All Forum Posts by: Ryan York

Anthony Dooley thanks for making me think! So how would you value a value add property like this then? If it hasn’t had hardly any tenants in the last year (reasons for that aside), meaning very little income, what do you offer? You could take a stab at the total expenses and obviously you’ll end up with some sort of terrible negative cash flow and negative revenue. I agree that’s a concern but it’s also the idea of a value add with bad management. I would argue that I’m not speculating at all. Whereas most value add plays are buying with the hope that their property appraises for significantly more than they pay in 2-5 years, I’m buying mostly for the cash flow. I’m seeing pretty solid returns with basically no appreciation at all. If we’re even a little bit right about the area, this turns into a killer deal. If we’re wrong and it stays the same or even gets a little worse, we still cash flow positive until it turns around. Sure I’m assuming some rent values and that we can get tenanted, but that’s all current market values. I’m not banking on anything getting better in the future. It’d be nice though 😊 thoughts?

Roberto Gutierrez thanks for commenting man! Realistically I’d say it doesn’t even have a cap rate of it’s own per se currently. It has one out of eight units occupied. Yes the cap rate now and over the last year would be horrifically low but it’s also not performing anywhere near it’s conservative potential. I looked at it more like what do I think this thing could realistically do with tenants in place, and what value and cash flow would it have at that time. It’s always tough to speculate at what I think it will be worth 3 or 5 years later because no one really Knows. We can make an educated guess at it but maybe the market ranks in six months. I saw the cash flow and thought it seemed like a safe play even if the market tanks. If it goes up, then I’ll have even more equity. Related to the cash flow, I didn't really know how to handle that. I did prepare something that tracks the income during the first year with the rehab, but I didn't really consider the returns during that time. The CoC will be pretty bad, but that's be to expected considering most of the property will be vacant for several months. I attached a new spreadsheet to show you what I mean. When you're looking at a project in full, how would you factor the pre-rehab stages into things? Thoughts?

David Rawls

Russ Draper thanks for picking! The current owner inherited the property. They aren’t really interested in operating it. The seven vacant units need to pass city inspection. We have a copy of the report and it’s all tic tac stuff like smoke detectors and weeds. We plan to get a new inspection done before closing. I’m assuming this is the main reason they haven’t bothered. We’re really eyeing a longer term play so we’re definitely doing more rehab than necessary for the current market but we’d like to establish the place as one of the nicer complexes. Many of the nearby buildings are ugly and super beat up inside. We walked through with our contractor and we all agreed that no huge problems seem to need fixing. They disclosed that the furnaces are old and need replacing. We hope to be able to pay for that with capex reserves and cash flow as we start to accumulate some cash. Obviously if they break sooner we will have to come out of pocket. As far as rent goes, I used rentometer and called a few nearby complexes. Like I said before, we’re doing more than we probably should at this stage of the market but we’ll also be able to attract a better tenant. We’re still cheaper than 2/1 single family houses and many 1/1 sfh. We will definitely be one of the nicest complexes in the area after the rehab. Taylor Chiu Thanks for commenting! Three years is really more of a conservative thing than anything. It’s our first apartment so I’m just assuming things won’t go completely as planned. I know many banks require a seasoning period with proof of steady income. I figure if it takes 8 months to get fully up and running, another year for proof, and a few more months for something unforeseen, we would be into year 3.

Hey all!

Happy Monday.

My partner and I have been looking into apartments for a little while now, and we think we've finally come across a deal that works for us.

The complex is 8 units. Currently only one unit is rented out. Three units aren't in bad shape and can be rented out basically immediately with some very basic cosmetic work. We plan to rehab the remaining 5 units over the next 5 months.

Our plan is to rehab the units, get them rented out, and refinance out as much cash as possible as soon as possible. I'm planning for 3 years.

I've attached some PDFs below including our repair costs and analysis on returns. We feel like it's a good opportunity. Which leads me to the all important question, what am I missing? I'll bullet point some numbers below.

Purchase Price: 230k (cash only per the seller)

Rehab: 98k

Gross Rent After Rehab: 5600

Estimated Cash Flow After All Expenses: 12,278 annually

Estimated NOI After Rehab: 33,560 (including vacancy, all expenses)

Estimated ARV based on 10% cap rate in 3 years: 335,600

Post Rehab:

We'd refi and pull out roughly 268k (80% of our estimated 335k valuation), leaving us with about 60k in the property and a payment of $1,773 at 5% interest and 20 year term.

We realize the ARV isn't stellar in relation to what we'd have in it. I have a few reasons to believe it's still a good deal for us. First, most sold apartments in the area are closer to 9-9.5% cap rates. I'm just being conservative there. Second, we really like the area. It's currently probably a C area now, but it has all the makings for turning into the next popular little "main street" hang out spot. Lastly, the cash flow on this would be very good. I'm seeing over 20% cash on cash returns with all expenses included.

If we're even a little bit right about the area, and it went to say, an 8% cap rate, we'd be sitting pretty. If the market tanked, rent would have to drop 30-40% for us to start cash flowing negative. Assuming that didn't happen, we could easily hold the property until it rebounds.

Are we being blinded by the cash flow returns? Is the ARV too tight with the repair costs? What else?

It seems Tight to me as well. I definitely wouldn’t do the analysis as if all units are rented out. Based on your numbers there, you’ll be negative cash flowing for the entire time you’re living there. That’s definitely something to factor in. Also related to repairs and capex, I’d be more conservative if you’re already planning on fixing a lot of things. If it hasn’t been updated in a while, I’ll assume the more expensive mechanicals and roof haven’t been updated either. If a furnace goes out or your roof starts leaking, $150/month probably isn’t going to do it.

Aaron B. Lewis lol I hear ya man. Obviously every opportunity has its pros and cons but I think there’s definitely an opportunity for someone. We don’t have a lot of capital yet so we have to find more heavily discounted deals to pull out our initial investment. We have numerous 1-2% cash flow deals in non war zones (c-ish areas) even after repairs, but they don’t meet our equity requirement. Someone looking strictly for cash flow could certainly be interested, especially if you’re in a market where rent isn’t even half of a percent of purchase price.

Antoine Martel I guess I should’ve mentioned the location. We work in Michigan, primarily the Metro Detroit area. Ned Jackson I wouldn’t really say it’s a sales pitch. It’s more of a discussion if we’re able to work with each other. It’s not something we’ve done so I don’t have an exact plan. I’m just wondering if there’s a way we can utilize more of our leads and help someone else fill a void in their own market. I know there’s plenty of investors out there that love cash flow.

Hey all! Are there investors out there in higher priced markets who are interested in cash flow over a huge discount? Our company is looking to connect with investors looking for cash flowing properties (after very conservative repairs, expenses etc). We come across many deals that don’t fit our equity requirements but still cash flow between 1-2%. Let’s discuss!

@Bill Hinshaw

From close to close took us about 5 months. Much longer than anticipated. Several of our learning experiences contributed to that. 

We got held up by city inspections for a full month after the renovation was complete on tic tack write ups. We lost a full week because "the writing on our (brand new) electrical box was too sloppy."

It was mostly just us not having things lined up properly with contractors. We thought our GC would be a lot more "bull by the horns" with the rehab and he was not. He did good work but I would've thought he'd work much faster than he did. 

We could definitely scale it. We did very little work other than some initial demo and mostly cleaning type things. 

The biggest issue would definitely be dealing with that specific city. Their inspectors are a challenge but I also understand their just doing their jobs. Over time, I think we could build a relationship with them, learn what they're looking for, and show them we aren't doing garbage work on these houses.

Our marketing yields a ton of calls from this area. It's really just a matter of wanting to deal with the people and inspectors there.