All Forum Posts by: David Wallace

Not enough information here. 

From your other comments, it sounds like you're more interested in learning the underwriting than actually buying this deal. So I'll just leave a quick thought. 

NOI is not a fixed number. The seller, buyer, broker, and lender could all have different NOI estimates for the same property. I've seen it happen several times where the seller thinks he's selling a deal at a 6% cap but the buyer thinks he's buying the deal at a 7% cap. Same price, different NOI estimates.

So when you say NOI is $140,615, my first thought was ... according to who? Is that the seller's number? The broker's? Or is that your underwriting?

It's helpful to get comfortable running your own numbers and learning to take everyone else's underwriting with a grain of salt. 

Buy in your local area and learn hands-on how to operate multifamily properties. Then you'll know how to manage a team to run your properties for you later on. 

When analyzing the deal don't just consider rental income - debt service. I see a lot of newer investors significantly underestimate the expense side of the ledger. 

Underwrite allowances for 

- Vacancy, Prop Taxes, Insurance, Utilities, Repairs & Maintenance, a Reserve Account, and Property Management. 

 I'm an active broker in the Minneapolis area, happy to chat about the local market if you'd like. Shoot me a DM.

For $1M you can generally buy around 8 to 12 unit properties in the Minneapolis area. More if you go to more rural areas around the city. But as @Gino Barbaro mentioned, rural has its own challenges - fewer PM companies, lower rents, and less appreciation. 

12-14% CoC isn't impossible but very difficult. You usually have to do significant renovations to the property and build up to that kind of return over time. I don't see many "Going In" 12% CoC deals.

Maybe consider working on the CRE side for a few years first. Good places to start are brokerage, lending, or property management. You'll learn who's who in your market and learn a skill.

Providing services is often more lucrative than investing on a small scale anyway.

If providing services isn't your speed, your best bet will probably be to partner with someone. Bring them a good deal (not listed) and take a finders fee as an equity stake in the property.

Are you looking to deploy the 200-250K into syndications run by other sponsors? Or do you want control? 

If you want to own it, you're looking at a deal size of around 900K to $1.1M I'd guess. I rarely see people talking about IRR at that size. It's mostly cap rates and CoC.

I always recommend looking at multiple valuation metrics, not just one. 

If it's a heavy value-add deal, cap rates and CoC might look terrible in year 1. Most of the return comes after stabilization, re-finance, or sale.

If it is stabilized, CoC will look better in Year 1 but won't increase as much over time.

So it's very deal-dependent. 

I'll say a number, but take it with a boulder size grain of salt. 

I see a lot of people anchored at the 8% CoC number.

Hi Olu, 

Some things are not adding up here. If the deal has been on the market for over a year, it's likely not an 8 cap. I don't know Chesapeake, but where I'm located, a true 8 cap wouldn't sit on the market. The broker is probably overstating NOI.

I'd recommend doing your own underwriting to come up with a value. 

Run your own rent comps for 1-Beds in that area. Research average opex per unit for that market.

Sounds like this would be a big step for you. If you've done enough research, you shouldn't have to ask if this is a good deal. Which means, it's probably not.