First deal need opinions

General Real Estate Investing
1

Well first I have to say that this is the best and foremost place to get advice, meet other investors and cross reference.

I am very new but I have been analyzing properties for quite some time now, so I have an idea how to do it, but I know I don’t know enough. So that said here is what I found. The question is is this a good deal? I can’t afford to get it wrong.

Asking price 2.1 71 units

NOI 236,609 Actual

Expenses 88,927 Bank said was to low in per unit cost. Owners says they just reposition them during the past 3 years.

Owner giving a 5% second @ 7.5 3 years balloon.

Thats the first one.

Asking 1.4 46 Units

NOI 156,691 Actual

Expenses 54,029 Same story than the above same owners.

Owner giving 5% finance 7.5 % Balloon 3 years.

Thats is the second one.

Asking 1.5 16 Units Waterfront abandon

Needs 500K in repairs can be converted in condos and sold for more than 275K each.

I have those on my mind and going cracy with the numbers and don’t know if I should squeeze the trigger or not… NEED ADVISE URGENTLY…

Please great investors trow me some ligth to see if I have something bad or good?

Thanks.

2

[b]Asking price 2.1 71 units

NOI 236,609 Actual

Expenses 88,927 Bank said was to low in per unit cost. Owners says they just reposition them during the past 3 years.

Owner giving a 5% second @ 7.5 3 years balloon.
[/b]

OK, some things that obviously stand out. You are targeting high cap rates which from a numbers perspective seems like a good idea. However, there are distinct problems with using cap rates that are 10 or higher. You may end up buying in a bad area or in an area that is on the decline. Is this the case here? What are comparitable apartment buildings in the immediate area trading at?

How did you get the actual NOI? Did you verify the numbers? Expenses are way too low $1252/unit. Most metropolitan areas have expenses listed between $3,000 - $4000 per unit for apartment bldgs, so you can see what is wrong with this picture.

Let’s assume the best and expenses are at $3,000/unit. 213,000 total expenses. That’s a huge difference. $124,073 more than anticipated. This brings your NOI(if that’s even the correct figure) down to $112,536. You are now at about a 5 cap.

The owner/agent is painting a pretty picture but in reality this is a very ugly deal unless there is some type of value added component to this asset and the submarket is in an upswing.

[b]Asking 1.4 46 Units

NOI 156,691 Actual

Expenses 54,029 Same story than the above same owners.

Owner giving 5% finance 7.5 % Balloon 3 years.

Thats is the second one.
[/b]

Do the same thing here. Expenses are even lower per unit…ouch

[b]Asking 1.5 16 Units Waterfront abandon

Needs 500K in repairs can be converted in condos and sold for more than 275K each.

I have those on my mind and going cracy with the numbers and don’t know if I should squeeze the trigger or not… NEED ADVISE URGENTLY…
[/b]

Do you have any experience with this type of rehab? Or someone to take it to? If not, it could be way over your head.

3

Thank you for the info… I do have someone to talk but is difficult to get in touch with him.

I would love to have someone that I can work with him though.

This info that you gave me is great thanks.

NOI is what the broker has presented me.
I have not check their records yet but I am pulling out, they will not go lower than that on the price. The owner said books are open to review on due diligence time and they just reposition them during the past 3 years thats why low expenses at the moment.

Thank you for the great info.

4

No problem.

I’m still unclear why their reasoning for extremely low expenses is because of repositioning. Basically they have stabilized the apartment building so operations should be strong. There may be less turn over and maintenence but be a little realistic with the numbers.

5

Thats what my mortgage broker told me.

6

I’m no trump… but isn’t NOI 236,609 Actual with Expenses 88,927 mean gross revenue of 325536?

so your expense ratio is … 88927/325536 = 27%
that is way too low… is he renting out tents?

What are your terms + rates on the 1st loan?

7

Speedy,

Yes you are correct. Gross would be $325,536. Typically your EGI would be atleast 50%.

It’s clear that the numbers are being fudged and that the owner/agent is trying to capitalize.

8

Lighthouse,

It’s all for naught until you verify the data. it is often hard to verify numbers without making an offer on the property. Find a good broker to do the legwork for you until you get familiar with the process.

Get a visual inspection clause written into your contract that lets you walk if you don’t like the place.

Example:
I found an 8 unit recently through my broker that fit my investing parameters at face value. I made an offer through my broker and I met the seller on site and took a tour of the property.

When i asked about unit expenses, the seller stated that the units were sub-metered, so he passed along all expenses to the tenants. He claimed that other than taxes and insurance there were no expenses. Immediately thereafter, he showed me a vacant unit that had just been painted and new carpet laid. I asked him how much paint and carpet cost, he replied “$1,000.”

I said, so your expenses are at least $1,000 then? he looked puzzled?

I asked for expense records on the property. His broker sent me something handwritten, that could very well have been written on a napkin.

I asked for Tax returns, which they reluctantly sent me on the day i needed to move forward or walk. Tax returns claimed write offs for unit expenses of $6,000, some utilities, legal, accounting, and higher taxes than he claimed.

I sent them a nice note withdrawing my offer.

Sorry for the long e-mail, but don’t be afraid to ask for proof of what they’re selling you.

good luck,

Craig

9

$I’d offer 1.3 million.

I’d offer $874,000

I’d pass on a rehab being my first deal.

So guys how did I do?

10

Thank you for all your good input. I call them after the third post here. I can afford go wrong on my first deal.