All Forum Posts by: Austin Sine

Operations Cost factor exceeding 28%.  Why is so much of your revenue eaten up by monthly costs ranging into the 30's and 50% range?  When you start digging you realize this may be too much work to undo!

@Austin Sine the market, location, property class, and operator must be a yes then you get into the financials

Location. Real estate value and rent ability are driven almost completely by location.

@Austin Sine

If my mother or wife wouldn’t feel safe coming in the house at night alone I won’t look at it.

@Austin Sine simple, location and or the numbers, thats all that matters,  really not sure how else to answer  that

 Houses too close together. Bad drainage. Location. Houses worth less than zero.

*Finished Basements come close to immediate rejection. I might be willing to offer $30k-$40k less. Or I'll pay a fair price once the finished basement is removed. 

@Austin Sine, in Cincinnati, for instance, if you are selling a Class C property in a Class C neighborhood, on a major road, lots of deferred maintenance, for a 6.5% cap rate, I think that is too aggressive.  

On top of that, your 6.5% is based on rents $50-100 more per month, even though recent leasing didn't achieve those rates, and to get them you have to spend $8k/unit, but you market the property as turn key ready to go.  Proforma RET (this seems to be the biggest discrepency, and I live in a high RET area) is based on what the seller is paying, based on their purchase price.  When you pay double what they paid, your RET double, but that is not mentioned.  So the aggressive 6.5% is really a going in in the low 4's, and stabilized in the mid 5's when you account for new RET based on sale price.  And no Class C property in a Class C neighborhood is trading for that in Cincinnati.

At the end of the day, I get trying to point out the upside of a property. Great, do that.  If it is in a good school district, highlight that.  If market rents are a lot higher, even better.  But a lot of time it feels like the broker and/or seller is trying to pull wool over a buyer's eyes and I would classify as lying more than boasting about the property.

My view at purchasing a property has a few areas that I must be satisfied with to make an offer. They are prioritized in this order:

1. Neighborhood. Its the one part of the deal that I can never change or fix.

2. Cash Flow. Will it cash flow where I need it to be? This may be after some repairs, rent increases and or tenant upgrades but will it cash flow?

3. Condition of the building. Cosmetics are not important on the insides of units but can be indicative of how the building has been taken care of. But carpet and paint will need to be replaced over time anyway so i pay little attention. Its the bones. I look at roofs, ac systems, plumbing, structure, windows.....the big dollar items. If these are risky then this will kill cash flow and I am out.

4. Current tenants. Is the unit full? if not, what is the issue. As an owner I would never sell a building with an empty unit because it hurts the value so why is this building for sale with empty units? I want to personally see every unit and have a copy of the file of every tenant in the building. That one meth head that is cooking or that one sex offender in unit x will kill cash flow. How many are on month to month and the more the merrier because I know i can flip the unit to a new tenant at my discretion.

5. Equity that will be in the building/business when I complete and minor repairs, flip units to better tenants and move the rents to current market rate? Increasing the rents to fair market rate is the fastest way to ensure that number two is also successful. I have yet to have a tenant move out due to getting an increase when i buy a building and the first time they meet me they are being notified that the rent is increasing so it isnt a soft sell. 

6. Laws regarding tenant/landlord in that state and county. If it is difficult, lengthy and expensive to evict a tenant then it will be more difficult to manage the tenant and the lease as well.

 Location

@Austin Sine

Terrible school systems . Ideal tenants for me are families that want their kids in that school system . Also any major issues in basements I stay away from . Can be headaches down the road .