All Forum Posts by: Chase Gochnauer
Chase Gochnauer has started 33 posts and replied 367 times.
Post: Commercial/Multifamily returns
- Investor
- Des Moines, IA
- Posts 380
- Votes 201
Thanks Derek,
It does appear in this case there was a vacant unit that either IS leased for $36k/yr now or they think will be shortly. They have also put in some reductions in expenses. Between that unit being rented and reduction in expenses, is how they're arriving at their cap.
Thanks,
Chase
Post: Commercial/Multifamily returns
- Investor
- Des Moines, IA
- Posts 380
- Votes 201
I've been looking all over the place locally here. Everywhere seems to have a bait and switch return. Is this normal?
Example:
Price: $2.25mil
Cap Rate: 7.3%
Seems solid enough, but when I get actual details
Actual NOI: $104,767.18
Pro-Forma NOI: $163,363.99
It's be great to get actual pro-forma NOI but why would they estimate so much higher than actuals? Just to inflate sale price?
Post: Cap rate needed to cash-flow a 15 year note?
- Investor
- Des Moines, IA
- Posts 380
- Votes 201
I have two banks here that will do commercial loans for 20-25 years. I'm surprised you can't find someone to go out longer. I'd call another bank.
Post: Cap rate needed to cash-flow a 15 year note?
- Investor
- Des Moines, IA
- Posts 380
- Votes 201
I second Ralph, especially at 4.25%.
Post: Cap rate needed to cash-flow a 15 year note?
- Investor
- Des Moines, IA
- Posts 380
- Votes 201
7.2%+
Post: 24 unit complex - high expenses?
- Investor
- Des Moines, IA
- Posts 380
- Votes 201
Hey guys, sorry I was out looking at another building tonight. Thanks for everyone's info, I had come to a lot of the same conclusions as you guys, which leads me to believe that I'm not crazy in thinking this is not worth $912k. Maybe they'll come to reality eventually and we can deal but sounds like I need to pass for now.
Another property I looked at tonight is a 20 unit for $700k. Running numbers on it, it's realistically around the 7-8% cap rate but it is an older building and likely will have higher CapEx than I've calculated.
Tricky to find a good deal. I'm thinking my best bet will be to move up my price range and look for more solid, newer, properties even if the cap rate is a little lower.
Post: 24 unit complex - high expenses?
- Investor
- Des Moines, IA
- Posts 380
- Votes 201
Originally posted by @Account Closed:
Chase,
Are there any pass through opportunities for those utilities?
I would also ask for an itemized list of supplies, maintenance, paint & decorating, Misc. Assuming they use any type of professional software, this should be as simple as selecting those accounts and running a report. If it were me, I'd want to know what the breakdown was for each of those line items to see if there is a real opportunity to cut them.
I own a property where the R&M was $110,000 when one would have expected more like $30,000-$40,000. After getting a breakdown, the culprit turned out to be 3 extra/unnecessary employees on payroll. Took over, didn't retain their positions, and the expenses magically went down to where they should have been.
At the end of the day, I'm not even sure $822k would even be bankable. I don't dabble in apartments but I imagine almost every bank would see an issue with how you plan for this property to cover the note in it's current operating state.
I don't see any great way to meter off the utilities. It's one boiler for each of the 12 units. Boilers appear to be in good condition, but unsure how feasible it'd be to split them off.
I have asked for breakdowns but haven't gotten much detail. I am meeting the agent on another property tonight and will press for more info.
I sent what I had over to two banks, fully pre-approved on one(they already have all of my info) and a tentative approval on another.
They had an on-site manager for like 15 years and he passed away, and they have another one now for 1.5 years or so and they haven't been doing so well.
Post: 24 unit complex - high expenses?
- Investor
- Des Moines, IA
- Posts 380
- Votes 201
Originally posted by @Roy N.:
Reading your opening post, I few questions come to mind:
Are you working from a pro-forma or the actual financial statements or owners tax returns?
I know you say most units are dated, have there been any significant CAPEx spend? It is not uncommon to encounter owners (or property managers) who lump the CAPEx and maintenance spend together for cash-flow tracking/projection, but someone (the owner, or accountant) should have separated them for year-end and tax filing.
If the owner is self-managing, then it is also not uncommon to use {padded} management fees as a means of drawing income from the company.
If the building has central heating and DHW in a climate like Iowa, your expenses are going to run much higher than @Jeff B.'s 30% of scheduled rent. Depending upon the age of the building and what energy efficiency retrofits have been affected, operating costs in the 50 - 60% range of gross revenue would not be surprising.
In these situations, when looking at a building in one of our "areas", we always model the property with the data provided and then run a comparative model using what we know to be reasonable numbers from other similar properties in the area. This will back-up the spidy sense that something is not quite level in the numbers provided to you.
In the end, you can only make an offer based upon the current performance of the business and not any future potential (if you will be the one doing the work to realise future potential, you do not want to pay the Vendor for your efforts). If the Vendor has been padding his operating numbers to float his lifestyle, to the point it makes the business appear to be underperforming, that's his problem.
Thanks for the response Roy. This is the downside to being new to larger multi-family, is it's harder to know the numbers on similar performing properties. I am very familiar with SFHs, which as a percentage, has much lower expenses than what I'm seeing here.
It did say that capex is included in some of the expenses, and I asked for clarification there but didn't get a good answer. I would imagine depreciation of capex would be removed from the operating expenses for the purpose of selling. I have the "projected pro forma" as well as income statements from the last few years.
The heating system is a boiler, there are two separate twin 12 unit buildings. The units do have newer vinyl windows, but original early 70's cabinets, counters, etc. Bathrooms are a bit rough as well. Exterior has <10 year old roof and decks, and is a brick exterior. Parking lot is in decent shape. But inside, I would want to redo the common areas to update the look and could possibly bring in higher rents because of it, maybe an add'l 12% return on my $100k upgrades to update it in increased rents.
Post: 24 unit complex - high expenses?
- Investor
- Des Moines, IA
- Posts 380
- Votes 201
2014:
Gas - $9512.82
Electric - $4273.11
Water/Sewer - $10580.90
Telephone - $1373.85
Taxes - $27,183
Insurance - $5844
Professional Fees - $3760.51
Admin Mgmt - $10318.98
Services(assuming lawn/snow) - $8777.29
On Site Mgmt - $12,257.75
Supplies - $14536.051
Maintenance - $8933.61
Paint & Decorating - $8357.81
Misc - $10,200.81
Total: $135,910.49
Post: 24 unit complex - high expenses?
- Investor
- Des Moines, IA
- Posts 380
- Votes 201
Sorry, I didn't list all expenses, just the ones that stood out as high to me.
Jim, that's what I was thinking also. I'm thinking I'd be better off looking for a A/B class of property that would have more solid numbers. It seems that a lot of these B-/C properties have a lot of "what if's" in the numbers.