All Forum Posts by: Nicholas Kitchen

That's why I posted on here. Isn't this a source to learn from?

Just looking for an answer on this specific example. What are percentages calculated off of? 

I'd love for someone to go through some math here. Everything I read talks about the pref and splits and percentages, but I don't know percentages of WHAT? Of the NOI, of the cash the LPs invested? Both?

Here is what I'm looking at:

46 Unit Apartment Building / Purchase price: $5,000,000

Rents are at $1k/month, 90% occupancy, with a 45% expense ratio. Brings NOI to: $322,920 (CAP: 6.45%)

Assumable Fannie Mae loan at 4.25% IO with a balance of $3,500,000 ($157,500 annual payments). IO runs out in 2028.

If I raised $1,500,000 (30%) at a 6% pref, how would you pay back your investors?

Distributions made monthly.

6% Pref to LPs

>6% to 10% to GP

>10% 70/30 split (LP/GP)

1. In this scenario, $322,920 NOI - $157,500 IO payments - $90k investor 6% pref = $75,420 remaining.

2. Do you take that $75,420 and divvy that up next? 

I'm just kind of lost where the calculations come from next.

Thank you.

Okay awesome thank you all for the responses! So is it different if you have a quad? I just keep reading about all this "deduct 100% first year" stuff..

Here is a scenario I would like some Intel on from somebody more educated on the topic than myself.

W2 Employee in the 35% tax bracket, purchased an apartment complex in 2019 for $2.5mm under and LLC. You value add the property, increase NOI and sell it for $3.2mm a year later.

Can you take the full property deduction in 2019? If so, does this also have an effect on your personal taxes as well (will it reduce my adjusted gross income?)

The idea would be to take the full depreciation year one, sell it the following year and 1031 the gain into another property.

Thanks for the guidance!

Currently, I am working with him on a deal. I’d like to give you the details and see what yall’s thoughts are...

10 Unit (of 2 buildings)

Listing Price: $1,100,000

Potential Gross Income: $124k

6% Vacancy (but building is currently 100% occupied).

Effective Gross Income: $116k

NOI (Including a 5% CapEx and 7% Property Management): $75k

Debt Service is around $50k

Leaving me with an annual cash flow of $25k

DSCR: 1.5

B/E Occupancy 73%

Cash On Cash: 7% (with 30% down payment)

On paper, it seems like a great deal based on everything else I have analyzed in my local area. The problem I have with this is that the current owner says the place is always 100% occupied and it has a waiting list. If I drive around and look at other rent comps in the immediate area, the other rents are either AT or LOWER than the rents on this property, and this property isn’t nearly as nice as the surrounding apartment complexes (due to nice gyms, pools, etc).

Any suggestions would be greatly appreciated!

If you have, say $200k, and you use it for a down payment for a $600k apartment building. The NOI plus the debt payment doesnt exceed what I make now at my job. What would you say would be a next best step to do? You're making a little passive income, all your money is now in this building... you can't wait forever for the appreciation.

Would you look for a value add property first, buy it, do some additions, raise rents, place tenants and sell it? Use the earnings and do it again until you can purchase a complex big enough that the income exceeds your jobs income? 

All ideas much appreciated. 

Thank you,

Nick

** This is all provided you didn't seek out and find private money.

Thanks for the response Jon! I figured as much, but started to second guess myself because they are advertising this as a 9% CAP, which is blatantly false. If they want to sell it at a 9% CAP, according to my calculations it would be closer to $150k, not $350k.

$29k gross, 7% vacancy, $13k expenses, NOI of $14k

Hence why I had to come on here and ask. Seems waayyyyyyy off.

I am looking at a 10 unit property that is listed for $350k, being advertised as a 10% CAP.

I had the listing broker send me a T12 and actual expenses. He also sent me a pro forma. The pro forma has annual gross income of $48k (rents at $400 each) with $12k expenses (including property management), so an NOI of about $36k. Okay that's cool. But looking at the actual T12, the monthly rents show $2390 a month with 3 vacancies.

My question is ... well, for one, this seems like somebody trying to pull a fast one ... do you put in an offer based on the current rent with the 3 vacancies? If so, it seems as if the property should really be valued closer to $170k.

I'd like to know your thoughts.

Thanks in advance!

Regarding the BRRRR method, let's say you acquire a property below market price. You do a little rehabbing and raise rents after the lease is up. You do a cash back refinance on the new appraised value? Pay your private lender back. My broker is suggesting this is a bad option because of two reasons:

1) Lots of money for closing costs (again) and

2) The interest rate is going to typically be higher on the new refinanced loan.

Can somebody explain to me what I am overlooking? Or are these new interest rates and closing costs just the cost of doing business?

Thanks in advance!

So let's say you do the BRRR method .. You buy a quad at 20% down. Put some cash into it, raise the rents, and refinance it. When you refi to get the cash back, your payment is going to go up dramatically... How does this ever work for positive cash flow then? Somebody mentioned if you cant make positive cash flow with 0% down it's not a good deal. Thoughts? Thank you.