All Forum Posts by: Mark H. Porter

Joshua, I’ve used phil kennedy at century 21 barefoot rentals for the purchase of my golf course townhouse and two oceanfront homes.  He’s a hustler.

Make sure your expectations are inline with the market.  Does breaking-even satisfy you?  Are you just looking to offset the mortgage payments a little as you plan in using it during the high season?  As Chace alludes to, positive cash flow will be tough in a condo.

Christian, as some of these very smart minds have stated you need to start smaller or be willing to only take a piece of the pie.  Even joining others in a purchase will be tough for you as they’ll ask what you bring to the game that they don’t already have.

I owned a 4-unit MF for 19-years, 1031’d it into 10 townhouse that I purchased in 2017, then sold them this past November to 1031 into a single-tenant national retail unit.  It takes many years to get your hands in the hundreds of thousands of dollars you can invest AND be attractive to a bank willing to loan you millions.

Good conversation - this will be about who has cash.  I was talking to a person who runs a condo-hotel in a vacation area.  With Fannie and Freddie pulling back from condo vacation homes there really is no one left to finance them.  This brings prices down yet leaving people with the inability to buy unless its all cash.

So my friend borrows commercial at 3% and loans at 6% on a 10 or 12-year term.  Cash is king when opportunities abound.  I find the most important trait is patience.  Properties MUST be undervalued, MUST be in the right area, and MUST be the condition you desire.  Don't settle for less.

Try 1st National out of Pittsburgh (I think). I was just at 75% LTV, 5/25, 3.5%

Operating Income minus Operating Expenses = NOI

NOI minus debt payments minus CAPEX = pre-tax cash flow (for me, the most important decision maker because it allows all the other stuff o happen).

@Erik W. Erik, I really wouldn’t use the term cap rate for what you’re doing.  Although very valid concern, you risk not speaking the same language as others and substantial misunderstandings can occur.  Cap rate should only be used on the purchase or sale of a property.  A bank will never ask for a post-renovation cap rate, they will ask for what the post-renovation value of the property is.  What it could be sold for.  Now THAT does need the cap rate to determine as it is often used to compare properties in the same area.

Your CAPEX (assuming that's what type of post-sale investment is needed) would not be part of the NOI so it is not part of the cap rate calculation.

I wouldn’t ever use cap rate to determine a purchase.  There’s just far too many ways for a seller to fudge it in their favor (defer maintenance, leave out expenses such as management, show one-time income).

Al - I see your concerns but I own two oceanfront properties in NMB and they both carry flood insurance. Its really not a lot of money for the FEMA first $250k (remember, they only think they'll have to repair the first floor). One of them required a $250 addendum which cost me $550 more per year.

Tom, if these require flood insurance it should already be accounted for in the Operational Expenses.

@Thomas Moran hi Tom, I’m not sure you care about his debt service from his taxes.  It’s not an operating expense so that shouldn’t be used in any of your calculations.

There's nothing wrong with $2400 pre-tax cash flow per door. Make sure you subtract 5% or so from your cash flow for CAPEX as you're talking about an older building. So your cash flow will be ->

NOI minus capex minus your debt service = pre-tax cash flow.

Be careful with how they state management fees.  It may be self-managed yet you will pay someone.  This would be added to your Operational Expenses.

@Erik W. hi Erik, I know this may have just been a typo but you said the cap rate formula is “NOI / Invested Capital". The cap rate formula is NOI / price (or market value).

Thomas, I use cap rates all time to see if a property is in the ballpark before I go any further.  If I’m in an area demanding 6% and a property is offered at 5% I know it’s slightly overpriced.  If in the same area I see a property at 9% then it raises flags all over the place.  I’ve done this in 4 units, 19 units, and single-tenant commercial And it’s never failed me in 23 years.

However, my decision to buy is probably 80% around per-tax cash flow at time of purchase.  I never buy based on future values, always this snapshot in time.  The other 20% is probably a combination of expected capex, tenant mix, and gut feeling.