All Forum Posts by: Account Closed

@Tommy Vise 

 first off, the property is currently only 33% occupied.  your analysis assumes it is 100% occupied.  sure, maybe it's easy to get it leased up, but in this scenario you are paying the seller as if it is fully occupied.  

that said, it still might be a good deal.  only you know how easy it will be to get leased up. what happens if you can't lease it up and fill the units?  how do you know the current owner isn't lying and can't actually get the units rented?

how do you plan to finance the deal?  you might run into difficulty if using a lender because of the current occupancy.

@Roy C. My best friend lives in Chicago and he and his wife are in their late 30s and have always rented.  He owns his own law firm and she is a CEO and they could very easily afford to buy.  But they love to travel and not be tied down, so they decided renting a penthouse for the flexibility was the best plan for them.  They have one kid.  They spend December and January in Florida most years and travel extensively throughout the year.   They also have the ability to relocate if they want, move to Europe for a year, etc  They are not building equity, but they are also not dealing with maintenance, etc.

They actually took a hard look at buying something a couple years ago and after weighing all the Xs and Os, decided to keep renting and invest the difference.  

A home that is used just for living is an expense/liability, not an asset.

@Brock Y. sounds good.  i've been the in development/multifamily game for over 10 years and have relationships with just about every developer in town.  let me know if I can be helpful in any way.

@Brock Y. understood.  the reason i asked about timing is that the apartment market is nearing it's peak in this area and you might be developing during a reset of values in 3 years which is obviously not ideal.  that's all.

how big of a site is this?  how many units were you envisioning?  with the run up in construction costs in the past 36 months it's getting extremely difficult to pencil out small apartment construction. 

I'd highly advise bringing in more experienced partners on something like this, as @Robert Tryon suggests.  

You could also think about selling the land to a developer and/or being a part of the JV structure and contributing the land as your equity and making your profit that way.

@Brock Y. send me a PM if you'd like.  I can point you in the right direction.

Have you ever developed a property before?  Why are you planning to wait 3 years to develop?

Welcome !

@Steve Olafson 

Just to reiterate what @J Scott said, Steve is the real deal when it comes to apartments.  This guy knows his stuff.  Listen up!

IF the gross rent numbers are accurate (verify, verify, verify), on the surface after a quick BOE (back-of-envelope) analysis, this deal might have some potential.  Assuming as someone said above no rehab or deferred maintenance costs.  If so, those need to be factored in as well.

I see the following:

$61,380 gross rents

- $35,000 expenses/vacancy/reserves,etc

= $26,380 NOI (net operating income)

If you pay $265,000, let's assume you find a loan that requires 30% down.  You are financing the other 70%.  I assumed you finance $185,500 at 4.5% with a 25 year AMT.  This means you'll need $79,500 in equity.

Your monthly payment = $1,027.61 (annual payment is $12,331.32)

So,

$26,380 NOI

- $12,331 annual debt service

= $14,049 ADS cashflow 

$14,049 / $79,500 (equity) = 17.67% cash on cash return

$26,380 NOI / $265,000 purchase price = 9.95% cap rate

VERY IMPORTANT THINGS TO CONSIDER = how is this location?  getting better or getting worse?  are the rent accurate?  what capital expenses (i.e. what needs fixing -- roofs, parking lot, boilers, windows, paint, etc) and how much?

@Chris Christianson by the way, this was somewhat of an old thread.  I ended up not moving forward with the project.

@Chris Christianson thank you for the comment!  And to be honest with you, I agree.  

When I first moved to Minneapolis, I spent two years working at a nonprofit housing developer, Artspace Projects, who's mission is to preserve affordable housing for artists.  You are 100% correct about the "SoHo" effect -- the hipsters and artists make it cool, then everyone else moves in and drives up the prices and the hipsters and artists are forced to move out.  I enjoyed the work, my only beef was that I didn't enjoy providing for my family on a nonprofit salary.

And yes, I was talking about Linden Hills.  What inspired me was my experience with Artspace, combined with my love of the neighborhood.  I realized that many of these old houses were going to be torn down.  Some, honestly, I believe need to be, others can be renovated and others are just fine.  My house for example is still a small bungalow, but my family is growing and we are bursting at the seams.  I realized most people who are tearing down the homes don't care, they are in it for the profit.  But I do care and decided if these homes are going to be torn down and replaced, better I do it and make the homes fit in well with the neighborhood versus just letting other builders without a vested interest do the deals.  Can I save the neighborhood?  No.  But I can do a little bit to help.

That said, I am also a proponent of change and growth and understand how things evolve.