Newbie - Help me analyze this deal

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*This link comes directly from our calculators, based on information input by the member who posted.

I am a new investor in the Dallas - Fort Worth market. I am interested in utilizing the BRRRR method to acquire multi-family properties. I have been learning how to analyze deals from articles and resources on BiggerPockets, and could use some feedback just to make sure I'm doing things correctly. I have been using the analysis tool to analyze several multi-family deals. Most of them are negative cashflow and negative cash on cash ROI. Am I crazy? Or are these all just terrible deals? Here is an example of a Fourplex that would bring in less than 2% cash on cash ROI. Maybe I am doing something wrong? Or is the DFW market just THAT hot?

Would love some feedback, especially from locals!



Hey, @Blake Davis

First off: You’re not crazy. Many markets are currently not red but white hot and will experience a correction some time in the near future. Now’s a good time to practice, network for your A-Team (attorney, PM, GC, CPA) and learn to scale.

Always make a “ridiculous offer” of 75% ($337.500,00) of purchase/asking price ($450,000.00) to test the waters. They might hang up, scream at you, disappear off radar but always keep in mind you need to keep tesing the market.

Here’s my "10 Minute" Analysis:

  • First calculate the price per unit: purchase/asking price $450,000.00 divided by number of units to get to your unit price. In your case $112.500,00/unit.
  • The min. monthly rent needs to be 10% of the unit price. In your case $ 1.125,00

The great thing about  calculators is that they’re blind to local markets, our attachments, emotions or bias.

Generally you need to experiment on which wheels you need to turn (price, debt service, down payment, terms, etc.) to make the deal work. If that’s not possible, it’s not a deal.

We always look for 6-9% CoC and 15% IRR, a refi in 2-3 years and an exit in 5-7 years.

A few subjective thoughts on the current general multifamily real estate situation: 

I see similar signs on the wall as in 2008. People were paying ridiculous prices for SFR because everyone, their aunt, and their dog received a "stated income" loan. Similarly I see some CRE lenders throwing money around again topped by dried up inventory and too many new, overpriced A-class developments going up just to create the perfect storm all over again - this time in the CRE space. Not to mention the elephant in the room: offices and strip malls, who needs them in this day and age? But that's for another blog.

Thus it's important to run numbers conservatively with built in saftey for when the people move into the brand new A-class buildings increasing our "old" asetts' vacancy for a while only to pick up all the A-class peeps again, once they realize they can't afford those rents anymore, which will in turn have an effect on all rents. 

It never gets boring with real estate. The game is on ;-)

@Ken Breeze

Thanks so much for your well-thought reply. This information is helpful. It really puts my mind at ease having a second set of eyes confirm what I think I'm seeing! It's crazy how hot this DFW market really is. You mention you see similar signs on the wall as in you even think now is a good time to be purchasing properties? Or is it all about the quality of the deal regardless of the phase of the market cycle?

Howdy @Blake Davis

You stated you are interested in using the BRRRR strategy. Yet the calculator used is the Rental Property Calculator (not the BRRRR Calculator). Also this appears to be a rent ready deal. So BRRRR would not be possible. The BRRRR strategy requires distressed properties that can be purchased at a significant discount. And requires a good amount of Rehab to force equity appreciation.

@Blake Davis  it's always a good time to do real estate but regardless of cycle, it's always about a strong market location and making the numbers work for cash flow, all else is vanilla. You make your money when you buy. Never calculate hoping for appreciation - that's the cherry on top.

The thing is, when we feel the squeeze in the RE strategy we practice, it is definitely time to step back and look at the bigger picture. It might be time to phase into a different strategy or a different activity within your strategy.

Let's say for example in 2008 - 2012-ish it was all about wholesaling, flipping, seller financing SFH. Then it became more about assisted living, small-, mid- and large-size multifamily. Now everybody and their mother's cat is doing it so we might want to look into storage and notes but also groom and nurture our network of private investors and such.

We have lost touch with nature. It's like with the seasons: There's a time for preparing the field, a time for sewing the seeds, a time for growth, then harvest, celebration, reflection, and rejuvenation.

The challenge for many of us is accepting it is so.

@Blake Davis BTW, I'm looking for boots on the ground in your area. Perhaps you might PM me to chat about multifamily opportunities. ;-) Cheers.

If RE is such a piece of cake, why does not everyone wanting to strike it rich get in and retire early collecting rent?  I look at cap rate as well as positive cash flow. In our area, unless one puts a real hefty down payment the likelihood of having Positive cash flow is almost a sure nay. Most are speculating the neighborhood will be close to a new high tech. another Amazon headquarter, Googl giant tech center etc.  If not play investment conservatively. 

The DFW market is indeed hot. The competition is tough. But there are opportunities. You just won't find them on the MLS.

As mentioned already by others, either you find a distressed property so that you can create a value add, or you find something below market value. In most cases these will have to be off-market properties. We can help with that, btw.

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