All Forum Posts by: Wade Sikkink

Thanks for the input, everyone.  I'm guessing because of the substantial price difference and the allowed loop hole, we'll probably have to replace with R-22 units.

Thanks Eddie.  The question isn't so much around new vs. used, but rather the legality of R-22.

Any other thoughts?

We have a building with the AC units on the roof (14 of them).  We are working on an insurance claim related to a hail storm that damaged the roof and the AC units.

Our HVAC guy bid to replace the units with new R-410A units, which will require replacing the coils and lines also.  Price tag, about $35k

The insurance company's inspector put in his estimate to replace the damaged units with R-22 units.  Price tag, about $16k

I did a little looking and found that R-22 has been outlawed for new installations, however, there is this loop hole for "dry charge" units.  Everything online seems to recommend not replacing with R-22 units because parts availability and the availability of the refrigerant will only get worse.  The 20 grand difference in cost is what's driving the insurance company's position.

Anyone have experience with this question relative to an insurance claim?  The smart thing to do is replace with R-410A units.  Am I likely to get anywhere by pushing back on the insurance company based on R-22 being outlawed for new installations?

Thanks in advance for your collective wisdom.

@Derrick Jordan the price seems way too high. Even if you add all the renovations back into the NOI it's only about a 5.5 cap. The reality is that renovations and repairs will likely continue. If this is an older building that will continue to need ongoing maintainence, than a 10 cap would be more appropriate. Assuming an ongoing $20k in renovations and repairs, that would put the price at about $650k.

You're looking at about $65k NOI on this property, give or take, assuming the heavy lifting on renovations is done. For reference, I have a building that produces around $45k NOI, including the ongoing renovations and I paid $335k for it. To me, that's what a good deal looks like.

Without a significant concession on price, I wouldn't dig into this one any more.

Good luck!

@Michael Randle What do you consider a "reasonable deal"?  Message me, I might have something you're interested in.

That's a 14 cap. Seems pretty high. Even if you use the 50% rule to get to the NOI it's still a 12 cap. Does it have a ton of deferred maintenance? To me it seems too good to be true. I'd dig further on the expenses or the condition of the property.

We bought a 14 unit property 3 years ago and have put $20-25k per year into it in renovations.  We knew that going in based on the condition.  You just want to make sure you know what your getting into.

Good luck.

Looks for cracks in the brick, drywall, door frames that indicate uneven settling.  Check the roof.  If it hasn't been replaced in the last 10 years or so you will need to account for that.  Also closely inspect all HVAC equipment.  It may be old, dirty and worn out.  Replacing it can be expensive.  Does it have old aluminum windows.  If it does, that's fine, but you will need to find a place to fix or replace broken aluminum windows.  Replacement with vinyl windows can be difficult/expensive for a brick building.

Good luck.

The amount he has the building insured for is irrelevant. You need to know the rent amounts and the NOI of the property. The cash flow depends on financing amounts and rates. The NOI will tell you how the property performs as a business.

$900/mo cash flow on an 11 unit property seems very low unless it's 100% financed, and even then it seems low.  Based on what you've shared so far I would say this is not a good deal.

Well, 10 year rates in early 2007 were nearly 5%, so that doesn't strike me as artificially low.  Rates were on a steady march up from 2002 to 2007, so we were actually in a rising rate environment, not a falling or exceptionally low rate environment.

Agreed, and I would run your numbers assuming a 20 year amortization. Figure on 75% LTV or less, 5 year term with 20 year am and 3 points above the 10 year rate. If you can make it work with those numbers you should be good.