All Forum Posts by: Matthew Allen

@Scott Skinger, I think the same on the expenses. The apartment owner appears to be a carpenter (construction?) company, so I assume either he took good care of the property for cheap because he had readily available help/skills...which means it will be more expensive for me maintain the property at the same level; OR he may have been distracted by other business and I may have a bunch of DIY type work to deal with. 

I am with you on the price though. Based on the actuals the price would be under $200k at the 7 CAP common for the area. In the pro forma (this is really a hybrid of some info) he says there was $29,113.00 of "2017 uncollected rent" with 3 evictions ($22,802 of the total...basically a full year unpaid) out of the 8 units and 1 "vacated" ($4,450).

Assuming I move forward, my price will be embarrassingly low, so that I can either deal with some mistakes of my own or bring in a partner on a great deal. Assuming those evictions aren't done, I embarrassingly low may be just about right.

Thanks @Shawn Lowery. Something to consider.

Thanks @Phil Morgan! I'm not really convinced about the agent either. It took him 3-4 weeks to respond to my initial inquiry. I'd moved on from my initial look. So when I'm running the prelim numbers I should use the actual NOI, not assume 100% occupancy at current rents? They're asking $525,000 at a 7% CAP. I'm thinking with the complex brought up to snuff at market rates the value would be more in the $575,000 at 7% CAP.

At $11,909.53 NOI and 7% CAP the value would be more like $170,135. I'm new at the commercial thing...and probably leaning on this too much, but trying to figure it out. Both the $525k and the $170k feel way too high & low (respectively)...with the reality somewhere in the middle.

So next step is to ask what the current lease situation is on the rented units. Anything else I need to ask him for out of the gate?

I've been able to pick up 3 SFRentals in the last year. I've been looking for Multi-Family opportunities and came across an older 8 unit apartment near a college campus. All of them are 2 bed/2 bath units. The units are rented under market by the elderly owner and has been poorly managed overall (stated by the Selling broker). The property is older 1982, but looks to be in pretty decent shape. Here are the prelim numbers I was given. What information do I need to seek out next?

*100% occupancy Revenue would be $64,800, but with unpaid rents, evictions, etc. he collected $35,962.50

*Expenses: $24,053.07 (Insur $4,830; Maint $6,745.03; Tax $12,069.70; Util $408.34)

*NOI: $11,909.53

There are outstanding rents owed on 6 of the 8 units...but I don't know the story yet (a $7,105.12 eviction; b $1,350; c $675; d $4,450 vacated; e $7,545.38 eviction; f $8,152.50 eviction)

Current rents are $675/unit and should be around $800-850.

CAP Rate appears to be 7.00 based on other properties listed in the area.

@Aaron K. that is helpful and makes a lot of sense. Certainly can adjust the purchase/offer price, but that gives me a simple, internal comparison to consider.

@Michael Le I'll look into it. Thanks for the recommendation.

I've been doing single family flips, wholesales and picked up 2 rentals over the last 2 years. After getting a Commercial lead that ended up not working out, but was a toe-in-the-water experience for me, I've started looking at Multifamily, CAP Rates, and the like. I know CAP Rates are only a quick reference, but how do you "quickly" factor in the expenses to rehab a property showing high CAP rates, or do you treat that like you would on SF flips/rentals where you deduct rehab costs from the Purchase Price (which I don't think is how it works)? I appreciate the input.

Matt in San Antonio

That's what I'm thinking too. I did have a small hiccup in my numbers given where we are at in the year and assuming for a quick sale I will not be paying the bulk of the 2018 taxes...which swings the numbers significantly more favorably and makes the hard money more acceptable. 

ARV: $255,000

Sub2: $155,000

Owner Finance: $15,000 ($5k given at actual closing)

Rehab: $15,000

I'm trying to make a deal work with the above numbers in San Antonio Texas. I am set to buy the home with hard money, then negotiated down the price for a new roof which seller didn't repair. Closing is now delayed for some old lien issues that the seller didn't know about/inform me about. She is seeing her profit dwindle and is getting anxious. I get it and want to help, but in a way that is workable for me too. My offer...I can give you about what I'd be giving the hard money lender at closing ($5k), then the rest when I sell it on the back end ($15k). For me it's a cheaper monthly payment, cheaper at closing and overall less cash in the deal since she'd basically be funding the rehab at zero percent interest.

Am I approaching this the right way, or is there a better way to look at it? I've done a sub2, but without the other complexities.