All Forum Posts by: Jaysen Medhurst

Okay, so what you want to do essentially is improve your NOI by 35-40% in 1 year. Still a challenge, but can be done. You have to:

1. Buy right
2. Add value to raise rents (this costs money)
3. Lower expenses by sub-metering utilities (this also costs money)

At the end of the day, if you have a 40 unit property those units need to be renting for ~$1400/ month each to hit a valuation of $4.2mm (assumes 8% Cap Rate, 50% expense ratio) and pull out a cool $1mm.

Price seems high. At 50% expense ration, you're buying a 5.2% Cap. Seems low, even for a hot market like Dallas.

Assuming you do all the due diligence and this looks like a good deal, I think that a partnership is the way to go. Spread out your risk and bring some more cash to the table. Perhaps a local builder, so you can consider developing the other 40-50 units.

Recommend talking to local/regional banks or credit unions. They are more likely to lend on a unique situation like this.

Last thing, what are the comps like for individual duplexes in the area? If they are significantly higher than the $150k/property you see here, might be an opportunity to sell them off individually to raise capital and then use that money for potential development on the land.

Chris, this really depends on your market. If it's super hot, you may have trouble acting fast enough without cash.

Hard money will be tough, as those lenders want to see a track record of a success.

Hi Henry,

This is an aggressive plan (which is fine), but I think you are making some assumptions that aren't reasonable.

In order to pull $2mm out of each property in year 2 you will have to increase the value from $3mm to ~$5.6mm. That's nearly doubling the value in 1 year. Not likely. To do so you would have to make substantial capital improvements and increase the NOI to support the new $5.6mm appraisal. Before you could refi, the property would have to be fully stabilized at the new price. I don't see how that could happen in a 30-40 unit complex in 1 year.

Make sense?

Matt,

The bank is going to take a lot into consideration. If the property requires a lot of capital expenditures, then yes the bank is going to want to see that the money is there to execute such a plan.

Also, on a larger building the bank will want to see a track record from you. That you know how to manage a property, update/upgrade, etc.

If this is your 1st deal, I would suggest starting with a smaller property 1-4 unit.

Hi Rachid,

I think you need to compare the Internal Rate of Return (IRR) for each property to make a decision. You may make more in cash flow with one property, but expect a ton more appreciation with the other. You have to take all of this into consideration.

There's plenty on Bigger Pockets about IRR.

Good luck!

Hi Christian,

I would suggest pulling the money out of your current properties and doing a proper 25-30% down. I don't see the advantage of seller financing here. You'll have the same amount of debt, whether to the owner or more on your current properties, and probably at worse terms.

The other option (what I would do) is sell a couple of your current properties and use a 1031 to purchase the 20-unit. Might be a good opportunity to sell-off your least well performing properties and gain some economies of scale.

Good luck, let me  know how it goes,

Jaysen

Hi Chris,

Have you checked Rentometer to see what other rentals are going for?

Double check your ads to make sure they are accurate. Maybe you accidentally wrote "on-street" instead of "off-street" parking.

Have you considered re-offering at a per-bedroom basis? $600per? 

Hi Ray,

I'm a big fan of adaptive reuse myself, so I'm impressed with your ambition.

I think you need to find a partner (or 2) on this. There is SO much to go south on a deal like this. You need some help navigating the water and mitigating your risk.

Let me know how it goes! Would love to hear about the details.

Short answer is no, you can't force them. You must honor the lease in place when you purchase the property. 

You could always offer "cash for keys," but that's no guarantee.

Another idea to help find deals is look for apartments for rent, identify a good property, and then call and ask the owner if they are open to selling. Might find an off-market deal and not have to compete with everyone else on the MLS.