All Forum Posts by: Nick B.

You're missing make-ready, general & admin, contract services, payroll, marketing from your expenses.

Estimated repair cost is never $0! You need to budget something even if there is no apparent issues. If nothing else, this is your safety cushion.

Debt service is not an expense!

Exit cap rate of 6.15% may or may not be valid but if your current market cap rate is 6.15% then your exit cap rate should increase by 0.1% a year at least.

10% for vacancy (assuming physical + loss to lease) is OK. The rest of the expenses are dollars, not percentage of rents, with the exception of the PM fee. 

You are also missing the following expenses:

• payroll (this is different from PM fee!)
• general & administration
• contract services
• make-ready
• utilities
• replacement reserves
• marketing
• insurance
  

On a revenue side, you miss "other income" - fees, covered parking, pet rent, laundry, utilities bill back (RUBS), etc.

IRR: refinance is absolutely a factor in calculating IRR. This metric is designed to take any contribution or distribution into account.

Cash-on-Cash: form accounting standpoint, refinance reduces your cash in the deal, so future income constitutes a higher percentage of the remaining cash. Personally, however, I never take refinance into account for cash-on-cash calculations.

As for capital improvements, they are a part of the original equity and an indirect factor in CoC and IRR

Apartments are valued based on income while SFHs are valued based on comparable sales. 

That's the key difference.

E.g., if you double NOI of an apartment complex, you effectively double its value. If you double NOI of a SFH (or 10 SFHs - does not matter) the value stay the same because it is determined buy the recent sale of a house next door.

Another thing to consider is the transaction complexity. You only have one purchase, one loan, and one sale in case of an apartment complex. However, with 10 SFHs you'll have to multiply all these activities by 10.

So, I'd choose apartments. 

I have been through one full cycle so far. To answer your questions, @Travis Watts:

1. Final outcome was sale in 4 years instead of 5 while achieving a bit over 200% ROI instead of a bit over 100% projected
2. This property had never performed as underwritten. Cash flow from operations was lower than projected while capital gain was a lot higher.
3. One year earlier.

Don't count doors.

Count dollars that you've invested and your profits.

Marcus only allows to wire money to an external account if that account is owned by the same person as the Marcus account. 

CIT Bank does not charge any fees for outgoing wires.

Lookup MINNT, AIM (Apartment Investing Mastery), Think Multifamily, and DGRE (Darwin German Real Estate)

Is your income set in stone? It's hard to imagine that you would still be making $50K 6 years from now. 

Find a way to increase income (better job, side business, etc.)

Let's not forget economic vacancy! It's a sum of physical vacancy, loss-to-lease (how much is current rent is below the market), and bad debt. I use 10% or higher to account for all three.