All Forum Posts by: Nick L.

@Scott Buckner I can't say whether I would buy the property or not - I don't know anything about the context.

If it was in decent condition, on the edge of a super hip area and I knew I could turn over the tenant base and increase rents dramatically - I would snap it up! If it was in a slum and had no prospects of ever improving, I would skip it.

I'm not saying the price is too high or too low. I was just guessing the price from your statement of cap and GRM.

Here's how I would do the back of an envelope math on a C/D property.

Annual gross income: $94,440

Annual operating expenses: $56,664 (60% of gross rents - rule of thumb)

NOI: $37,776

Purchase price: $449,000 (assumes no capital improvements required)

Cap rate: 8.4%

GRM: 4.75

For the loan, I assume a commercial note at say 4.5% initial rate over 25yrs with 75% loan to value. Annual debt service = $22,452.

Annual cash flow = $15,324.

I saw that your expenses don't include vacancy, maintenance, capital expenses or landscaping. Also 7.5% management is likely to be low for a C/D property. Your total operating expenses might not reach 60% but for sure they will be a lot higher than your figures indicate.

@Scott Buckner

Are you saying that the gross monthly rents total $7870 (average $463 per unit)?

Is the purchase price about $95k? (12 x $7870) Or about $267k? (($2670 x 12) / .12)

Judging by the rents, this is almost certainly a rough property in a rough area, most likely with a lot of deferred maintenance. 

Can you break out the expenses? In particular please separate out the debt service from the operating expenses. 

Thanks @Ed Neuhaus. This would be in Austin.

@Ed Neuhaus Good idea. Can you share contact info for these guys and any other tradespeople you trust please?

@Clancy C Are you still with Bella? I am looking for an Austin PM and have seen good reviews of them. Do you still have a good opinion?

Any other good suggestions? I have to say I object to paying a percent of first month's rent to place a new tenant - it incentivizes the owner to keep existing tenants at low rents instead of maximizing the NOI.

5 units are tricky to finance. You have to get a commercial loan because there are more than 4 units, which is more expensive and includes interest rate risk. In my experience commercial loans don't usually make sense until you get to about 8 units - unless of course you get a screaming deal on the purchase price.

Try REFM, https://www.getrefm.com/. (See Excel Models at the bottom of the page.) They have a lot of good models like that. The simpler back of an envelope models are free but you have to buy the complex ones.

IO balloon notes were a major cause of the mid-2000s bubble. I haven't seen them since then.

@Logan Hicks 

To @Anthony Gayden's point, what is the current occupancy and what is the total cost of the project? Including purchase, rehab, carrying costs until breakeven etc?

Would the seller consider a carry back? If not @Gino Barbaro has the right idea.