All Forum Posts by: Account Closed

@Jay S. 

Your at a Gross Rent Multiplier of 5.09, which is not a home run but it is very solid. I would definitely take a look at this deal. My quick analysis looks like this:

Gross Potential Income = $24,600

Net Operating Income = $12,300 (50% guideline)

Debt Service = $7920 (Assumes 80% LTV, 5%, 20 year amortization)

Cash Flow = $4,380

Cash on Cash Return = 18% ($4,380 / $25,000 down)

This is just a quick analysis. You will need to go far more in depth if you decide to move forward. But on the surface I would say this looks like a deal.

@Abou C. 

Great topic and great responses so far. We do allow pets for the same reason as other have said, the competitive advantage over other landlords. We get an extra pet deposit of $500 and additional monthly rent of $50. After a 12 month lease this covers the expense of new carpet if we need to replace it. In my experience if someone really wants their pet in their unit, they will have it no matter what you or your lease says. So why not make sure you are getting paid for it. Also, if you say no pets on the lease and find out they have pets you will then have to evict them for violating the lease. In some states this can take months and cost you thousands.

So I have found it is way better for my bottom line to just accept pets and make sure you are getting paid for it.

@James Miernicki

Dont do it. If your wife agreed to it and it was in writing in the lease that is one thing. But you sound like you made it clear before the lease was signed and all parties agreed to it. If you give them this break they are just going to ask for another one and it will never stop. That is my experience. Its not personal, it is just a business and this is what our contract clearly states.

I would have to agree with @Jon Holdman on just using spreadsheets for now. I ran 91 units with spreadsheets and it worked out fine.

@Jeff Blanchard I wouldn't say I am an old school investor who doesn't trust pm software, since I am not 30 yet. But if you are clearing $100/door why give away 2 or 3 doors worth of monthly profit to pm software when you could just use excel and keep that money to eventually buy more units.

My main reason for finally moving to pm software is I need help with the books now and this allows everything to be on the cloud and multiple users to be inputting data. Also, the advertising benefits of the software I am using should really help us keep units full.

@Aaron Montague

The 20% down with a 20 year am is what I have been getting the last few years on my deals. I might get away with only 20% down because I have been with this bank for about 5 years, but I think other investors are still seeing 80% LTV.

@Gavin Welch

I agree with looking at the tax returns. No one will exaggerate their income or lower their expenses on their tax return. Especially if this is your first deal, it is a great way to know exactly what you should expect for cash flow. Once you have a few deals under your belt and know your market, you will know how a property should perform and wont need to look at the sellers tax returns anymore.

@Jason Abbott

I think you might have found a deal here. It obviously depends one location and quality of the building and any major repairs that need to be done. But based on the numbers it looks alright. This is what I see:

Purchase Price = 260,000

20% Down = 52,000

Gross Potential Income = 50,400

50% of GPI = 25,200 which is also your NOI

Debt Service / 80% LTV / 20 yr amm / 6% = 17,882.16

Cash Flow = 7,317.84

Cash on Cash = 14.1%

Keep in mind that this is a C property so your expenses could be higher then 50%. That is just a guideline to do a quick evaluation. Obviously you will need to get P & L statements from the seller for the last 3 years. I also like to get a year of utility bills and 2 years of tax returns. No one is going to inflate their income on a tax return.

It just depends on what your investment goals are, but I think most people would say a 14% cash on cash return is pretty good. That will be even higher if you manage this yourself.

Kwesi,

I always get a Schedule E. In my experience this is fairly common practice. Any seller can lie about their P & L numbers on an excel sheet. But no one is going to overstate their income and low ball their expenses to the IRS.

Your realtor is working for you. Tell him what you want and make sure he gets it done, or find a new one. Just my 2 cents.

Paul,

Just wanted to point out that to qualify for those cheap owner/occupied loans I am pretty sure you need to live there for at least a year. I have never done one, but that is my understanding. Dont want you to get in trouble on your first deal. Make sure you look into it.

Michael,

From what you said in you original post I see some potential with this deal. From the numbers you gave us I see about a 10% cash on cash return as is. This is with you putting your 400k down (which I wouldnt recommend since you should keep some liquid reserves). I also calculate possible loan terms of 390k at 5.5% and amortized over 20 years.
This gives you a annual payment of around $32,160.
NOI of around $72,000.
Profit of around $39,840 for a cash on cash return of around 10%.
This is not bad for most investors.

Where I see the potential is in the high expenses. If you read these forums alot you will find that most investors agree that expenses should usually average around 50% of your gross potential income. This might not be entirely accurate for an all bills paid property. A look at the last 3 years P & L statements and tax returns will verify this. However, it could just be poor management and a burnt out landlord that have let the expenses spiral out of control. This is where the opportunity is.

If you run this same situation as above but with 50% expense ratio it looks like this:
$225,000 Gross Income
$112,500 Expenses
$112,500 NOI
$32,160 Loan Payment
$80,340 Profit for a cash on cash return of around 20%

Now that is a very good deal. Not to mention that if the 9.1 Cap that you are buying at is the market Cap, the value of the property is now around $1,250,000.

Obviously there are alot of other aspects to this deal, such as condition of the building, quality of the tenant base, ability to secure financing, etc...

But at first glance I see potential in the numbers you gave us. I say it is worth a deeper look.

Rich and Dale,

Those sound like some great terms you guys are getting on your refi's.

Here is what I am seeing. Closing on a 24 unit in a month.
4.15% rate
20 year am
3 year term with a rate adjustment every 3 years, and balloon in year 9
$1,000 origination fee
The loan only has fees if it closes
The lender is also accepting the seller carry back of 25% as my downpayment, so it is pretty much a 100% financed deal and still throws off some nice cash flow.

Now this could probably be a whole other topic in itself, but they gave me 3 different offers for rate and term. 3 year @ 4.15%, 5 year @ 5.15%, and a 7 year @ 6.15%. I personally chose the shortest term because it had the lowest rate and I dont think interest rates will climb that much by my first rate adjustment in 3 years.

Could be a good move or it could really kick my butt in 3 years. I guess we will see.