What numbers are you looking at? Is there room to increase rents? Is there opportunity to lower operating expenses etc ?
This is why it’s important to understand the market.
I am looking at pro formas so I undershoot the rents and over shoot the expenses.
I figure @80/unit and 50%expenses when I do my preliminary calculations. If I can get it down to 45% expenses, then my cashflow per unit can be moved to 100+/Unit, but there is no telling lawsuits vacancies etc. I would hate to have to bring a partner in for a larger downpayment. I still need to buy at a discount to get the 80/unit, then be a cheap bastard to get the expenses down.
Anthony,
If the numbers don’t work, then you need to accept that and move on to find a better deal. Unfortunately, you don’t have much control over the expenses and basing your calculations on lower expenses is nothing more than fooling yourself (sorry to be blunt). Yes, you could get lucky and the expenses would be a little lower, or you could be unlucky and the expenses would be higher. That’s a dangerous game to play. The same is true of putting down a bigger downpayment. That doesn’t improve the deal. All the big downpayment does is BUY the cash flow. The deal is still the same but the cash flow is forced with the downpayment. That downpayment is still costing you money. Your opportunity cost of the money is the lost interest you could be getting for it.
When you’re first starting, it is hard to be disciplined and wait for a great deal. However, if you want to be successful, that is exactly what you need to do. Make every deal a great deal and your business will prosper. Accept a marginal deal and the result can be quite different.
Good Luck,
Mike
Good point Mike,
new investors should take some time to study up on the cost of the capital they are obtaining and how that relates to the overall return on their deals. Adding leverage may improve your cashflow, but it may not improve your overall return.
when you’re starting out you want all these “sweetheart deals” to pencil out, but the fact is sometimes they just don’t work out, no matter how creative you get.
There are some pretty creative people and deals on these boards. For me, my first few deals were safe bets that i held for two years and made a couple of bucks on. Not much, but it was more than i started with and it allowed me to get more familiar with the paperwork and the pitfalls of the business. it also forced me to develop some templates which i’ve used on other deals.
Good luck,
Craig
Thanks for the advice. It is just frustrating because I want to move on a property NOW, but just finding that sweetheart 100/unit deal is taking FOREVER!!! :banghead
What if you are keeping these units even after they are paid for? Wouldn’t you take that into consideration on your buying price as when its paid for it will be all profit - expenses.
What if you are keeping these units even after they are paid for? Wouldn't you take that into consideration on your buying price as when its paid for it will be all profit - expenses.
NO!
Mike