All Forum Posts by: Account Closed

 What changed?  Were your original numbers incorrect?  If the numbers made "sense"..... then at a 40% discount what did they make?  This goes against all the "investors" that say they can buy sight unseen.  Numbers vs experience vs spidey sense? 

1.  Determine market value. Some of your expenses and predictions will be based on this so you want as accurate a figure as possible.  These are individual townhouse condo's.  They should be valued as such.  I'd ask to see the appraisals but would also look to current comps.  If you buy all 4 you should look to a bulk discount but also realize the ease of managing 4 nearly identical properties in the same location.

2.  Where are rents and values going?  What were they 10, 20, 30 years ago.  Will they keep going in the same direction?  If rents and values are not moving up your profit will diminish each year.

3.  Who will be the tenants?  Nice properties in nice areas attract all tenants.  Nice properties in crap areas attract 95% crap tenants and 5% nice tenants that can't figure a way to get into a better neighborhood.  If you upgrade the unit will you get a better tenant?  Usually in bad areas you will get "crappers" that are attracted to your unit but as soon as they move their crap in the glow is gone and they will trash your unit and move soon because it is no longer a shiny place.  Then you will have to spend money to shiny it up again to attract another crapper. 

If it is a decent area I think you could make it much nicer with little expense.  The problem I see is she has 13 units surrounding yours and it doesn't seem like she is taking care of any of them.  Your fixed up places will increase her value but hers will drag your values down. 

I would think there is some kind of CCR's for shared parking/driveway/green areas. What happens if there is a roof leak from her unit that affects your common wall? What happens if the units on both sides of yours go into complete disrepair and the tenants are running amuck?

I would use the 10 year analysis below but you have to use GOOD numbers.  If you use crap from the seller or off the internet you will not have a good analysis.  Also notice how just a small change in rent growth and appreciation has an exponential result on returns.  Compare to a slightly better area at a higher price point and maybe the value is there.

http://www.mortgage-investments.com/resources/spre...

Any questions?

Dennis, even new people should learn the metrics that they are using to attract investors.  Your offer is a complete turn off when I see you do not understand cap rates. 

Blake, Brent is just using made up numbers and trying to use the 50% rule, that is basically a quick calculation to determine cash flow possibility to get a NOI.

1. You cannot use a percentage of anything to get NOI. NOI only comes from a calculation of potential gross income minus vacancy and collection and then ALL operating expenses. There is probably a range of ACTUAL expenses from 35% to 65% but you will not know expenses until you compute each actual operating expense. NOI is good to know for any property type.

2. Cap rates are ONLY useful for commercial properties that are encumbered by above and below market leases. It is a method of valuing that property by its NOI. The best way to value residential properties is by sales comps.

3.  Anyone that is trying to use a cap rate on this type of property either DOES NOT KNOW WHAT HE IS TALKING ABOUT or is trying to cheat you.  Forget cap rates and you won't be bamboozled.

Any more questions?

So the NOI is $732,200 at $14,000,000? But the NOI is only $653,750 at $12,500,000. How does that happen?

 What's the status?

 We're both just using made up numbers so there is no "deal"!!

That would not change the cap rate.  It would change the market value.  Cap rates are set by the market.

And at a 5% cap rate it would be worth $360,000!   

 How?