What to do with confusing info...

Question

Ok, maybe someone can help me understand what's going on here.  I saw a multi-family property in a nearby area that I thought looked interesting.

Details:

List Price: 259.9k

6 1/1 units

all recently upgraded with new paint, granite counters, etc.

I asked for financials and the RE agent has been very helpful contacting the seller, but what he is sending makes no sense to me.

1st attemp:

2013

Avg Monthly Rev

$3,600.00

$43,200.00

Avg Monthly Exp

$2,500.00

$30,000.00

Avg Monthly Pos Cash Flow

$1,100.00

$13,200.00

2014

Avg Monthly Rev

$3,854.00

$46,248.00

Avg Monthly Exp

$2,300.00

$27,600.00

Avg Monthly Pos Cash Flow

$1,545.00

$18,540.00

2015 projected   numbers:

Operating Income -   $45,360.00

Operating   Expenses-$16,000.00

Taxes - $8,000.00

Net Income - $21360.00

Property tax (575.00 monthly)

$575.00

$6,900.00

Insurance (370.00 monthly)

$370.00

$4,440.00

Maintenance/Prep ($267.00)

$267.00

$3,204.00

Lawncare

$85.00

$1,020.00

Nat Gas

$23.00

$276.00

Extermination

$17.00

$204.00

City Fees

$6.00

$72.00

$1,343.00

$16,116.00

Aside from the fact that the info is inconsistent, what should I be asking about?  On the surface, it seemed like a good deal for the price.

J Scott · Answer

If the owner did a lot of renovations in 2013, the 2014 costs could reflect lower-than-average maintenance costs -- though that wouldn't account for an $11K difference in 2015.  My guess is that either he counted capex in his 2013/2014 numbers and/or he's eliminating some important costs in the 2015 pro forma -- perhaps he's not including property management, perhaps he's "forgetting" about lawn care/snow removal/utilities, etc.

I would ask to see his 2013 and 2014 tax returns and verify those expenses.  Then I would ask for the 2015 pro forma, and see where the pro forma differs from his tax return data.

The net income of 50% of gross income *may* be reasonable, but it may not be.  You need to verify it, and also determine if it includes capex reserves and other costs that may be minimized in 2015 (due to recent upgrades) but will most certainly show up again in the future.

Shawn Root · Answer

It's just strange. Initially, I thought that the two 16k numbers were the same thing and that I was getting a breakdown of the expenses-that-were-not-taxes.  The 2015 high level estimate shows separate numbers for expenses and taxes. The breakdown includes taxes in the 16k....of course in a different amount than the summary.

Dave Bingham · Answer

@Shawn Root

Hi Shawn. I could only guess that expenses are going down because they also replaced items such as appliances, ac units, etc. Even if this is the case though, you'll still have these expenses in the form of your reserves. I personally wouldn't buy a property that is going to shift all those expenses on me and lower the value of my building. I'd look at making an offer based off what you think your expenses would be, not what the seller is providing.

Here's a dandy little spreadsheet from the resource section to assist you.

http://www.biggerpockets.com/files/user/OracleofMN/file/112-pro-forma-template---small-apartments-v7

Shawn Root · Answer

Ok, maybe someone can help me understand what's going on here.  I saw a multi-family property in a nearby area that I thought looked interesting.

Details:

List Price: 259.9k

6 1/1 units

all recently upgraded with new paint, granite counters, etc.

I asked for financials and the RE agent has been very helpful contacting the seller, but what he is sending makes no sense to me.

1st attemp:

2013

Avg Monthly Rev                   $3,600.00   $43,200.00

Avg Monthly Exp                   $2,500.00   $30,000.00

Avg Monthly Pos Cash Flow $1,100.00   $13,200.00

2014

Avg Monthly Rev                    $3,854.00   $46,248.00

Avg Monthly Exp                    $2,300.00   $27,600.00

Avg Monthly Pos Cash Flow $1,545.00   $18,540.00

Then came the projection for 2015

2015 projected numbers:

Operating Income -      $45,360.00

Operating Expenses-   $16,000.00

Taxes -                          $8,000.00

Net Income -                     $21,360.00

I was asking how the expenses keep going down.   I wanted to know what was going into the calculations.  I'm kind of a numbers guy.  I just got this:

Property tax                             $575.00    $6,900.00

Insurance                                 $370.00    $4,440.00

Maintenance/Prep                   $267.00     $3,204.00

Lawncare                                    $85.00     $1,020.00

Nat Gas                                       $23.00          $276.00

Extermination                             $17.00      $204.00

City Fees                                     $6.00          $72.00

TOTAL                                  $1,343.00    $16,116.00

Aside from the fact that the info is inconsistent, what should I be asking about?  On the surface, it seemed like a good deal for the price.

Shawn Root · Answer

Wow, sorry about the formatting.  It looked ok before I submitted!  If it's too muddy to make out, ,let me know and I'll try to get it in the forum in a nicer format.