All Forum Posts by: Emmanuel N Okafor

@Charles Seaman

I looked up cap rate for the zip code and it says 5.5% for value add multifamily. The broker responded to me a few hours ago and acknowledged the cap rate for the area to be 5.25%. I calculated the value of the property by diving the NOI by the cap rate. Based on that calculation, the apartment is not worth more than $3,300,000 but the broker says the offer needs to be at least $4.5 million. He doesn't want to give me a tour until I submit an offer that is close to their asking price of $5.2 million.

@Comelia Hinkley,

Thanks for your response. I also thought the rent was too low but I haven't seen the complex yet so it may be a reflection of the present condition. I forgot to mention the security deposit aspect. I thought it was unusual to only ask for $100 for the one bedrm that rents for $990 and $200 for the 2 bedrm and 1.5 bathrm that rents for $1230. In my single family properties, security deposit is one month's rent. 

The apartment is in the 76118 area code. If you can let me know what 1 and 2 bedrms rent in the area, I would greatly appreciate it. 

Hello,

I am trying to buy my first apartment complex. I currently own 11 single family rental properties. I did an interest-only cash out refinance last month and pulled out $914,000 that I want to use to buy an apartment. My single family portfolio cash flowed $80k a year before my refinance and it now cash flows about $40k. My goal is to get a combined cash flow of at least $200k and in 5 years, I want to payoff my interest only loan and own my single family properties out right. 

I would appreciate any feedback on this deal. If you see any red flags or opportunities I missed. I also want to know if my offer is too high or low. 

My thinking

I view this as a value add investment opportunity. Based on T12 data and other documents I viewed I recalculated the apartment value. I used NOI of 175,646 and the DFW area value add cap rate of 5.5% to get a value of $3,193,663. Since they have a low reserve for security deposit, high late payment rates and no metered utility, electricity or gas, I offered $3,000,000. I reasoned the $193,663 can be used as reserve for metering the property and other needed non-recurring replacements. Is my offer too low? I would like to get the units metered but don't know how much that will cost. Ideally an immediate win for me would be to cut expenses down from the present 65.5% to 50% with minimal expense which will add a million to the valuation and allow me to do a refinance in a few years to pull out equity to buy another apartment. 

Details about deal

• 1970 46 unit apartment in the DFW area.
• 26 units are 1 bedrm, 1bathroom | rent $990 |security deposit $100
• 20 units are 2bedrm, 1.5bathrm | rent $1230 |security deposit $200
• Asking price is $5,200,000 | NOI=$217k | Cap Rate=4.17

Revenues

• Total Revenue=$567,776 | Net rental revenue=$449,923
• rental losses=$117853
• Other revenues (application fee, pet fees, deposit forfeitures) =$59,766
• Total Revenue=$509,689

Operating Expenses

• Total personnel expenses=$88,603
• Total property administrative expenses=$28,277
• Total Leasing expenses=$4907
• Total utility expenses=$36,991
• Total service expenses=$10,953
• Total cleaning and decorating=$16,305
• Total repairs and maintenance=$14,468
• Total property taxes=$78,731
• Total Hazard insurance=$27,107
• Total operating expense=$334,042 (65.5%)
• Net Operating Income=$175,646
• Total non-recurring replacements=$25,086
• Available for debt service=$25086

Update

I often read posts here with many suggestions but never see a follow up on how things went. I am writing this post to provide an update. I am happy to update you all that I was able to pull out $914K from my portfolio, I ended up doing an Interest only cash out refinance. Not what I initially wanted but it got the job done and I am happy about that. Be shout out to Ben Nelson for introducing me to interest only financing and Nick Belsky for educating me on my options. Although this didn't work, I am sure I will come across a future financing that you can push through for me. 

Even with almost a million in the bank, I am running into the same financing issues again as for  I shop for commercial lenders to finance my future apartment. I am going to browse through the forum first to educate myself on how best to finance an apartment complex. I may be posting about that soon. 

Thank you everyone that responded, I appreciate you.

@Matt Greer, I have but haven't had much success. I did find a company that will do interest only portfolio lending. I haven't done that before so I am continuing to explore other options while I give that option more thought. 

@Tom S. It feels like looking for needle in a haystack. 

 Thanks for the list Kerry. I bank with Wells Fargo and they have temporarily stopped HELOCs due to Covid-19. I will work my way through your list to see if I will have better luck with these other banks. 

Thanks for the suggestion John. I have considered selling my less desirable properties but that wouldn't raise enough capital to do what I want to do. Most of my equity are in my very desirable properties. The other alternative plan I have considered is finding a portfolio lender that will allow me to continue buying single family rentals at decent interest rates. My cash flow is currently $75K, if I could get it to six figures I may be able to enter the commercial space sooner using my cash flow. I haven't had success finding a portfolio lender.

Tell me more about how that works at your company and are there certain types of banks or lenders I should focus on for this type of financing?