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Author Topic: ___First Apartment Lead IS THIS A DEAL?? Please help!  (Read 3514 times)

Offline ckagahastian

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___First Apartment Lead IS THIS A DEAL?? Please help!
« on: March 26, 2009, 04:59:51 pm »
hey everyone,

so i went to go see a property in jersey city, NJ on sat. It was my first walk through with a property. It was an amazing experience for me. But I wanted to run the numbers with some of you guys because I might be too close to the property. I need an objective view Grin

Income and Expense Statement 2008
Total from rents $45,118.40
Prior to Sept '08

Unit 1: $910.84
Unit 2: $576.52
Unit 3: $600.56
Unit 4: $837.16
Unit 5: $806.52

Starting in Sept '08

Unit 1: $937.25
Unit 2: $593.23
Unit 3: $617.97
Unit 4: $861.43
Unit 5: $806.52
Expenses: Mortgage=$3,261.52
Homeowners Insurance: $4,200.00
Electric Bill: $267.08
Water and Swear Bill: $2,456.00
Heating Oil: Oil City: $2,185.20

Its a 5 unit building coded as an apartment.

This the numbers he sent me. And from what I've been researching the rent average for the area $900-1200.

The owner said he owes $330,000. He said he wants his initial investment of $113,000 back. He bought it in 12/7/2006 and I dont think he put in 113,000 given the amount he's had the prop and how much he still owes. he could have just been inflating his initial investment because he knows we'll shoot low. We are getting his mortgage statement sent to us. Motivation: He lost his job.

He had it appraised in dec of 08 for $550,000. Caps in downtown jersey city are 4-6% because of the big condo conversion boom there. This prop is at 5.9% cap rate with the current NOI and appraised price.

I have 2 buyers lined up who are coming in all cash. That means it'd cashflow well above the $100/unit/month rule. What do you think I should offer and what should I sell to buyers for? I was thinking offering $360,000 in hopes of negotiating at somewhere around $380,000 and assigning to buyers at $400-425,000. Thanks in advance for any info.

Charles

Offline Gold River

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Re: ___First Apartment Lead IS THIS A DEAL?? Please help!
« Reply #1 on: March 27, 2009, 12:51:34 am »
Hi Charles,

First thing that makes me uneasy is the rental amounts with change on the end ($0.84) this is highly unusual as investor generally round numbers either up or down to an even dollar, to make accounting easier.

Income:

Gross Rents:           $45,796.80
Vacancy Factor:       ?  Even a 5% vacancy factor removes $2250 off income!

Expenses:  All per annual Year!

Mortgage:               $39,138.24
Insurance:              $4,200.00
Electric Bill:              $267.08   
Water & Sewer:      $2,456.00
Heating Oil:             $2,185.00

Sub Total:               $48,246.00

Property Tax:           ?       If I had to guess $5k a year anyway!
Management Fee:    ?      Normally 5 to 10% of gross income!
Leasing Fee:            ?      Balloons, Bandit Signs, etc. $100
Basic Maintence       ?      Plugged Toilets, Stove or Frig, Heating & Cooling!
                                        (Probable at least $1,000 per year)
Major Rehab items:  ?     Structure, roof, parking lot, landscape, paint, etc.
                                        (Probable at least $2,500 per year)
Snow Removal:        ?      Probable at least $500 per year.
Landscape Main:      ?      Probable at least $700 per year.
Pest Control:           ?       Probable at least $400 per year.
Trash Removal:        ?      Probable at least $500 per year.
Window washing:    ?      Probable at least $200 per year.
Janitorial:                         (Halls & Common area's at $200 year)
Fire Alarm Main:       ?      Unit smoke alarms and common area's.
                                        (Probable at least $60 per year)
Advertising:             ?       Probable at least $200 per year.
Legal Fees:             ?       Probable at least $300 per year.
City license:            ?       Probable at least $150 per year.

This should give you a little to think about!

This is not a deal Charles!

Maybe if someone bought this, was going to live in one unit and manage and maintain the property and worked full or part time might be able to make it work, and that's subject to coming up with factual numbers!!!




Offline WeSellHomes2Fix

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Re: ___First Apartment Lead IS THIS A DEAL?? Please help!
« Reply #2 on: March 28, 2009, 08:39:35 am »
We look to be between 30-40k/unit (closer to 30k) all in, with rents like that.  So we'd probably start our offers around 150k.  360k seems high to me, but I dont know your area or what the buildings potential is.
WeSellHomes2Fix.com - Ask about our monthly wholesale academy class in Philadelphia
Blog - http://phillyrei.blogspot.com/

Offline ckagahastian

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Re: ___First Apartment Lead IS THIS A DEAL?? Please help!
« Reply #3 on: March 29, 2009, 05:08:17 am »
i feel like there is extreme upside in the rents. Rents could be raised to about a $1000 per unit with some improvements and it'd still be below the market rents in the area. I feel like an experienced investor would be able to bring this property to its full potential. The guy who owns it doesn't know what he's doing really.

There's big development in downtown jersey city. This area is not as nice as downtown however.

If I was looking at this as if i was gonna keep it i would project out 2-5 years and within 2 years i could raise rents right below market and make this prop. run smoother and bring in more money.

say i brought rents to 1250 per unit. where market is around 1400. I'd increase scheduled income to 75000 and if the rule of thumb half of that goes to expenses i'm left with 37500. The cap rates are currently between 4-6% because of the huge condo boom in downtown jersey city. If i sold at 6% cap rate with a 37500 NOI i'd sell for $625000? Am i wrong in assuming this?? Am i not being realistic at all?

 Thus creating value with the prop and selling anywhere from 2-5 years couldn't i get it off for 700,000.

Offline Gold River

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Re: ___First Apartment Lead IS THIS A DEAL?? Please help!
« Reply #4 on: March 30, 2009, 01:47:05 am »
Hi Charles,

                This is the reality, in order for anyone to get a loan against this property an underwriter will take the current rent rolls and figure a total monthly / yearly gross revenue, minus a vacancy factor!!

Then this underwriter will take and figure out expenses, he is not going to use your little 4 item list, he is going to use my 20 item list or someone else's 25 or 30 item list.

They are going to figure out the worst case scenerio for the property to protect themselves, then they may offer financing for a certain amount and new buyer has to come in with $XXX,XXX in cash.

If I had to guess your seller bought this property for roughly $450k, with an original $360k FTD if he owes $330k and wants his $113k out, this is a total of $443k.

If I owned this property and was temporarily out of work, and I have a $550k appraisal, I could go to a commercial "Private Money" lender and get $55k to $82k in cash as a second.

Now, this property owner is probable getting a sizeable tax write off from this property, so he is going to laugh when you tell him you will give him $360k to $380k, this is not going to make this guy happy with you!!

He told you he wants the $330k he owes on his loan plus $113k he has in the property for down payment, closing costs and points.

Your seller is taking a loss offering this considering it will cost him roughly $6600 just to close and sell to you, which means he will have lost $15k roughly over 2.5 years and walked away from $107k in equity.

You keep throwing out scenerio's? You have raised the rents higher than your original posting? Is there some importance to buying this property regardless of the outcome?

I reconstructed your income and expense based on $1400 per unit / month.
It is not a pretty picture, I would not touch it!!!
I also think your heating oil bill is considerable low in comparison to other 5 & 6 unit property Pro-Forma's

Rental Income:                      $84,000 per year.
Vacancy Factor:                     $4,200   5% year.

Adjusted Gross:                     $79,800 year.

Expenses:
Insurance:                             $5343   Estimated for $700k
Electric:                                 $300
Water & Sewer:                    $2,456
Heating Oil:                           $2,185
Property Tax:                        $9,600
Management:                       $6,300  @ 7.5%
Leasing Cost's:                    $100
Basic Maintence:                  $1200
Major Maintence:                 $3,000
Snow Removal:                    $500
Lawn Maintence:                 $700
Pest Control:                       $500
Trash Removal:                   $600
Window Washing:               $200
Janitorial:                            $250
Fire / Life / Safety:              $200
Advertising:                        $200
Legal Fee's:                        $300
City License:                       $150

Expenses:                          $34,084

NOI:                                    $45,716

Property Value:                                              $700,000
First Trust Deed:                $46,227               $525,000 @8.0%
Cash Down Pmpt:                                          $175,000

Cash on Cash Return:       $00.00

Property Negative:            $511
Estimated C on C:             $14,000                $175k @ 8.0% per year.

Upside Down at:               $14,511                $1,209 per month negative.
 

You might try opening your eye's though, there are actually some properties I would consider a potentual deal, subject to due diligence!! Caveat Emptor!


6 Units / 2 Bdrm - 1 Bth.                                                     $399,900
164 Deleware Ave. Jersey City, NJ 07306
Price / Unit: $66,650
Cap Rate: 12.0
Gross Income: $82,220
NOI: $59,224
Diane Rivera - Broker Associate: 201-333-4443 x268


6 Units / 2 Bdrm - 1 Bth                                                      $329,900
240 Bergen Ave. Jersey City, NJ 07306
Price / Unit: $54,983
Cap Rate: 7.46
Gross Income: $41,616
NOI: $24,619
Claire Dimeola - River Street Realty: 201-615-9494


6 Units / 3 Bdrm - 1 Bth                                                     $499,000
270 Virginia Ave. Jersey City, NJ 07304
Price / Unit: $83,167
Cap Rate: 8.0
Gross Income: $60,000
NOI: $42,000
Pranay Gupta -                               : 212-361-9680


6 Units / 2 Bdrm - 1 Bth                                                    $360,000
177 Van Nostrand Ave. Jersey City, NJ 07305
Price / Unit: $60,000
Cap Rate: 7.75
Gross Income: $
NOI: $27,900
Michael Cervelli - Michael Cervelli Real Estate: 201-868-6300


6 Units / 2 Bdrm - 1 Bth                                                    $495,000
244 Princeton Ave. Jersey City, NJ 07305
Price / Unit: $82,500
Cap Rate: 8.9
Gross Income: $57,600
Noi: $44,123
Marybel Calayan - Coldwell Banker Commercial: 201-436-6225








Offline ckagahastian

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Re: ___First Apartment Lead IS THIS A DEAL?? Please help!
« Reply #5 on: April 03, 2009, 03:37:58 am »
Gold River,

Thank you so much for opening my eyes a little bit  :shocked :shocked it's good to have someone who is outside of the situation to take a look at whats going on. I really am anxious to get my first deal underway because I feel that has been my biggest obstacle. Once I get my feet wet, I know I'll learn so much faster.

I am starting out in wholesaling. I've heard that properties that are listed under an agent should be avoided when wholesaling. Is that the case with buildings?

The properties you've listed look like winners. Obviously, due diligence would need to be done. But if my exit is wholesaling, would a listed property eat at my profits (between agents' fees, lawyers, etc.)?

 




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