All Forum Posts by: Bill Jacobsen

I don't know the area so can't predict how much appreciation can be expected. I calculated the CAP rate using your numbers + adding a management fee. I came up with 7.1%. Using a 50% expense ratio I got 5.8%. CAP rates are usually calculated with the management fee in whether you plan to manage yourself or not. You want to judge the merits of the investment, not adding the cost of your labor.

I also calculated your cost of capital at 4.8%. I like to get a CAP rate of 3 percentages points above my cost. Therefore, I would want to get a 7.8% cap.

Good Luck.

Bill

Your numbers for cost of purchase and amount of rent seem about right for the Florida market. I do agree with Edward that your operating expenses will be higher.

Your return after 4 years will be about 11% per year. This is good for a buy and hold with no mortgage. Obviously, this is not a house to flip.

Bill

I am going to look at both. I want cash flow because I might need cash flow and I also want to look at how long a vacancy I can have and still not have negative cash flow. In the example above both scenarios are acceptable.

Cash on cash tells me something about return. Total return = cash on cash + yearly paydown on mortgage +appreciation/equity. I like a 7.9 Cap rate and a 4% cost of money.

Good Luck.

Bill

I really don't know what you should pay in your area but here are some things I look at. If I am paying 5% for money I want at least an 8 cap property. That puts it at $1,677,150. I also would like 10% cash on cash, that puts it at $1,395,572 not counting any other cash needs. I also usually buy properties at no more than 5 times yearly rents. That will put the price at $1,254,320.

There is still a lot we need to know to get closer to a value.

Good Luck.

Bill

Assuming your numbers are correct as a flipper I would need the property at about $130,000. A wholesaler then would need it at about $125,000.

Note that I don't know the area or anything else about the property.

Hope that helps anyway.

Bill

Given the numbers you have told us this looks like a pretty good deal for Salem. If your ARV is correct I would spend up to $15,000 on fix-up but no more.

Good Luck.

Bill

There is not an answer to this question. I have purchased houses which needed no repair and have purchased houses

where the rehab cost was more than twice the purchase cost.

Some factors are : size of house, number of kitchens and bathrooms, age, etc. After a while you begin to recognize $10 per SF, $20 per SF, $30 per SF and so on.

I make offers on my rough assessment and only bring in a contractor upon acceptance or close to it.

It is just my guess that extensive rehab means $20 per SF or more.

Good Luck.

Bill

As I understand, this 8 unit apartment has 6516 total square feet. The owner wants $8 per square foot or $52,158? That is only $6,520 per unit and seems very low. Are you sure it isn't $80 per square foot?

Are you saying comps are at $77 per square foot and you have determined that ARV is $371,000? Why is ARV only $57 per square foot?

I would assume that you are more likely to wholesale to a fix-buy and hold investor than to a flipper. Knowing the appropriate CAP. rate for the area + rent rates would be important as well as deferred maintenance.

Sorry, if I misunderstood your information.

Have a good day.

Bill

In answer to Justin. I have a ten year loan(no payments at all for 10 years) to a private lender, I have some 30 year loans and I have used a HELOC.

Hope that helps.

Bill

I don't know if there is a right or wrong answer. It is true that the more debt you have the more risk you have. It is also true that you may make a greater return on your money with more debt. There are some who will not take on any debt and there are others who will take on as much debt as someone will give them.

I do not want debt to be over 50% of my real estate portfolio. Also, I want expenses including debt service to be no more than 75% of the revenue from each property. I am only going to use debt if the CAP rate of the property is more than 3 percentages points above the interest rate of the debt.

These are the tests I use and I am not saying they are right for everyone.

Good Luck.

Bill