Making 4 offers this week

Please analyze my prospects:

8 units, 2 br/1bath, separate meters - GOI $45,600

12 units, 2br/1bath, separate meters - GOI $71,280

4 units, 2br/1bath, separate meters - GOI $19,440

21 units, mostly 2br/1bath, separate meters - GOI $129,696

All taxes are 1.1% of the sale price and I have been pre-approved for 80% LTV.

Thanks guys.

What kind of analysis do you want Brian? How much to pay? I would use the Hooch method of Rent X 30 minus repairs if it is a low income area and the 2% rule of Rent X 50 minus repairs if it’s middle class.

I would then run the cash flow analysis on each. You will need to know how long they (the bank) will allow you. 15yrs, 20yrs. Around here banks are giving 15yr commercial loans, not 20.

I make sure my purchase agreement allows for my due diligence and will change my offer if necessary during a thorough analysis of the property.

I just talked with my mortgage broker, and he said 20yr would work with a 20% down payment.

Class A, B, C or D apartments?

I just wanted to compare all your ways of calculating the price. They are all C/C+ properties. But that shouldnt matter when doing a cash flow analysis. The numbers are the numbers.

I’ll run the numbers on one, you do the rest at by adding the total purchase price to the total interest paid at the end of the amortization table and dividing it by the 20yrs down. When people figure this out typically they don’t consider money down as it is money you are supposed to be paying yourself back with interest as well. Good investments do not mean throw money at something to make it work unless you pay yourself back which gives you the money to do it again.

They are all C/C+ properties. But that shouldnt matter when doing a cash flow analysis. The numbers are the numbers.

It wouldn’t matter if you told me what the purchase price is. Since you didn’t I have to determine the purchase price which from what you are saying (C/C+) you should use the 2% rule and not the Hooch method.

8 units, 2 br/1bath, separate meters - GOI $45,600

With the 2% rule it’s value would be $45,600 divided by 12 months = $3,800 gross income per month X 50 (2% rule) = $190,000 minus repairs. I will assume there are NO repairs (which is rarely the case).

Cash Flow Analysis.
Gross Income: $3,800/mth = $45,600 annual
Expenses (50% rule of thumb) -22,800
NOI: $22,800
190k@7%/20yrs: -$17,676
Yearly Cash Flow $5,124
Or, $427 per month or $53 per door @8 units

This is a perfect example of why I told you not to go below the 2% rule! See the cash flow? Not enough for me. I won’t touch it unless it cash flows at least $100 per door per month and I will not extend a loan to 30 years to do it.

I have a program that does all the calculations, and different financing options, second mortgages too. And it also throws out a forecast and other things. But I wanted to compare it to your calculations. It came out with $190k also, when I added in 50% expenses and 10% vacancy and my mortgage info.

I made an offer of $190k last Friday and they told me to shove it. Ha ha ha. Some sucker will pick it up for too much and not last 6 months.

It isnt easy finding multi family properties in my price range. But I know the limit and I always expect them to laugh at my offers, which they do, and then I move on.

If they are not laughing at your offers you are not doing the right thing. Good Job! It looks like you are started out on the right foot.

You will likely find more multifamily houses that will work than small apartment buildings. It seems there is this national love that investors have for apartment complexes and they are willing to pay more to have one. Maybe it is some sort of prestige thing to say you own an apartment complex rather than say you own a big house that is split up into apartments. I have some friends that only do apartment complexes and I laugh at what they buy them for. That they are willing to spend their own personal money for the first 5 or 6 years just to keep the thing afloat while waiting for rents to rise some so they can break even. Crazy in my opinion.

To increase your odds for finding deals pay attention only to REO’s as far as the MLS goes. For the most part, everything on MLS is being sold at full retail value.

The deals are in preforeclosures, short sales, letters to vacant property, letters to frustrated landlords who just had to evict someone, letters to executors and executees in probate court, divorces, we buy houses signs and ads which pick up various situations, etc.

Find people problems and solve their problem in a creative manor. Think of it this way, you are not looking for property, you are looking for people that have problems that own a house.

I cant seem to get a hold of another deal like my last one. Apartment properties are nice because they hold more tenants than a house and a management company is easier to hire for a larger property.

Agreed. I too would have apartment complexes IF I could find deals but around here there are no good deals on them. All of my deals are on SFH and multifamily. Fortunately this town is loaded with multifamily houses so I don’t have to look that hard. Everything under one roof is definitely the way to go if the deals are there.

I have about 1 eviction every month or two. I like the newer tenants we are getting, but I need to find a new area for apartment properties or multi family houses.

Do you self manage your properties?

I manage most of them. I have some that I bought with agreements that the previous landlord manages the property with my input. It’s a nice little side deal you can work out to convince someone who is going under to give you their equity in trade for a job.

All low income for me so I get lots of drama.

Is there any profit to be made in non low income rentals?

Doesn’t seem like it.

In an area i’m looking at nearly new homes rent for about the same price as homes built in the 50s. The explanation : Section 8 . The newer home landlords are less likely to accept Section 8 .

Is there any profit to be made in non low income rentals?
Doesn’t seem like it.

To cash flow without you making it cash flow by dumping tons of money into it, middle class areas are about as high as you can go and still cash flow a little. Middle class “deals” are bought with the 2% rule and if your not taking loans out until the end of time you can cash flow $30-$50 bucks a door per month.

I’m involved in real estate to actually make myself money rather than the banks so I don’t take out loans longer than 15 years. Bought using my rent X 30-35 max formula minus repairs you can pay off a house in 5 years if you take NO cash flow. As Dave Ramsey says, “Live like no one else, so one day you can live like no one else.” Work your butt off, take little to nothing and down the road you will be rewarded greatly.

Keep your jobs too or do other things like wholesaling as well to pay the bills.