All Forum Posts by: Victor Barcik

hi. Did you ever find out the answer to your question? I had the same question but for New Jersey. 

You have to read the lease. Although its a nnn lease it may call for you to cover expenses Out of pocket and get reimbursed later by the tenant (ie taxes). Some nnn leases have goodies like giving the landlord an administrative fee on top of reimbursable expenses. 

Each lease is slightly different. Try to look for a credit tenant on a long term lease in a good location. 

Correct. It's normal to include reserves. The bank and appraiser will. One time capital expenses are excluded 

Cap rates are you value driver for appraisals of commercial real estate. You take the noi and divide it by the cap rate to derive the value. I know it feels backwards but a higher cap will get you a lower value and a lower cap rate will get you a higher value. Bankers and the bankers appraisers use this. Large office and some other Long term  leased as well as not stabilized properties are also typically valued using the discounted cash flow meathod, which I will not get into.  Smaller single tenanted commercial properties may also use the sales comparable approach. 

My experience - lending on multifamily, mixed use, office, industrial, retail, self storage and other  properties having $5million- $500 million values. 

By the way it's not a good price based on your numbers and will certainly get worse with the customary addition of the management fee and reserves. Your debt service coverage will go up with a 30 year anortization but banks typically require minimums of 1.15x or 1.20x for multifamily CRE deals.

As a banker having worked on commercial property - small (6 units) and large (550 units), you have to include a few things that the bank appraisal would include. The bank and appraiser would include a management fee that generally ranges from 3%-6% of effective gross income (income after vacancy) depending on your area. Since this a smaller property I would go with the higher end of that range. 

The bank and appraiser would also include a capital/replacement reserve in their valuation. Typically ranges between $150-$250/unit. Use  the higher side for your buying negotiations. For your financing side, you can make argument to the bank/appraiser for a lower number since a lot of major items (roof, water heater, furnace) have been replaced/overhauled.

You should also easily be able to get a 30 year amortization for a multifamily. Since you are a newbie in commercial real estate, I would suggest that you talk to a few banks early. The closing costs, including appraisals, legal, and bank  fees are much higher than residential loans. Also, commercial real estate loans take longer to close than resi loans. Just so you are better prepared and have a few lenders on standby. 

Best of luck!

 Matt, 

If I were to invest in Trenton multifamilies, what would be the better neighborhoods? 

Thank you, 

Victor

@mattfaicloth 

Matt, 

If I were to invest in Trenton multifamilies, what are the better neighborhoods? 

Thank you, 

Victor

Buy a 2 family house in Trenton, nj for $25k and rent it out. Do you want to give me $25k to make that a reality? 

In my state the lease is tied to the property and you buy the property subject to the leases in place.