All Forum Posts by: Charles Worth

sorry meant almost fully leased. 

yes 7% is confirmed and provided by the same person who gave me the deal. 

R&M and Capex would cover unforeseen items (redoing a unit, a boiler breaking etc.) as all the other expenses that are ongoing and paid for by the landlord on an ongoing basis would be in the financials provided and that I am going to make sure are repped to in the contract. This would generally include trash, water, etc.

5% is a little low but I thought one month for each tenant in a fully leased building might be overdoing it. For reference one month for the entire rent roll would be 8.3%. 

I am a new RE investor in Ohio looking putting an offer in on a 12 unit building in Clevland Heights and wanted to see if I missed anything. The property is that is 92% leased up on 12 month leases (expiring in 6 months or more) and in good condition. The price is $259,000 with the following assumptions (per year):

the rents  $69,920 ($485.56 per month per unit with my 5% vacancy provision), 

taxes are $8,640, 

Insurance is $3,758 and 

historical other expenses are $20,970 (after taking out general repairs).

I put in an extra $500 per unit in R&M and capex expenses for $6,000 per year

I also budgeted an extra 7% of rents for property management and $3,960 for leasing fees. 

A 75% LTV mortgage has interest payments of $9,692 @5% and paydown of $6,957.42

This results in total expenses of $48,222 and a before financing NOI of $21,698. After financing NOI is $12,006 and post-debt paydown cash flow is $5048.49 or $32.36 per unit while returns come in at 16% cash on cash based on the ask and 19% based on the 5% or so discount I will try and purchase it at.

Did I miss anything? Does this sound like a good purchase? 

I will be there

I helped a client buy hundreds of gas stations and helped another well-known client divest their portfolio both over many parts of the West of the country. If you own the land the gas station can be a good combo of real estate and cash flow (the real estate can appreciate while you make decent money) however it is a business where every cent matters. You only make a small profit on the gas and sometimes you can lose money there if you do not manage it right and much of it is all volume. Where you make money is on the C-store and if you have it some of the other things like a car wash, ATMs, etc. There is a big advantage to having scale. With that being said your one advantage is if you have a gas station you personally manage it might do better than someone who has 800 but pays their managers next to nothing at each site. The other thing to watch out for is the cost to close a station can be large because you need to do a lot of diligence including environmental diligence. 

In short, a gas station definitely has a real estate component to it since I have been able to get loans on the land values but its really an operating business on top of real estate and the success will mostly demand on your busienss skills not your real estate skills.  

@Account Closed very true its generally a preference but to me that momentum works until one day it doesn't and then there is a long way to fall, whereas properties that make sense of price to rent or cash flow likely will not fall nearly as far in any scenario.  For me what did it is all the pros I know say NYC is a really really tough place for returns. 

@Account Closed true but that is backward looking. Right now at the high end it has performed really well but out of wack with incomes and at least most of the ones I looked at did not have large ROIs because the inventory is so tight that people take the good ones quickly to live in. 

@Joshua Nicholas true both are interesting areas and if could easily end up like Bushwick or Bed Stuy were appreciation rates go crazy although Washington Heights is already discovered. Real thing I could not get comfortable with is that C areas typically require higher repairs and capex so after that the returns were not there although I only did a limited search. 

@Joshua Nicholas The returns here in NYC are not normally good. Why not just look elsewhere with that cash backing? I have looked at some very interesting things in NJ and outside the state, if I had cash backing like that it would certainly be easier. 

@George M. what are you buying? If you are buying a single family of small multi-family and can get it the rates now on those types of loans are great (under 5% in many cases), this will significantly help with returns. It also means you can spread risk by buying more properties. 

Anything over 4 units will need a different type of lender (normally commercial).

That is really low esp. if you are levered. I am looking at 15% min. This is even more true when you consider that things eventually go wrong so if you plan on 6 - 8% you might get a much lower return.  Of course, if you are using all cash it can be tough to go above 10% - 12%.