How to Loose Money on Multifamily!
One of my partners called me yesterday. He said he had a lead from a wholesaler on an 126-unit in good part of the country that we should take a look at...
The marketplace really is quality - a stone's throw away from a major city. Highly motivated seller with a story that made all kinds of sense - my partner spoke directly top the seller.
I come into the picture today. My job is to underwrite the deal. I spent 5 hours in which I researched the market, the little bit if info that I had (this is a very distressed situation), called my management contacts with boots on the ground in the geographical vicinity, and finally built a pro-forma based on available information.
According to my underwriting, the stabilized operation of this particular asset would result in negative gearing NOI to the tune of $120,000/year...
Let me say that again:
Even after everything is functioning as it should, this asset would still be loosing $120,000 of NOI! We are not even talking about Cash Flow here - NOI! No **** they are motivated...lol
Even if I were $100/month/door off on the rents, the NOI would still be negative $20,000.
Guys - I could not imagine that this would be the result of my underwriting. I can look at a 4-plex and tell you if it works in 3 seconds. The big stuff has so many moving parts, and so many line items you've never heard of that I literally had to go through the entire process to arrive at the results.
It's really hard to underwrite mutli-unit. And most people, whether they know it or not, loose money in this space...
Be safe and be wise!