All Forum Posts by: Account Closed

Ben Leybovich thank you. I assumed everything I was reading was way too good to be true. Investors are chasing yields wherever they can find them. Doesn't appear to be any secrets left :) I have a couple of calls lined up with brokers on Monday to learn more.

I've been reading up on mobile home park investing. I have 3 main questions that I'm hoping some of the pro's here can help me out with. 1. Does mobile home park investing have a cycle, similar to other niches? For example, it's obvious we are near the top of the current apartment market cycle. Where are we in the mobile home park cycle? Is there one? 2. Financing options -- Are there any non recourse options? I've read Fannie has a product for parks over $1 million. Any other options or are loans typically recourse bank loans? 3. What are the biggest challenges / downsides to the industry? Everything I read is so positive and that can't be true otherwise more investors would be on it

Michael Tempel do you guys manage Bottineau for the owner?

Hi Sean Orourke and welcome! One note as you look for multifamily properties these days. The Minneapolis/St Paul apartment market is close to or at the top of the cycle so be very selective if you buy a multifamily. Understand you might be doing so at the top of the market. Good luck!

Have you done any research into what duplexes cost in SF?  

You will be close to broke making $50,000 in SF.

@Micah Copeland

Based on a very quick back of envelope evaluation, I feel the property is worth approximately $569,929 when stabilized.  However, the property is almost 30% vacant today. That can be great opportunity, but your goal should be to get the property at a price that gives you an appropriate discount for the lease up risk.  In today's uber-competitive multifamily market, many properties are selling at stabilized values, despite not being stabilized.  

I've looked at several properties in Madison and I'm not sure I'd be betting on the neighborhood turning quickly.  Just my opinion however.

Here is a stabilized look at the property:

9,500 market rent (all 14 units at the rents you mention above)

- 15% for vacancy, concessions and loss-to-lease 

= $8,075 effective gross incomes

x 50% expenses

= $4,037 monthly NOI

x 12 months 

= $48,444 annual NOI

@8.5% cap rate (lowest I'd go in this area) 

= $569,292

How is the location? Madison is typically not a great area in my experience. Most parts are a C location at best.

@Tou V. @Corey Hajduk

My experience comes from dealing with bigger deals (typically apartment buildings over 100 units), so maybe I am too high with my expense assumptions.  On a 4-unit deal, small tweaks will result in big differences.  Maybe @Ben Leybovich can review my assumptions on expenses and let me know if my initial assumptions above are too conservative?

I don't want to lead anyone astray and as I said I'm typically dealing with much larger deals.  

If you were running much lower expenses, say 40%, and eliminate the monthly reserves, the deal looks amazing.

Income = $35,760 ($745/month x 4 x 12 months)

Minus 15% for vacancy, loss to lease, etc

Effective Gross Income = $30,396

Expenses = $12,158 (40% of EGI)

Net Operating Income (NOI) = $18,238

Minus $100/unit/month in reserves = $0

Cash flow before debt service = $18,238

_______________________________________________

Purchase Price: $129,000

Down: $25,980 (20%)

Loan = $103,200

Annual loan payment (assumes 30 yr amortization, 4.25% interest rate) = $6,071

_________________________________________________

Cash flow before debt service = $18,238

Minus Annual loan payment = $6,071

Annual cash flow = $12,167

$12,167 / $25,980 = 47% cash on cash return

Any apartment property less than 5 units is typically considered residential and listed on the local MLS.

@Corey Hajduk

What year was the property built? 

Typically, on newer construction (2005 or newer) you can expect expenses in the 35% range, on properties built 1980 - 2004 45-50% is typical and older than 1980 I typically run 55-60%.  It is NOT an exact rule, more like a rule of thumb.   You need to set up a budget, compare that to the current owners financials and see where you have exposure.

Also, with regards to reserves, you should put aside a set amount of money every month or year to deal with capital items so when you need to replace a roof, it doesn't kill your year.