All Forum Posts by: Jonathan Sowinski

I am looking for some input on one of my first (potential) deals; I am currently under contract to purchase but wanted to see if the #s below make sense to other more experienced investors.

I am asking because I just came across the suggested 50% / 2% screening methods and at first look it does not meet their criteria. However, my due diligence (what I have used until now) shows it making more (not a lot) cash flow. Are these designed for certain types of investments?

FYI, I am planning on managing myself and making repairs/remodels (should result in higher rent) myself as well as needed. I saw that if this is the case you can get away using 35% which is closer to my assumptions. I have received historical expenses from the seller e.g. utility bills, management fees, new taxes based on sale price…and used it in my own spreadsheets but no not want to end up tweaking it to my favor (I do not think that I have if anything I have overestimated expenses). These are the #s “as is” but like I have mentioned there is untapped potential that makes it slightly more attractive to me.

Please let me know your thoughts, or if more info is needed…

Using 50% Rule:
8 unit (prime location poorly managed, definite room for improvement and higher rents)
Sale Price = $250,000 (30% down $175,000 loan amount)
Equity = ~$85,000
Gross Income (-5% vacancy) = $47,424
Operating Expenses (50% Rule) = $23,712
NOI = $23,712
Debit Service = $17,721
(So far our best financing looks like 30% down, 6% for 15 yr fixed for 10)
Cash Flow = $5,991
($62 per door shouldn’t I be shooting for $100+ ?)
Cash on Cash: 7%

Using 2% Rule:
Sale Price = $250,000
Total Monthly Rent = $4,160
= 1.6%

My Calcs:
Cash Flow = $826/month
Cash on Cash = 13%
Cap Rate = 11%

Do these seem out of the question, or within reason? Is this a good investment, I know that it is not great...but could it be good?
I just need some reassurance or warnings (this deal s*cks), my nerves are acting up...

Anticipating your sale…Congratulations on your First "Official" Rehab.

Shouldn’t it be "Asking price $197,000" "Sale price TBD".
No worries, I am just giving you a hard time...

It looks like you positioned well to capitalize on this one, again good job!

Looks great, the staging goes a long way too…simple. Hope it sells quickly!

I don’t know if you have posted the #s for this project in another post (if so where), I am always interested in what deals look like in paper if you care to share.

Pictures are just the icing on the cake.

Thanks for the input…I have done some market research and that is where I got the $750 number (I should probable limit my estimate to $700). As I had mentioned the units in question have not had the proper management and it shows, both in the condition of the property as well as the tenants that are currently in there. However, the location is great. The other units that I have seen in the area were similar in size, age and amenities…they were just overall more aesthetically pleasing, slightly more updated and cleaner.

These units are 2/1 but still on the smaller side and super dated. Two of the units had been remodeled in the past to combine the two BR into one larger BR and convert the DR into the 2nd BR while expanding the Kit into a pantry to make an EIK. This layout seems to be more attractive in my opinion so that is the extreme case.

Obviously that is where we go from just making them “rent ready” to bringing them into a different value class. The only problem with that is if we went to the extreme we would want to update the bath and kitchen as well and now we are talking $$$. This scenario would also provide an opportunity to get to the remaining outdated mechanics and prevent the eminent emergency repairs on the 100+ yr old plumbing. Preventative maintenance?

The hope would be that the updates (and higher rent) would ultimately also attract better quality tenants that would take a little more pride in where they lived limiting the overall wear and tear, less vacancy and longer lease periods. Also possibly less overall “service calls” with the newer mechanics. Is that just hopeful thinking?

Now we are getting into a looooooong term payback (>5 years). But I have also read in other posts that the valuation in the increased rent would provide a much higher sale price if I wanted to sell near term.

@ $525 = $25,000 (NOI) X 10 (cap) = $250,000 (existing value)
@ $750 = $47,000 (NOI) x 10 (cap) = $470,000 (future value)

So with those #s if the renovation cost is $15,000 per unit I could still potentially bring in ~$65k after sale fees? It would just be hard to keep the cost per unit to <$15k.

Thoughts?

Came across this today...awesome! Blows my spreadsheet out of the water. It gave me that extra confidence on the deal that I am in the middle of; an 8-unit, my first not counting our owner occupied double.

Thanks, great job!

I am in the process of closing on an 8 unit building in a great neighborhood. The property has been poorly managed in the past and we feel that there is a lot of potential to tap into there.
Our goal is to renovate one unit at a time as them become vacant (it is fully rented as of now). I was wondering if anyone had any advise and or tools to use in figuring just how much to dump into each unit?
They are lower end units now (class D) and will never make it past mid-range (class C+ B-). The units currently rent for $525 each and believe they could fetch ~$750 if done right. The market is there.
Is it a matter of targeting a desired “payback” period and work from that? 5 yr @ +$225 increase is $13,500?
Any thoughts…
Are there any pros in considering leaving them in the condition they are in now? It would still be a good deal but I feel that it would be hard for us to keep our hands off of them.