All Forum Posts by: Nick B.

Your expenses are too low: 

$65/mo for maintenance. What does it include?

$65/mo for vacancy is a little more than 2 weeks out of a year. What if your house stay vacant for a month?

Nothing for utilities. That is fine if a tenant pays for them but during the turnover period between the tenants you pay for utilities. 

Nothing for turnover. Budget one turnover a year and estimate its cost $1000 at least. 

No initial repairs. Is the house brand new? If not, find out what needs to be replaced immediately or in the first year and add it to the capex budget. 

Your "new" cap rate is whatever you decide it to be. It's a guess, in other words. 

Usually,  it's today market cap rate increased by 0.1-0.2% per year going forward. If today's market cap rate is 8%, your cap rate in 5 years may be 8.5-9%. This is done to account for potential market decline in the future.

$220K is way too much relative to $1600 rent. Ether rent has to go to $2200 or the price drop to $160K. Both scenarios are unlikely, hence this is a bad deal.

Oh, and your property tax is going to be close to $5000. Makes this deal even worse!

@Account Closed,

You don't buy out existing tenants to do repairs and renovations. Why would you? You renovate empty units first, then rent them out. For existing tenants, you either don't extend their lease and they move out or increase their rent upon lease renewal and then ... they move out. If they don't move out, your new rent is probably still below market.
This process is called "turnover" and should be in your business plan. Depending on the building size, it may take a year of more to complete full turnover cycle.

As for your offer price, it should be based on your expected profit. I.e., if you expect your NOI to be $120K/year and future market cap rate is assumed to be 6%, your future value would be $2M. If your desired profit is $400K, then the most you should pay is $1.6M and that includes your capex budget.

I got verified via one of those websites (verifyinvestor.com or similar). It was noneventful. I submitted a couple of W2s for the previous years and next day got a letter certifying that I am accredited. So, no hassle at all. 

Buy it fully occupied then wait until one of the leases expires and don't renew. If some of the leases are month-to-month you can give them 30 or 60 days non-renewal notice (check local laws) starting next month.

County appraisal has nothing to do with the market value. Just because something sells below apprised value does not make it a good deal.

What you need to find is after repair value based on the comparable sales in the neighborhood. If you can buy and repair a house below that value then you can flip it and make money.

These proposals require new tax law to be passed by Congress. If Senate stays Republican, there is a slim chance such law would be passed.

"Buying and Selling Apartment Buildings" by Steve Burges.

Preferred return is what you get paid before GP get their cut. 

It is based on unreturned (important!) portion of the original equity. It is usually rolled forward to the next year if current year didn't have enough profit to pay full pref amount. 

In the case of capital event such as refinance pref is calculated based on the new (lower) equity position. 

Some sponsors treat regular distributions as return OF capital reducing the original equity and amount of pref over time. This is something to watch for in the offering documents. Good offerings count regular distributions as return ON capital.