All Forum Posts by: Herm M.

I don't have any MLS access....so it's hard for me to pull comps. Does anybody know a good resource for finding the cap rate for multi-family units in the Bay Area, CA? Alameda County in particular.

^ You're right...and that's why I mentioned that the current owner paid $37 million for the property. They paid $37, and the tax assessment was $46MM....that's why their taxes are 510k a year.

If I bought the property for $22MM or so, then the assessment would have to cut in half (new assessment based on the new purchase price).

My taxes would cut down to about 250k, so there would be huge savings there.

Jon, thanks for all the advice. I'm going to check all the avenues for this one. And I was thinking the same thing....this is a very good deal if I can just take over the existing loan and add another $1MM on top of that to cover closing costs and delinquent taxes.

Also...how would it work if I want to overtake that Freddie Mac loan? If it's at $19.4MM, and I offer $21MM on the property...would I have to also pay cash at closing to bring the LTV of that loan to 80%? Or can it stay at $19.4?

Jon, can you expand a little bit on the PPPs you mentioned? I'm not very familiar with private placements...can you shed some light?

Also, I'm thinking that one of the reasons the seller isn't making money from this property right now is because of the property taxes. They haven't paid the past two rounds of taxes...so one year behind means that they're 510k delinquent. I think that this 510k (based on the $46MM assessment) is going to prevent them from making any significant profits. The new buyer will be buying at about half of 46k (unless they find a dummy), so those taxes will be significantly reduced.

They have a loan of $19.4MM right now....but I might be making DOUBLE what they are making, simply because my taxes will be cut in half. They might be walking away with 250k for the year, but a new buyer could walk away with 500k just because they will save 250k in taxes.

Anyway, about your other points....I understand that this is no simple task. Raising 4 million won't be easy...but I have an idea of a few people I want to talk to. Smart investors know that right now is a good time to buy real estate....so hopefully I can find right person(s).

And no, I have never done a deal like this before. But there's a first time for everything....go big or go home.

Thanks for the replies.

The salary of the handy-men is about $2000 a month. Five handy-men = $10,000 a month.

My cousin says that these guys also end up working a lot of overtime.

But like I said....there's a lot of expenses to be shed. The payroll of $409k definitely could go down.

Okay here's the main thing: I want to find an investor to put up the $3-4 millon (assuming that I'm paying no more than $23.5MM for this). I don't want to waste time finding this person, only to find out that they won't sell this property for this price.

The property is owned by AIMCO, the property management company.

From the info I gathered, AIMCO purchased this property in 2007 for $37,XXX,XXX.

They will be taking a BIG HIT on this....so I don't know that they'll sell it for $23-24 million.

However, based on these numbers....can they realistically expect ANYTHING except a SIGNIFICANT loss? I mean....they paid $37 million, and only an dummy will pay $27 million....so they will lose a minimum of $10 million.

Can anybody figure out why they would be selling this? Are they just trying to cut their losses and sell this property before they lose more money?

Nevermind, I got my answer...there was an ownership change.

Can I get some input please?

Also...this is something fishy:

Property taxes for 2008-2009 are $510k, based on an assessment of $46 million.

But taxes for 2007-2008 were only $195k, based on an assessment of $17.5 million.

How is this possible? I mean, seriously...how is this possible?

Even with a few improvements...how can the assessed value go up 266%?

^ Okay, that makes more sense.

Well here's the deal....this is a 246 unit complex for sale.

Net Rental Income: $4,100,000
NOI: $2,200,000

There is a $200,000 management company fee factored into these expenses. The NOI without management would be $2,400,000. If I can find financing to purchase this property, I want to eliminate the management company, but I don't mind using them for the first year if it's necessary.

The buyer must assume a Freddie Mac loan which is currently financing the property. This loan is at $19.4MM with a rate of 6.4%. The payment on this loan is $121,000/month (103k is interest, 18k is principal).

Payments toward this loan will equal $1,460,000

Like I said, the NOI will be $2.2MM ($2.4MM after I get rid of management).

I want to keep the debt service at $2,000,000 yearly.

So that's gives me $540,000 yearly funds towards paying a 2nd. This allows me a $45,000 payment on this loan. The 2nd is a private loan I am looking for that will go towards the downpayment.

A loan of $7,000,000 at 6.5% will give me a payment of $45,000 (38k interest, 7k principal).

Is this do-able? Is it realistic for me to find an investor who will give me that loan of $7,000,000 at 6.5%?

With that $7,000,000 loan, I would save $500,000 for reserves. So $6.5 million would go towards purchase price, so pretty much I'd be offering $26million on the place.

So here's the summary:

Gross rental income: $4,100,000
NOI (with management): $2,200,000

Debt Service 1: $121,000
Debt Service 2: $45,000

Total Debt Service: $2,000,000

Net Income: $200,000

Net Income after eliminating management company: $400,000

Also, I'm not factoring in the $25,000 (between the two loans) that will be going to principal each month. So essentially, we can add another $300k to yearly income.

I will also try to cut down a lot of these expenses. There are 5 handy-men that work on-site, and there is a $4500 monthly expense for landscaping. I'd rather have one of the 5 full-time handy-men work on landscaping daily, and eliminate the $4500 monthly fee there. Also, the assessed value of $46 million is high, so I would try to get the assessor to lower the yearly taxes of $511,000.

I understand that there are probably better deals out there. However, I feel very comfortable with this one for two reasons:

1) My cousin has been a leasing consultant at this property for a year, so he has a good idea of the daily operations.

2) This is in the city that I've lived in for the past 17 years. I'd rather buy here instead of out-of-state.

Is this a good deal?
Do the numbers make sense?
Is $26MM a fair price? Should I bid lower? Higher?

What formula can I use to determine the value of this property, based on the NOI of $2.2MM?

All input is appreciated.

Not sure why the picture doesn't work, but here's the link:

http://img.photobucket.com/albums/v518/Coast2Coast21/1p.jpg