All Forum Posts by: Account Closed

@David Schach

when valuing apartment buildings, cap rates are calculated using NOI, not gross rents.

Cap Rate = NOI / Sales Price

@Mike Wallace

What city is this in?  How old are the roofs?  Does the parking lot need work?  Are you planning to renovate units or simply raise rents as leases expires?  Do you have experience managing?  Are you going to take a management fee?

What is the current occupancy of the property?  How have collections been on the rent roll?  

Will the property be re-assessed upon a sale?   If so, what is the tax liability exposure?

How do you plan to finance this property?  How much will you put down?

As you can see, it's hard for anyone to give you a remotely accurate idea of what the property is worth without knowing more.  That said, a VERY QUICK back of the envelope looks like the following:

Gross rent = $500 x 32 x 12 = $192,000/year

Less 15% for vacancy, loss to lease, etc = 28,800

Effective Gross Income (EGI) = $163,200

Less 60% operating expenses (you said C+ location) = $97,920

Net Operating Income (NOI) = $65,280

Value at 10% cap = $652,800

Value at 8% cap = $816,000

Keep in mind, this does not include reserves, upfront capex, etc  $950,000 seems pretty high to me.

@Jay Boyle

 they are typically shown on the balance sheet, not income statements

@Corey Hajduk  What type of loan would you get?  How much are you setting aside for reserves?  How much are you going to have to invest Day 1 to ensure the property is clean and attractive?  IF the rents are accurate and you don't have to invest any money Day 1 to get the property rent ready, here is my quick back of the envelope analysis.

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

Minus 15% for vacancy, loss to lease, etc

Effective Gross Income = $30,396

Expenses = $18,237 (60% of EGI)

Net Operating Income (NOI) = $12,159

Minus $100/unit/month in reserves = $4,800 

Cash flow before debt service = $7,359

_______________________________________________

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 = $7,359

Minus Annual loan payment  = $6,071

Annual cash flow = $1,288

$1,288 / $25,980 = 4.96% cash on cash return

@Joe Schwartzbauer

 I'd be interested in the details.  Can you send them along?

We look at properties and areas separately. For example, you could be looking at a B property in an A location or vise versa. Many value add investors look for B & C class properties in A & B locations. Hope that makes sense.

Kira Golden you mentioned it's a long term play. How do satisfy your investors return in the short term?

@Leonard L. there is a long, trending discussion on this right now.  Might be worth a read.

http://www.biggerpockets.com/forums/432/topics/178...

@Chris Simmons Most Fannie and Freddie loans have a maximum 10 year fixed rate.  A few select sponsors can now get 12 year fixed loans but that's it.  Nothing longer.

It's difficult to get Fannie / Freddie loans until you are a little more established, so most people are stuck with 5 year bank loans as they build up the portfolio.

Originally posted by @Jay C.:

Oh Shocker......What is every third blog post on Bigger Pockets? How I bought a apartment for no money down? I ask who is on the hook for this no money down property? 

At the end of the day I built my portfolio on failed investors and the cycle has and always been rinse and repeat. Bigger Pockets the website has only contributed to this. Don't get me wrong tons of good stuff here but an equal dose of very bad advice. 

 Jay, care to expand a bit on this?  What exactly are you saying is the bad advice?  No money down I think?