shop millionaires :) I NEVER use a calculator, no need, welI........I stopped readying after the 1 mill purchased and gross of about 80, NOTHING else matters. We all (those with experience) its about 40% in expenses, 

Keep crushing it. 

[Mike A.]

Quote from @Bob Stevens:

Quote from @Sean Haley:

Quote from @Mike A.:

Quote from @Sean Haley:

Quote from @Mike A.:

Hey guys, I am hoping someone can look at this deal analysis as I am going through a multiple offer situation.  It's a 3 unit multi-family, which is vacant. The owner cleaned up the entire place. New floors, appliances, cabinets, bathrooms, etc.  It's about 1m, and should bring in between 75k - 92k a year gross.  I've added the breakdown to thisLove post and attempted to use conservative numbers.  I find that it's vacant a plus btw.  I know I can fill the units within a month's time.

Are you assuming 100% percent occupancy? What is your interest rate? The return looks suspicious but I can send you a model with your deal in it if you send me all the underwriting assumptions.

Pre-approved at 6.5%.

Well, you have your answer right there. Based on the numbers you provided, your cost of capital is higher than your best case cash yield (cap rate). Below is a back of envelope calculation:

Gross Revenue (Best Case) 92K
Expense Margin @ 35%
NOI 59.8K

Purchase Price 1M
CR  6%

I agree with most of the comments, this doesn’t look like a good cash flow investment. Theres always more deals, keep hunting or negotiate a price discount.

 LOVE IT! ANOTHER pen and paper analysis, Coffee shop millionaires :) I NEVER use a calculator, no need, welI........I stopped readying after the 1 mill purchased and gross of about 80, NOTHING else matters. We all (those with experience) its about 40% in expenses, 

Keep crushing it. 

It's actually 925k, but it's okay.