All Forum Posts by: Mark Mosch

Cap rate is the most universally used and one that translates across most areas - allowing you to compare apples to apples. When I first look at a multi-family property, I'll quickly apply the 1% rule - but just to see if it meets that criteria. If it's below that, I pass, because it's unlikely to get better with more analysis and I need a good cashflow for my investment strategy and investors. If it is above the 1% threshold, then I'll drill more down into the details to see what the % cash on cash return is to see if after I've adjusted the oft-fanciful numbers in the many proformas and OM's put out there by brokers. GRM seems to just be a description of the results of your deal than something that people look at as driving price. You never see people going "oh, at 4.2 GRM, this is a great deal!!", they more usually say "Going in cap rate of 8....etc...". Best of luck out there.

link is broken...

Agree with the rest of the group here. Go buy a 4-plex. Then do a 12-plex. Then 24-36 units. Each will teach you a little more and expose you to new levels of issues you can conquer and move through. For a 9.5 million property with no background it's unlikely you will even qualify for a loan. For Freddie/Fannie borrowing - which is the best for this class of asset, you will need to have personal net worth equal to your loan and liquidity (cash or stocks in the bank) equal to minimum 6 months of debt service. So assume best case you do this property with 25% down, that means you'll have to come up with about $2.3 million cash for the down payment, have a net worth equal to $6.2 million - which is the amount you'd need to borrow, and need to have about $240,000 cash in the bank afterwards to meet the liquidity requirement. I'm in the middle of investing $15 million of money right now that I've raised for a fund/syndication and I would even think twice about taking this property down - especially given the Section 8 aspect of it. The owner financing part of it won't help unless they do all of it, because the banks are still going to require a strong overall LTV of like 75%. So walk first with some basic stuff, then you can work your way up in a couple of years!

I'd be careful with this deal.  First - would need to see more of the expenses - the spreadsheet cut off.  Second, 60 or so % of the revenue comes from "housing authority revenue", so this would be a section 8 (i.e. gov't assisted/low income) property.  That is another much higher level of difficulty for a property to manage.  While you can make good money on a section 8 property, you have to be a pro to manage it.  Those people could run rampant on you if not firmly and proactively managed.  If that's the case and the property starts eroding, you get a downward spiral and then your property becomes worth much less and you have to sell it at a higher cap rate than what you bought it for.  The actual income vs the purchase price isn't horrible - depends on the rest of the expenses which i can't see - but it's not a slam dunk with a huge cash flow.  What this seems to indicate that this is a big undertaking for someone who really knows the drill.  Definitely not for someone just getting their foot in the water.

One good tool to help you narrow down is the Milken best cities index - it shows which large and small cities are best on a number of mostly economic and demographic metrics.  If I'm interested in an area, I usually start there to check out how it ranks up compared to the other several hundred metro areas.  It can be a useful tool:  http://best-cities.org/best-performing-cities-2015...

Take a look...

The basic thing you first need to do is to see if the numbers even justify a conversation.  You need to create a proforma budget, then see what your annualized cashflow looks like.  Part of that is figuring out what kind of loan you can get on the property - which will heavily drive your cash on cash return.  Miami is a fairly good area for lenders to lend to, but you also need to have some creds in the industry or you won't get a loan.  Having a solid local property management guy will help with the lender.  that being said, you need to decide what return is appropriate.  If a first timer, you need a pretty decent return to allow for the inevitable mistakes and errors.  Personally, I would never pursue a property I can't comfortably expect to make 10% going in - which rules out a ton of gateway markets like LA, Miami...etc...  However, I at least can sleep at night knowing if i have some vacancies i can still cover the debt service.  This could be a 5-page post, but let me sum up by just saying - do the numbers.  Make a budget, see what the pro-forma return is after you have factored everything you can think of in...expenses, repair reserves, average area vacancy...etc... Then if its good enough, you can think about moving forward.  I toss 75% of the deals i see (about 10 a week) after that phase because some idiot is trying to sell me something with a 2% cash on cash return and is trying to persuade me that i should buy that for the "potential future value" of the property.  Best of luck...120 is a bit large to be starting with.  Get good local people and advisers down there!

BTW, i assume you can download and blow up that image.  If not, PM me and I'll send you the original file...

Here's a sample of what I present to investors. You need to do a complete analysis over the hold period - showing annual cash flow, % to investors (we have a preferred rate of 8% and then an 80/20 of anything over that until they get 100% of their money). Then show the sale at the end of the hold period and complete the overall IRR over the in this case 10 year hold period. Take a look at the document:

There's a great broker/property manager I've used for a year and a half down there. he helped me acquire then managed the 4-plex I bought. They have a lot of SFR's under management and a number of small to medium sized multi-family properties as well. They are ultra efficient and ultra organized. They do charge 10% - but i had that factored into the equation when I underwrote the property originally...so it works out. here's his info:

Jon Burroughs

Broker/Property Manager

CENTURY 21 Burroughs

10900 Perrin Beitel

San Antonio, TX 78217

His Email is c21burroughs @ gmail.com 

Another point is that once you become a player in a geographical area - people bring deals to you before they come on the market since they know you are active.  We only have buildings in areas not where I live (since cap rates are too low in CA to buy anything) - so i have property management companies handling all of my properties in the various states.  These guys are wired into the local neighborhoods they operate in.  So if you have someone you work with and you let them know you'd be looking for XYZ type property, then they will keep their ears to the ground and look for new places for you - which potentially can include things not yet on the market.  Their incentive is that they would manage this for you.  that's how I've found about half of my 300 or so units we currently manage.  Good luck!