All Forum Posts by: Joseph Medina

@Joseph Medina Are you positive that you can't just go all STR? Are there any other competitors nearby that do STR all year round? Would a) be a lot simpler, b) avoid the whole tenant mess, and c) make you more money......

@Travis McGray, I like simplicity. When first starting out on this journey, you only need to know two things, you need to know the actual NOI and market Cap Rate of the property to determine if you have a deal.

How to figure an apartment’s NOI

The first step to determine NOI is to calculate Total Income.

Total income is simply the total of all income streams from the property for the year and can include:
• Rents from the apartments themselves
• Laundry and vending machines
• Parking fees
• Late fees
• Any other income

For a simple working example, let’s say that we’re looking at a 100 unit complex where every unit rents for exactly $1,000 per month – ha ha, wouldn’t that be nice?

The complex has on-site laundry facilities and several vending machines that generate $1,000 per month in income.

Also, this complex features preferred parking spots for $100 per year and 50 units have them for an annual total of $5,000.

So what’s the Total Income?
1. 100 units X $1,000 per month = $1.2 million annually for rent income
2. $1,000 per month in laundry and vending = $12,000 annually
3. $5,000 parking fees annually

Our total income is $1,217,000 for this complex.

Now we can find the NOI by subtracting all the Expenses from the total income.

Here’s a list of potential expenses that an apartment complex might have:
• Management fees
• Maintenance
• Trash collection
• Landscaping
• Pool service
• Taxes and insurance
• Accounting and legal
• Utilities
• Payroll

And NO…the mortgage payment of principal and interest are not considered an expense for calculating NOI.

Let’s say that all of our annual expenses on this 100 unit apartment complex comes out to about $517,000.

So what is our NOI?

$1,217,000 – $517,000 = $600,000

The NOI in this example is $600,000.

Figuring purchase price

Let’s say that we’re using a cap rate of 10 or expressed as a percentage – 10% (I am picking a 10 cap only as an example to show you how the math works)

We divide $600,000 by .10 and we get $6,000,000 as the purchase price or value for this apartment complex.

Do you see how important NOI is?

If we base the purchase price on total income it would be twice as high.

The true beauty of buying apartments is that the income after paying expenses determines value.

It’s all about the numbers.

@Travis McGray

The BP book, The Hands-Off Investor (by Brian Burke, CEO, Praxis Capital) goes pretty deep into syndication terminologies, types, and a particular focus on underwriting. It contains several underwriting examples as well as ways to evaluate people, organizations, and offerings. I'm a newbie to syndications myself. Best of luck!

Quote from @Travis McGray:

@Chris Seveney You're definitely right about that! Do you know a way to learn how to analyze apartments? How different from SFH is it? Or is it the same concept when implementing the numbers?

I am about to talk to the owner of an 8 unit 690k deal in Texas about creative financing it in the sense I don't know how to do syndications as of yet

It is different and the type of building it is also plays a major role. Is it an 8 unit building or townhomes? Does it have a central heating and cooling plant or individual HVAC units. What type of roof and windows does it have? Do you have large parking and landscaping areas? The way I compare the two is owning and maintaining a car to a tractor trailer.

Sure. Super common with smaller properties in my markets. Yes you would want a lease for anything over 28 days in most states 

Quote from @Joseph Medina:

Quote from @Napoleon DeCiutiis:

Joseph,

You can use the tenancy at will / month-to-month lease for your guests.  

 man this is gold thanks a ton! 

 Yessir!