I just did a search on loopnet for kicks. Searched for multi-family for the past 3 mths at 9-15 caps in my area. The only apartment complex that came up was listed at a 15 cap(proforma) but it needed a GUT RENOVATION!!!
Checked the rest of the country - most 9+ caps were proforma and in either need of a renovation/reposition or just not in very desireable areas
Let’s just agree to disagree here and move on… I will continue to evaluate cashflow by including my debt.
Iron Range I’m trying to understand the formula you are using to evaluate property can you post it in matmatical terms so I can test it? From your posts I’m not too sure how you are calculating your profit/loss.
This is a simple way I like to evaluate a property. Actual numbers are needed.
Property is a duplex selling for $100,000
Total Rent is $1,500 a month(18,000yr)
1,500 gross monthly rent
750 Net Income (usually around 50% of gross rent)
Mortgage on a 100,000 (purchase price) is $775
$25 a month negative.
A mortgage pmt of $75,000 would be around $550. This would put the cash flow at around $100 a month per unit. PERFECT!!! Unless there are repairs, $75,000 is max I would pay for this property.
Other facts are also critical in the decision making process. Things like utilities seperated or not seperated, condition of the building, area, etc.
Maybe your evaluations on duplexes is acceptable and that’s a big maybe. I wouldn’t recommend. However, we are talking about apartment buildings(Commercial) I suggest investors to take every factor into consideration.
Location
Desirability
Square Feet
Cost per unit
Cost per Sq Ft
Price (incl costs)
Down Payment
Closing costs
Loan Amount
Gross Sched Inc.
Vac/loss2lease/conc
% Vacant
Expense/sq ft
Expense/unit
Expenses @
Capital Expenses
Net Operating Inc.
Inc After Capital
Dbt Srvc
Net Income ADS
GRM
Cap Rate NOI/AP
Cash on Cash
Depreciation
Tax Savings
Appreciation yr
Percent appreciation
Debt Reduction yr
Total Return
Total % return
LIGHTBEING,
This will be the last post I respond to you. But here is some friendly advice. There are HUGE expenses and risks involved in commercial apartments and even residential property. If you are unable to find great deals, then you should not be buying. If you are unable to find deals that would cash flow at 100% financing, then you need to learn how to find better deals. Not only should a property be able to cash flow at 100% financing, but it should also be able to pay $50-100 a unit profit per month.
Commercial is more difficult to find deals, and is why most of us focus on smaller properties that are better deals. Focus on quality not quantity. You have demonstrated a clear lack of knowledge on how IMPORTANT buying only great deals really is.
It does NOT matter if there are not any good deals out there, what matters is that IF you buy, you don’t over pay. Buy or don’t buy, just don’t over pay.
There are HUGE expenses and risks involved in commercial apartments and even residential property. If you are unable to find great deals, then you should not be buying.
I agree
If you are unable to find deals that would cash flow at 100% financing, then you need to learn how to find better deals.
It’s not that I can’t find deals that cashflow with 100% financing, it’s that I choose to evaluate potential properties with true values. If I’m leverage 80%, why in the world would I do a cashflow analysis using 100% ??
Not only should a property be able to cash flow at 100% financing, but it should also be able to pay $50-100 a unit profit per month.
I agree, I usually target 100+ per unit.
Commercial is more difficult to find deals, and is why most of us focus on smaller properties that are better deals. Focus on quality not quantity.
OK, but this thread is specifically regarding commercial apartments.
You have demonstrated a clear lack of knowledge on how IMPORTANT buying only great deals really is.
You come to this conclusion because I include my debt service in my cashflow analysis? That’s rediculous.
It does NOT matter if there are not any good deals out there, what matters is that IF you buy, you don’t over pay. Buy or don’t buy, just don’t over pay.
I agree, never overpay for anything for that matter.
Some of your posts in this and other topics seemed to be saying that you can not cash flow a place if you get 100% financing. But I’m glad to read that you agree that 100% + $100 per unit/month is what is needed for a deal. That is the important part. The only difference between your way and my way is that you take out the down pmt in order to know what your return on invest is. You want to know how much your making on the down pmt, and then use that to assess a property. That’s fine, I don’t have problem with that, just as long as you agree 100% + $100 per unit/month is not only doable, but required.
Your max purchase price should be very close to my max purchase price anyways. The end results will be very close.