All Forum Posts by: Thomas Blaine

It looks like a great return to me!  I'm a newbie myself and still learning from BP, I have been running these analyses on properties in my area.  I am still trying to figure out the estimates and I have included much more than you did for legal expenses.  I figured to be conservative I would need to hire a lawyer once every two years for a potential eviction or just small claims stuff.  This is on a SF, of course I would hope it would never be that frequent and some I could possible handle myself but I want to be conservative with my estimates to ensure positive cash flow.  With 8 units is $500 per year enoug

@Thomas Blaine 

Looks all right but there are caveats:

1. All 1-bed units.  I hope you are in a submarket where that is a desired commodity. 

2. In Michigan I would go with 10% vacancy.

3. You could include a few other things into your top line number:

Loss to Lease - difference between market rent and where lease rents actually are represented as a percentage. 

Bad Debt - if you are going to have 8-10% vacancy, some of those are bound to be evictions, and if so you are bound to loose some money to bad debt.  You should definitely take that into account.

CapEx Reserve - all those furnaces and lighting and flooring will eventually need to be replaced. As such, you should be setting money aside. Besides, any bank will want you to.

4. Unless you have this lined up, I think that your variable Prop. Management of 6% is too low for 14 units.  Think 8-10.  And you'll still have to pay for lease-ups, evictions, etc.  So better count on 12%.  Perhaps you've got arrangements in place, but just in case...

Hope this helps.  Good luck!

Hey Tom,

I am a multi family investor also.  I looked over your deal and had some thoughts.

Your overall ROI looks good - you are over 10% in year 1 which is a good start.

1.  I didn't see a line item for capital expenditures - setting money aside each month for things like roof replacements, new furnaces, major renovations, etc...  AKA things you would claim as a capital expense on your taxes and write off over years versus a line item expense in one year.  I typically write in around $400 per unit per year for Cap Ex.

2.  Your maintenance seems like a good number.  Did you plan on having a superintendent in the building, and if so is that included?

3.  I didn't see a leasing commission, unless you are planning on doing that yourself.

4.  The taxes are really low, I am jealous as we are in New Jersey and pay around $4000 per unit here!!  :-)

5.  I think you can get a better interest rate than 5.5% on a 20 year fixed.  We just got 4.18% over 30 years on an 18 unit.  I normally go to small community banks as you can usually meet directly with the decision maker and they have more favorable and negotiable terms.

Those are my thoughts after a brief overview of your numbers, I hope that helps.  Good luck with the deal!!

Matt Faircloth

@Thomas Blaine 

 Looking over the numbers, it doesn't seem like that bad of a deal.  The concern I would have is the fact that they are all one bedrooms and not mixed.  Would 8% or 7% going forward be high enough vacancy rate for this area and unit type?

Related to the gas/electric, do you pay that for each unit or is that when vacant?  Is 6% for PM a know or is that an estimate?  In Grand Rapids, the going rate is 10%.

Randy