All Forum Posts by: Russell Gronsky

@Greg Dickerson @Chris K. if I know I need an 18% return, couldn't I use that as my discount rate, and using the PV calculation, know how much I should pay for the building I'm analyzing in order to hit that 18%?

@Fran Arti, taxes are different by county so you'll need to contact the county tax assessor office to find out when they assess your property taxes and how exactly they are calculated so you can add them into your analysis.

The 10% additional in liquid funds is a reserve account. The bank will hold these funds as a precaution. At some point, they will give the money back to you.

IO - interest only

It is possible to qualify for a loan if you are not a US citizen but you need to contact a commercial loan broker ASAP and talk to them about your options. Also, expect to pay higher interest rates and get a smaller loan amount from the lender.

@Brett Peters just curious why you prefer IRR instead of PV?

@Ayat Suleiman I'm a flipper too. Anything you can show him involving renovation cost to get higher rents and how that translates into his desired CAP rate will help him grasp the idea.

Also, it will probably help if you talk about what the cost per door is to purchase, how much per door renovation costs are. Then, it might make it easier for him to understand how that affects rent increases, which raise the property value and could get him to his 9 CAP.

Good luck.

I'd say you start with the desired discount rate and calculate up to your expected refi. Only add the rents from vacant units once you expect them to be filled and producing income.

@Ayat Suleiman yeah, if he is looking for a property that he can force to a 9 CAP after value-adds, then you can probably find him that. Although, don't take my word for it, I don't know anything about the Atlanta market. =)

Maybe he just needs the info presented in a different format? Like, "After $6k per door in value-adds and the corresponding $150 rent premiums, the building would be a 9 CAP."

Orrrr....maybe he comes from industrial or retail space where CAP rates are in the 9+ range and thinks it's the same in apartments?

@Jill F. I think if you plan on holding the property for a long time, calculating the PV is a worthwhile activity as part of your analysis. 

@Wendy Huang, I'll show a simple example that will hopefully show you why so many people prefer commercial multifamily over residential housing. Lets use your example of 10 SFRs vs a 10-unit apartment building.

Lets say your 10 SFRs are each worth 300k because all the nearby housing is worth that, so = $3M total. If you raise your rents $10 per month on each house, what will all your houses be worth? Depends on what the houses around them are worth. Even if you raise your rents $500 per month on each house, your properties will still only be worth what the houses around them are worth. Duplexes, tri-plexes and four-plexes are the same way.

The 10-unit apartment complex is worth....? Depends on how much NOI it produces and the CAP rate in the market. But here is where the cool part about commercial apartments comes into play:

Value = NOI/CAP rate

So, if the market CAP rate is 5%, which is true in many of the hot markets around the country today, that means for every $1 of increase to the NOI, the value goes up by $20!

So now just like you raised your rents $10 on each house, I raise rent by $10 on each apartment. But while your houses remained the same value, the value of my building just increased $24,000.

This is just 1 example of benefits. There are many, many more.

I hope this helps.

Are we talking 9 CAP after value-adds? Because I can see that being realistic (not easy, but realistic).

@Wave Taylor, you got pre-approved for a commercial loan?