.......BEST DARN COMMERCIAL REAL ESTATE QUESTION! Please reply......

General Real Estate Investing
1

Ok here is what I’ve got!
SELLER AGENTS ADD!!
100 Units:
Asking: $3,100,000; down: $400,000
1st of: $2,077,810 @ $185.064 / mnth
Seller willing to carry second.
Some differed maintenance.

MY PRELIM. ANNALYSIS!
Schedule Inc. $846,000
Effective Inc. $549,900
Expenses: $146,424
Net B 4 Debt: $403,476

With 100% CLTV, I calc. payments of $263k

Debt service coverage ratio: 1.533
Cap Rate: .13%
Margin: .51%
Pos Cashflow: $11K

I’m a novice…I think this looks good!

Questions:
You have been stripped of all your assets!

No income!
No Cash!
No Credit!
No Equity!

Just your knowledge, the internet, phone
& fax.

How do you seale this deal?

Should I use an attorney to make offer?

Is it too much to expect 10% off asking…
not including any credits?

2
You have been stripped of all your assets!

No income!
No Cash!
No Credit!
No Equity!

Just your knowledge, the internet, phone
& fax.

With no income, no cash, no credit, no equity, and no significant experience, you are not going to get this building unless the seller is extremely desperate and has the building paid off.

The big question is whether this is a good deal.

Here’s how I see this deal:

Gross rents: $70,500 per month
Operating Expenses: $35,250 per month
NOI: $35,250 per month

Mortgage Payment ($3,100,000, 30 yr, 7.5%) $21,675

Monthly Cash Flow: $10,575 or $105.75 per unit per month

This would be a very good deal based on a normal vacancy rate and no deferred maintenance. The problem is that in the numbers you provided, the vacancy appears to be about 35% and the expenses listed look very low. In addition, with deferred maintenance needed, you will not only need to acquire the apartment complex, but also the money to do the deferred maintenance. This is a deal that would be tricky for an experienced investor with good credit, money, and a significant income. For a newbie with none of these things, it would be financial suicide.

Good Luck,

Mike

3

Thanks! For taking the time property manager. I appreciate it.

4

TO: Property Manager. I agree the expenses do appear low. Your reverse analysis is very good. There is a 25% vacancy. The additional 10% factored in for professional management.
Thanks again!

5

Being a novice myself and unsure how to calculate all monthly operating expenses accurately, how are expenses of $35K for a 100 unit building low?

What expenses are included? RE taxes, insurance, trash, water, utilities for mgmt (assuming gas/elect are paid by tenants, which is common here in CA), maintanence (includes what?)… what else (10% mgmt fee was included in effective rental income)?

Thanks. I’ll include your list on my cashflow spreadsheet.

6

hoyle73,

Throughout the United States, operating expenses for residential rentals run 45% to 50% of the gross rents. These expenses include taxes, insurance, management, maintenance, advertising, legal fees, entity maintenance, office supplies, damage done by tenants in excess of the security deposit, lawsuits, evictions, utilities, etc, etc, etc

Good Luck,

Mike

7

I agree the expenses are low, in my area I was assume $35k just for taxes. Lanscaping and snow for a 100 unit building could add up too. How about yearly routine maintenance?

8

The deal above has gross rents at $70K and Op Ex at $35K. That is 50%. So, Op Expenses must be higher than 50% if two people here thought they were low.

9

As presented by the original poster, the operating expenses are 52%. However, that isn’t realistic, because the vacancy alone is shown as 35%, although the poster said that also included management. So, management and vacancy are taking up 35% of the gross rents. That only leaves 15% for taxes, insurance, maintenance, utilities, legal fees, damage done by tenants, office supplies, advertising, ALL THE DEFERRED MAINTENANCE, evictions, etc, etc, etc. You are correct, the real expenses would be WELL over 50% until this complex can be stabilized.

Mike

10

Just for reference I see the expenses extremely low.

Typically in my area, expenses are running anywhere from $3000-$4000 per unit per year on 100+ complexes.

This one is running $1464/unit/yr.

A novice investor wouldn’t be able to qualify for this loan. With out any experience rehabbing and/or stabilizing, it would be too risky for the lender. Your income/cash/credit situation wouldn’t allow you to get by the application process.