All Forum Posts by: Kelly Farley

@Nathan Waters.  Did you ever find a CPA you like in the area?  I was just going to post something about this topic, but I noticed your feed and I am in Aurora.  Thanks.  Kelly

@Rob Beardsley I actually sat down this morning and broke down every possible cap ex item (roof, windows, siding, HVAC, parking lot, appliances, flooring, etc) into costs, average useful life to determine what my monthly cost will be.  It came in around 12% and my misc. expenses came at 4% for a total of 16% so I agree I was off on my expenses.  Although the big ticket items have been replaced within last 7 years, I still want to set the money aside into a separate account for when it is needed.  This exercise and the feedback received here on this thread has convinced me that I need to revisit my offer prior to presenting it.  Waiting on area cap ex before final nail down.

I like the idea of blending the owner/bank financeing if the seller baulks at owner only financing.

I have accounted for inspections (building and environmental) into my closing costs and will certainly use the findings to negotiate a better price if needed. 

@Thomas S. I agree, if the ask price matches the market cap rate I will move on.  I have a couple phone calls placed with local lender and investor to see what they are expecting in the market.

Also, the $1,020,000 price they threw out to me was provided to them from a Commercial Broker who analyzed the property for them.  The number he provided had to be based on what he thinks the first year after getting occupancy from around 89% to 95% AND getting the rents up.  After seeing the responses from all of you on this thread, I need to take a step back and use my analysis based on what it is, not what it can be.  I appreciate your input.

I am excited about doing this, but I don't want to get into a bad deal just to say I did a deal.

Kelly

In addition to my original question, how often do multi-family investors actually look at the replacement costs for buildings. For example, these buildings are 10,000 Sq.ft each.  If it takes $125/sq.ft (guess) to rebuild the structure, garage structure, concrete driveway/parking and land, It would be $1.25 million just to develop one of the buildings. If I buy at $900k for both, I paying $450k/building. How would a new builder be able to come into the market without charging a substantial amount more in rents. This town doesn't support that rent level. I would be buying at a $50k/unit, do investors take this information in consideration or is it a non-issue. Just curious.  Maybe I'm thinking too much like an engineer here.

@Brent Coombs, I have a call into a local lender and another investor (name provided by business associate) to determine the cap rates they see in this area.  I will not be asking the seller on this one.

Once I have the market cap, I will post it here. 

My numbers/offer will be based on what they are currently getting, not what I think I can do with it.

@James C. thank you for your response.  Great point with the management, that is a big item overlook.  Although I plan on doing my own for the first year or two to make sure I understand what it takes, its nice to have the option in case it is not for me.  I could certainly hurt myself if I didn't account for it in my offer/analysis. 

Also, I am going for owner financing.  In your experience, what amount of spread typically gets the sellers excited?  When I present offer, I also plan on showing them the additional interest they will make over the 5 year period.

Kelly

I am new to multi-family investing.  Since finding Bigger Pockets earlier this year, I've been focused on learning more about analyzing property.  I started out with looking at single family but after listening to the podcasts and reading more, I decided I needed to enter the game at a higher level in order to get where I want to be.  My W-2 job is engineering and I own a small real estate brokerage that focuses on residential.  Commercial is very new to me.

I was having breakfast with a friend of mine recently and I was telling him about my interest in multi-family and asked if he knew much about them, he didn't.  However, he did have a client recently pass away and his 70 something widow was looking to sell two 9 unit buildings (without a broker) that they have owned since they were built in 1984.  He asked if I want him to ask about them.

Long story short, I have had a meeting with the current owner and her two sons.  She prefers to be completely out of the apartments, but is warm to the idea of owner financing.  I have ran these building several different ways and have settled in on making two offers.

Basics:

Scheduled Rent:  $151,600

Garage Income:  $1,800

Laundry:  $3,600

Effective Gross Income (assuming 10% vacancy):  $141,840

Taxes:  $20,800

Insurance:  $8,000

Electric:  $1,436

Water/Sewer: $6,073

Gas:  $600

Trash:  $2,700

Lawn/Snow Removal:  $3,360

Capex/Maintenance (15%): $21,300 (Probably high since most of capex items are less than 7 years old)

Total Expenses:  $64,300

Net Operating Income:  $77,540

Am I missing any other expenses else besides PI payment?

Asking price is around $1million.  Without broker fee and some negotiations, I hope to settle with one of these two offers:

Offer 1:

$950,000

Owner Financing:  10% down, 5% interest, 30 year amortization and 5 year balloon.

Year PI:  $55,080

Income:  $22,460

Offer 2:

$900,000

Bank Financing:  25% down, 5% interest, 25 year amortization.

Yearly PI:  $47,352

Income:  $30,200

Strong job and rent market.  Occupancy can be reduced to 5% with some cosmetic improvements to freshen up the apartments.  I plan on reinvesting the capex budget of $22.5k/year back into the units for the first 5 years.  Rents can be increased from the $700 average to $750 average based on product in the market.  The older couple that owns them hasn't done much true management to the buildings to keep them running like a business. 

I know I am new to this, but this seems like a good deal right?

A little nervous to make the big leap financially, but the time is right.  I lost a lot of confidence about 12 years ago due to losing two children and still working to get it back.  Any and all input/encouragement would be greatly appreciated.  Thanks.