All Forum Posts by: Account Closed

Hi Matt! I've purchased several books/programs sold by "gurus".  I know a lot about buying multifamily RE, but haven't pushed through my fear quite yet (lost over $400k in the housing downturn). I'm getting closer since finding a way to identify rapidly appreciating markets.

One thing for sure, Matt, NEVER figure the current value of a property based on "pro-forma" (what it will do in the future). Work only with the ACTUAL numbers in current time.  The owner needs to give you two documents: P & L (profit and loss) for the past 12 months (the "trailing 12"), showing you all income coming in monthly, and all expenses per month. Will the owers be completely honest about the numbers? Not to worry. After you have a signed Purchase Agreement with the owner,  your "due diligence" period begins, and the owners will give you receipts to verify their numbers. It the numbers are different from those first given to you, you change your offer accordingly (in your favor, of course).   

Once you have the P & L statements, subtract annual expenses from annual income , that number is your NOI (Net Operating Income) . Don't yet figure in the cost of money, but do figure, monthly, about 10%, or more, of the income for "Reserves" (maintenance that will someday be necessary over and above the monthly costs).

Maybe you know the formula: NOI divided by the CAP Rate (check out Loop Net to see what the going cap rate per unit is in your area) = Value of the RE you're interested in.

Ask the owner (or owner's agent if there is one), what the "deferred maintenance" is, and the approximate cost of each item. Subtract that number from the "Value" number you just discovered.

That's the offer you make.

The second document you'd require from the seller upfront is the trailing 12 "RENT ROLL" which includes the move-in date for each tenant, as well as actual rent paid, and rent owed, if any.  That lets you see if there are long-term tenants,  if some tenants just moved in, if some are nearing the end of their lease, and if there are vacancies.   Your "expense" column should provide for a small percentage of vacancies, even if now its 100% occupied. If it's 60% or even 70% occupied, I suggest you pass, because it will be hard to get that many new renters right away, and you'll be short of income.

Quick rental turn-overs are expensive because you will need to "make (the apartments) ready" each time someone moves out. I also google the address of the property to see what current and past tenants are saying about their living experiences at the subject property.  If there are complaints, you can figure whether or not a better manager (you, or someone you hire) can correct the problems, and how quickly it can be done.

Once you have your offer number (start a little low, yet don't insult the owner), subtract your cost of money. Subtract your down payment 10% -20%), then,  find out what interest rate you can get on that property. Always ask if the owner would like to keep on receiving a check after the property is sold. If that sounds interesting to them, ask for seller financing on some, if not all, of the remaining cost of purchase. Negotiate the price. If the seller wants something more of you than you're offering,

ask for something (in equal or greater value) from the owner in return.

Matt, It was fun writing this. It'd make my day if you let me know this is helpful to you! I'm also open to working with you. If you'd like to explore the option, kindly call or email.

Best of good luck!

Judith Felker

I do a lot of real estate work - PM me. I think with the military income he will file and pay in whatever state he has his permanent ordera on his income. If I cant help I will help you find a CPA who can. Just as with CPAs not all enrolled agents are equal

@Account Closed In Cincinnati I know that Chuck Vonderhaar is a good CPA. I currently use him. He has something like 10 rental properties himself so he knows real estate tax. He also used to be the president of the Cincinnati chapter of REIA. Good luck!

@Account Closed , have you read Gary Keller's "The Millionaire Real Estate Investor" yet?

i had it as one of my first REI books yet didn't start reading it till last month. and shame on me for having read many of the others beforehand. he kills on the subject of offer terms and the way they can help to really sift out otherwise dangerous to terrible deals. highly highly recommended.

@Account Closed I have a great Tax guy in Memphis. He is also a real estate developer and owns several investment properties. I'll inbox you his contact info.

James Wachob