[Calc Review] Help me analyze this deal

6 Replies

@Saiday Mulbah Where are you getting your capex numbers? Let's look at just flooring. 600 sf in each unit*12=7200 sf of flooring. Installed brand new before you buy this. Life span of 8 years. For lvp it is $6 sf to replace. 7200*$6=$43200/8/12 months in a year=$450 per month in floor capex. I would assume you would want to replace the roof(15 years if flat), appliances and hot water heater 12 years, hvac 20 years, etc, 

I'm getting the capex from the seller.  He sent me all his numbers prior to presenting so I know what I'm working with.  Those are true numbers from the owner.  

Not sure if he's telling me the truth other than the specifics from his balance sheet but seems correct.  He's getting out of the business and wanting someone to take over.  This would be my first deal.  Not sure if I would qualify for a commercial loan (even though I understand it's different that residential).  I would like to own it, but comfortable with just doing a wholesale deal if I'm not prepared financially to undertake it all.

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@Saiday Mulbah, following up on @Tim Herman's points, I think your repairs are too low as well. I'd figure 15% combined for repairs and CapEx.

  • Water/sewer is probably low. I usually figure $40/unit/month, but his can vary widely. Call up the city and ask what the actual bills were for the last 12 or 24 months. FYI: if the numbers are high, this can be a great value-add opportunity.
  • What's the difference between "Real Estate Tax" and "Property Taxes" in your monthly expenses? At ~$200/month, those look very low for a $500k property. Again, confirm the numbers with the city.
  • Are the garbage numbers right? $132/month sounds absurdly low. I recently underwrote a 12-unit and it was ~$700/month, if I recall correctly.
  • What's the deal with the $990 electric bill? That must be more than just house lights. What would the cost be to get individual service for all the units? You could easily add $100k of value this way.

Speaking of value, your assumption that you're going to double the value of this property seems...optimistic. Are you planning to raise rents in conjunction with the renovations? You're at an average of $740/month now, how much higher can they go? I just don't see how $50k of renovations is going to improve your NOI that much. Furthermore, your final cap rate of 4.5% is unlikely. It's very rare that one market (let alone the same property) could have cap rates of both almost 12% and sub 5%. Sure you may lower the cap rate by raising the building class from C to B, but 7 points? No way.

These guys seem way smarter than me.  but here's what I see just on the surface.  After reno value of $1.3 million, but you're only setting aside a couple hundred bucks a month for repairs and capex?  if you have a value of $1.3 million, then I would assume your taxes will be much higher.  call the utility company and the county collector and verify those figures.  seems like you're wrong somewhere.  either after reno value or in your expenses.  

  @Tim Herman@Jaysen Medhurst - Gentlemen, I appreciate the feedback and guidance.  This is all great intel.  Thank you truly.  This would be one of first deals, and want to make sure I get it right.  I felt like some of the numbers were off, but didn't know where and how to verify.  I'll check with utility companies and county collectors to verify.  Owner rejected my offer and raised the amount substantially, we shall see.